Blockchain and cryptocurrency have always been associated with the concept of decentralization. However, when it comes to the cryptocurrency exchanges, the concept of decentralization needs to take a backseat. Peer-to-peer cryptocurrency exchanges, commonly abbreviated as P2P crypto exchange, present themselves as perfect solutions to this challenge. Let us learn about these P2P crypto exchanges and the benefits that they bring.
The Classic Crypto Exchange
Usually, when it comes to cryptocurrency exchanges, there is always an intermediary involved in executing the trade and transactions.
Users who wished to exchange cryptocurrency would post an order with details such as the quantity and unit price. These details would be added to a shared ledger called the order book. On the other side, users who would like to buy those listed coins would select an order that matched their commercial requirements. The trading process begins only after the buyer and seller requirements match.
This brings about a few disadvantages. Some of the most prominent ones are the disclosure of identity, excessive consumption of time, the possibility of fraud, and of course, the cost involved.
The most significant disadvantage brought about by the centralized exchanges lies in the very name! In essence, the core philosophy of blockchain being decentralized was compromised by the way in which these exchanges functioned.
P2P crypto exchanges were created to counter all these challenges and provide an efficient and effective way to carry out an exchange of crypto coins.
A Brief History
P2P exchanges made their first flicker in 2014 as a reflection of the rising prominence of cryptocurrency-related scams. Many countries, including some of the largest economies, were averse to recognizing cryptocurrency as a valid form of transaction.
In an endeavor to increase the magnitude of trust in cryptocurrency, P2P exchanges came into existence. As the name implies, it involves two companies or entities directly exchanging cryptocurrency without the need for and involvement of intermediaries.
The Novel P2P Exchange
Unlike the classic exchanges, the P2P exchanges enabled the instant settlement, drastically bringing down the time taken for the exchange process. The physical currency, however, is kept within the exchange until the complete process is executed. In essence, the transfer of ownership rights is instant.
The trading software takes care to analyze the order and connects the buyer and seller. The users can directly get into a negotiation with each other without involving an intermediary, making the entire process simple and effective.
However, in the interest of security, the transactions can sometimes involve third-parties, designated as ‘arbitrators’. These arbitrators are volunteers whose interest is bent towards upkeeping the reputation of the exchange. This indirectly means that there is no cost associated with these intermediaries as it would be in a classical exchange!
If we have to give a quirky summation to this contrast, a classic exchange can be considered an arranged marriage, but the P2P exchange is like finding your date on Tinder!
How P2P Cryptocurrency Exchange works?
The Benefits They Bring
No innovation can continue to thrive without bringing in significant advantages, and the P2P exchange surely fits into this ask!
Security – The blockchain world believes that openness is the key to digital security. In a P2P exchange, all the transactions happen on the public ledger. Therefore, the authenticity of the exchanging parties does not have to be put into a territory of doubt. Also, the KYC/AML details remain in perfect synchronization to the blockchain database. Therefore, the possibilities of identity theft and identity fraud are almost eliminated.
Anonymity – All the information about the transaction and the user remains distributed all across the network, and its uses and embedded encryption mechanism. Therefore, it is quite not possible for anyone to trace the information unless they have the essential credentials to do so.
Cost-effectiveness – The cost of a transaction is directly proportional to the number of intermediaries involved in effecting it. If we have to take this equation into consideration, using a P2P exchange almost costs nothing! This makes it quite an economical option for cryptocurrency exchange. As a fringe benefit, the P2P crypto exchange software also increases privacy by directly connecting buyers and sellers.
Global reach – Every device with a secure and active internet connection and a valid user is a potential instrument for transacting on the terrace exchange. The exchange is fast and efficient, and it can facilitate transactions even in countries that do not allow the use of cryptocurrency. It is one of the biggest reasons that contribute to the growth of P2P cryptocurrency exchanges.
It is quite evident that P2P cryptocurrency exchanges will be the order of the future. Big global economic powers are slowly embracing the utility of blockchain and are accepting cryptocurrency with every passing day. Given this progress, a P2P cryptocurrency exchange may be one of the mainstream exchange mechanisms in the future.
If you would like to capitalize on this wave of P2P cryptocurrency exchanges, you could consider creating one. However, this process would be extremely time and resource consuming. As an alternative, you could consider purchasing the white label P2P cryptocurrency exchange. These cryptocurrency exchanges are easy to customize, but at the same time, do not compromise on the basic functionalities of everything that an exchange is expected to provide!