Let's get into the concepts of P2P exchange without any chit-chats!
P2P exchange is the technology of sharing information, assets, or values between peers directly without any need for intermediaries. The information exchange between peers is performed by pre-programmed software, and hence there is no need for mediators to interfere.
In the P2P network, every peer contributes to the network and are addressed as nodes. In this decentralized network, the nodes contribute to disk space, bandwidth, computational power, and much more by avoiding the central servers or governance. Now, let's converge to P2P cryptocurrency exchange platforms, their working model, benefits, and drawbacks!
P2P crypto exchanges & it's working model- A brief!
To understand the P2P crypto exchange working model, we can compare the regular exchanges with P2P.
In regular, centralized cryptocurrency exchange platforms, the sellers post their price quotes and the number of cryptocurrencies they wish to sell. These quotes are referred to as "orders." Buyers can browse for the matching orders in the exchange platforms or place their own orders in the ledger. The matching engine in the exchange platform performs trade automatically by matching the order price and crypto coins. In centralized exchanges, the trades are performed automatically by the platforms without the consent of trading peers.
Contrary to the centralized exchanges, the P2P exchanges trading engine connects the buyers and sellers directly to perform trade. P2P crypto exchanges' match engine is built to exchange the contact information of trading peers with similar interests. These exchanges make money by rendering escrow services to their trading peers. In case of disputes in trade, the arbitrators dive in to resolve the chaos. The transaction costs are very low in P2P crypto exchanges than in centralized ones.
Let's look into the benefits of P2P crypto exchange platforms!
- Benefits of P2P crypto exchange platforms- A quick shot!
- Decentralized & devoid of single-point failure systems.
- Secure and has no censorship on transactions.
- Resistant to government intervention
- Low transaction costs.
- Security of assets through escrow services.
Now, let's wrap up with the drawbacks of P2P crypto exchanges!
Wrapping up with drawbacks!
- P2P cryptocurrency exchanges are the revolution for crypto space. However, there are some drawbacks in P2P exchanges when implemented in real-time.
- P2P exchanges record transactions on the blockchain ledger, which requires regular updation after every transaction. This feature reduces the efficiency of the platform due to the huge volume of data.
- A decentralized, open-source network allows groups of network nodes to modify the main chain's transactions or data. Hard forks are common, but if the security features are not adopted properly, it may turn into a potential threat for the platform.
- In P2P exchanges, the processing time is higher as the seller has to confirm the buyer's payment through escrow services in the P2P exchange platform.
- P2P exchanges become difficult to govern in case of copyrights or infringements.
