by Jake Wengroff
“Regular” Bitcoin and cryptocurrency exchanges use an order book to match, buy and sell orders between people. However, this activity is anonymous and private, as neither the buyer nor the seller has any idea who the other party is.
This is similar to the way stocks, bonds and other asset classes are traded on exchanges — identity is anonymized, and a central book is maintained, recording ownership.
What Is P2P Crypto Exchange?
There is another type of exchange, known as a peer-to-peer (P2P) or “decentralized’ exchange, which is operated and maintained exclusively by software. Without an intermediary matching orders, P2P exchanges allow market participants to trade directly with one other without any trusted third party to process all trades.
Regular cryptocurrency exchanges make a profit by collecting transaction fees. The customer pays a fee for the exchange to find a buyer or a seller, and to provide a level of protection in the event of fraud (though these protections aren’t as robust as those on exchanges for traditional asset classes).
Conversely, the interactions between counterparties on P2P exchanges are directed exclusively by pre-programmed software, with no requirement for human middlemen, notes Coin Telegraph. In this scenario, a participant in a P2P transaction will have access to the data or entity they are interacting with, such as a Bitcoin wallet address, forum/community site username, location or IP address, and some P2P exchanges even provide the ability to conduct a face-to-face meeting.
Advantages of P2P Crypto Exchanges
For those who wish to conduct an in-person meeting, a P2P exchange acts as a facilitator. For example, say an investor wishes to buy Bitcoin from someone who lives in the same city as they reside. Rather than hoping to stumble across that person on a traditional exchange — chances of that are slim to none — that person can initiate a peer-to-peer transfer with that individual.
There are several Bitcoin platforms in existence that allow an investor to register an account in order to find other Bitcoin investors in their local area. Some of the more popular platforms include Gemini.com for the U.S. market, whereas Bitstamp.net and Kraken.com offer facilities for customers in international markets subject to their individual policies and restrictions.
Indeed, even without meeting face-to-face to conduct a transaction, Bitcoin was created with the goal of enabling anonymous P2P transactions that don’t require processing or intervention by a traditional financial institution. Bitcoin trading requires the use of encryption and blockchain technologies to enable two parties to safely conduct a transaction without the need for a trusted third party.
In fact, the blockchain can confer what P2P advocates consider to be a notable security advantage. According to Investopedia, with transactions recorded on every peer’s network, it is extremely difficult — even “computationally impractical” — to overwrite or falsify ledgers in a cryptocurrency exchange.
Keeping Crypto Assets Safe Across Platforms and Use Cases
As Bitcoin and other crypto assets move through various platforms, whether company-owned exchanges or P2P networks, investors need solutions to help them protect their assets. To strengthen the infrastructure of burgeoning cryptocurrency markets, TransitNet is creating the industry’s first third-party title registry. Such a ledger demonstrates proof of ownership of crypto assets, adding a layer of protection for investors in digital currencies, NFTs and other crypto assets.
Join the forefront of the new crypto infrastructure. Request an exclusive registration for TransitNet’s title registry when it launches.
Jake Wengroff writes about technology and financial services. A former technology reporter for CBS Radio, Jake covers such topics as security, mobility, e-commerce and the Internet of Things.
Investopedia – Peer-to-Peer (Virtual Currency)
Coin Telegraph – P2P Cryptocurrency Exchanges, Explained