Bitcoin was designed to manifest complete decentralization of money. However, as the crypto space evolved, a number of centralized crypto exchanges mushroomed. While these exchanges make crypto assets easily accessible, these also work as a single point of failure. Apart from this, these cryptocurrency exchanges are run by centralized organizations that act as an intermediary. Thus, even when the assets being traded are decentralized in nature, the instrument used to trade them is centralized. This defeats the entire purpose of the concept.
This is where peer-to-peer (P2P) exchanges come into the picture. A P2P exchange provides crypto traders with a marketplace where they can directly connect without the intervention of any trusted third party.
Peer-to-Peer exchange With bybit is a decentralized form of exchanging crypto tokens that allow buyers and sellers to negotiate the token price before it is transferred. According to CoinMarketCap, there are currently over 9,000 cryptocurrencies in existence, with a total market capitalization of over 2 trillion dollars. Investors from all over the world are eager to trade in this rapidly expanding market. As a result, a slew of blockchain exchanges has sprung.
A peer-to-peer exchange platform, in particular, is known for its decentralized network, transparent, and highly secure transaction mechanism. If you’d like to know more about crypto exchanges you can refer this article, How to launch a cryptocurrency exchange using white label solutions
In this article, we will be discussing the various aspects of a peer-to-peer exchange and how it could help your organization.
What is a Peer-to-Peer (P2P) exchange?
Peer-to-peer (P2P) or ‘decentralized’ exchanges is a software-based platform that allows crypto-market participants to trade directly with one another by eliminating any third-party involvement. It has made the transactions most accessible by eliminating the risk associated with middlemen as it has elevated the levels of security and worth mentioning the speed of digital transactions.
How does a Peer-to-Peer (P2P) exchange work?
A p2p exchange allows verified buyers and sellers to conduct hassle-free asset trading. To connect buyers with preferred sellers, top-of-the-line match engines are used. To balance trading needs, a buyer or seller may have additional features that he or she expects from the peer. Some people equate a P2P exchange to marketplaces such as Craigslist or Facebook Marketplace since P2P exchanges connect crypto buyers and sellers. This platform involves two parties that have related data with each other. Rather than using an order book to pair buy and sell orders and controlling the platform’s assets, the P2P cryptocurrency exchange model allows market participants to transact directly with one another without the need for a middleman to process transactions or retain funds.
Take the following example to understand the concept better
Assume John puts a purchase order for 3 BTC. Henry, on the other hand, puts a sales order for 3 BTC. John and Henry are matched by a peer-to-peer exchange platform, which allows them to make a contract without the intervention of a third party. The smart contract-driven escrow keeps 3 BTC of Henry until they agree on the terms of trade. John transfers the necessary funds to Henry’s account. Escrow releases 3 BTC and sends them to John’s wallet address as soon as Henry accepts the payment.