What is P2P trading?
In a peer-to-peer (P2P) trade network, there is no room for a third party to facilitate transactions. In this type of trading, all investors on the network can trade directly with each other without any intermediary.
If you look at most Bitcoin exchanges, they come with a set of tight regulations. To carry out trades, all the investors who wish to access the platform must undergo a verification process before they get started. However, such stringency does not exist with P2P trading platforms.
Since P2P trading is all about direct crypto trading, you have the liberty to pick the offer of your choice and exchange it with another party instead of counting on a bot or a digital mediator to carry out the transaction. This gives you increased control over your trading decisions as you choose the payment method which suits you best along with the best possible rate. You also can be at peace about your privacy as all transactions are done directly with the buying/selling party.
How does it work?
The key role of P2P platforms is to align buyers and sellers so that they can conduct trades. Chances are that these platforms charge you a minimal fee for every trade that you carry out. They could even ask you to keep your funds in a digital wallet that is under the platform’s control. Often, P2P platforms are equated to marketplaces as these exchanges connect buyers and sellers. In some cases, buyers, as well as sellers, could choose to scan through promotional crypto content or even create advertisements of their own.
Crypto trading on P2P platforms is secure and reliable as most of them offer a feedback system. These ratings allow users to gain some insight into their peers’ trading behaviour and thus, they know who they’re dealing with. If you come across someone on a social media platform with whom you want to engage in crypto trading, the exchange would not be secure. But on a P2P exchange, you can be sure of the buyer/seller’s intent by taking a quick look at their rating and reputation.
Let’s look at the types of P2P network
There are many different types of P2P networks and not all of them are part of the crypto trading world. Outside this domain, there are several P2P platforms that operate on a daily basis. Before we explore them, let’s first understand how they work.
If you have ever exchanged a video or audio with someone through a torrent website, you’ve already experienced a P2P network! Networks that support file sharing are among the most widely used and the most popular P2P platforms that exist today. You can share e-books, songs, and films through a torrent site and though this may be misused by sharing copyrighted content, P2P networks have many perfectly legal uses.
You no longer have to speak to a telephone company before connecting with a loved one or a colleague over the phone. This is because of P2P telephony networks that allow you to directly contact someone through your personal devices.
P2P technology is extensively used by video/audio streaming services. That’s the reason why popular streaming sites or online music sites deliver their content to our personal devices.
Pros and cons
P2P technology in crypto trading has both pros and cons. Let’s look at the advantages first:
Various modes of payment
Buyers and sellers can reach out and trade with one another without any hassle on a P2P platform. Hence, the mode of payment also has no limitations as long as the two parties involved are aligned. You could be paying through fiat currencies or via various cryptocurrencies such as Bitcoin, Ethereum (ETH), or Litecoin (LTC).
P2P exchanges are big on safety. Investors on their platform can rest assured that their funds are not under any threat and conduct trades without any worries. This is because trades are mostly protected via security options like encryption or two-factor authentication.
Global access and exposure
P2P crypto trading is not limited by borders and the paperwork or formalities that international exchanges tend to come with. P2P platforms are global and give you the liberty to trade the cryptocurrencies or assets of your choice.
Inclusivity and support
Amateurs and seasoned players can gain from P2P crypto trading alike as these platforms are community-driven. The members often get into a discussion about the trends and the latest information in the industry. Getting good trading advice through these platforms and learning what the movements are like in other cryptos, can help you improve your trading calls.
You can exercise greater control over your trades on a P2P trading platform. Your buying or selling price and even the total amount you might like to trade can be customized. This feature is unique to P2P platforms and cannot be experienced through traditional exchanges that take the onus to manage the order book directly.
Now that we’ve talked about the good things, time to skip to the bad part. Here are some potential downsides of P2P trading platforms.
Centralized crypto exchanges see a greater volume of trades every day and hence have greater liquidity. While in P2P crypto trading platforms, you would have to wait to carry out the transaction, until there is an appropriate buyer/seller. This could have a negative impact on the currency price that you want to trade.
Not having a regulatory body comes with its own set of risks and challenges. P2P crypto trading platforms are largely unregulated and thus are more exposed to scams. You may come across fake profiles or incorrect information and it is entirely up to you to not fall for these scamster tricks. It helps to take into account all possible risks to be able to assess and differentiate genuine traders from fraudsters.
The speed of transactions could be a major pain point in P2P crypto trading platforms. You may be in the middle of a transaction when the other party chooses to withdraw. Not only is it frustrating, it may even be detrimental to your portfolio as the market keeps moving and affecting the price of assets/crypto.