The word peer loosely means equals. In cryptocurrency circles, peer-to-peer (P2P) interaction means transaction activity between members of a cryptocurrency network relating as equals. It is a departure from centralized banking, where an all-powerful bank regulates all transactions.
A P2P crypto trading platform is one where users can purchase crypto assets with fiat and also sell crypto assets for fiat without interference from third parties.
Understanding how P2P networks work
In a typical p2p network, members contribute an equivalent amount of shared and earned data or value. So much can be shared via a p2p network.
The earliest p2p usage was introduced in 1979, just as the computer era was coming to full effect. It was introduced as a Usenet that enabled its users to exchange messages.
In the context of cryptocurrency, peer transactions are influenced by Bitcoin’s original idea to maintain privacy and eliminate centralization. Such transactions on the p2p network do not require supervision by a 3rd party to complete the transaction. That said, on most p2p platforms, the only third party is the service provider that monitors trades so as to prevent scams. P2p adopts a technology that ensures that there are safe transactions between two parties.
Transactions on a p2p network rely on blockchain security and are recorded, and impossible to falsify the information of such transactions recorded on the ledger.
The Reality of Peer-to-Peer Exchanges
Practically, the idea of p2p technology is to maintain the privacy and anonymity of the parties involved. This means that certain information that evades users’ privacy is not needed before engaging in a p2p practice.
However, in reality, not all cryptocurrency exchanges uphold the tenets of p2p. While some do, others require certain information that evades privacy from participants. These are centralized exchanges that bow to the regulations of the countries where they operate. This means that certain governments require centralized exchanges (CEX) to collect user information from customers that reveal their identity, which undercuts the goal of Bitcoin’s p2p agenda.
One may wonder why the government is interfering. This apparent overreach is because criminals have hidden under the privacy that p2p provides to perpetrate illicit activities.
The Adoption of P2P Cryptocurrency Transactions
Many people see the benefits of p2p networks. They play a vital role in restoring the integrity of cryptocurrency networks. Accordingly, many are dumping centralized exchanges (CEX) because of the KYC information they require. Research reveals that crypto players are dumping CEX like Coinbase for decentralized exchanges (DEX).
Why are P2P platforms so popular in Africa?
As stated earlier, people are leaving CEX in droves for DEX because of privacy concerns. However, some governments of African countries, such as Nigeria, have clamped down on cryptocurrency technology.
While they have bedeviled disruptive financial technology, citizens of such countries who are heavily involved in the cryptocurrency have found alternatives to bypass the government’s restrictions.
One of such alternatives has been a heavy reliance on p2p platforms such as Paxful and also manual p2p media on WhatsApp groups. These platforms display the power of P2P networks to bypass government restrictions and promote commerce.