What are the peer-to-peer cryptocurrency exchanges?
‘Peer-to-peer’ (P2P) or ‘decentralized’ exchanges are operated and maintained exclusively by software.
P2P exchanges allow the participants of the market to trade directly with each other without any trusted third party to process all trades.
‘Regular’ cryptocurrency exchanges are companies, which serve as intermediaries between their customers and make a profit by collecting fees. Conversely, the interactions between counter parties on peer-to-peer exchanges are directed exclusively by pre-programmed software, with no requirement for human middlemen.
How are trades performed on P2P exchanges?
First, let’s sum up how a ‘regular’ cryptocurrency exchange works. People looking to sell Bitcoins specify the amount and the price they’d like to sell them at. All those requests, known as ‘orders’, are placed in a common ledger, called the ‘order book.’
When another person wants to buy Bitcoins, they either look for a satisfactory offer in the order book or, if none can be found, create their own ‘buy order’, specifying the terms of the deal as they like. Whenever possible, the exchange matches buy and sell orders by price and processes the trades.
In order to remove the need for a third party, P2P exchanges operate in a different way.
Instead of matching orders in the order book, they match the people behind those orders. That is, whenever a matching buy and sell orders are found, the exchange software does not immediately process the trade, but instead, it connects the buyer with the seller, allowing them to conduct the deal without any intermediaries.
What are the advantages of P2P exchanges?
P2P exchanges offer high resistance to transaction censorship, are cheap to use, private and secure; at least when realized properly.
All advantages of decentralized cryptocurrency exchanges arise from not having a single company in charge of things. A single point of authority offers some advantages - primarily, the faster trades. However, it also works as the single point of failure, meaning that every bit of damage to it affects the entire system.
So here are the advantages of the P2P exchanges, achieved by removing that single point of failure.
Transaction censorship resistance. Regular cryptocurrency exchanges are run by people - they are vulnerable, and may be exploited by governments by imposing regulatory restrictions. Case in point: the recent intervention by the People’s Bank of China and RBI (Reserve Bank of India), which lead to the few largest exchanges in freezing all Bitcoin withdrawals for a month in China. As a user, you wouldn’t want that to happen to your funds.
On the other hand, P2P exchanges are practically invulnerable to government interference, because they don’t have any central point of authority which could be coerced. Even if some parts are forced to cease their operations, the rest of the system remains unaffected. This advantage is exactly what has caused a sharp increase in the user base of Cointroops (No KYC/Emphasize on Anonymity), LocalBitcoins and Remitano. These are the top P2P exchanges, following the aforementioned PBoC and RBI’s actions.
Cheap operations. Again, regular exchanges are operated by people, who have to be paid for their work. P2P exchanges are run by software, so there’s little to no corporate overhead, and, by extension, very small fees for the users, if any.
Privacy. Over the recent years, governments around the globe have been successfully enforcing AML and KYC regulations on cryptocurrency exchanges. This oversight forces the companies running those exchanges to collect as much info on their users as possible: names, places of residence, ID numbers and more.
It goes without saying that government cannot impose those regulations on P2P exchanges, which means that trades can be conducted in a much more private manner there.
Security. P2P exchanges do not hold Bitcoins for their users - instead, they connect traders, allowing them to conduct deals directly. Not having to entrust your coins to a third party makes the process much safer. If nobody holds your funds but you, then nobody can steal or lose them - intentionally, or accidentally.
In summary, Decentralized P2P Exchange would be a more ideal (Cheaper, Safer, Faster) platform to exchange Fiat - Crypto and Crypto - Crypto. Do support Cointroops for the vision to bring anonymity and to bring the true meaning to the Crypto Space.