What are Peer-to-Peer exchanges?

Peer-to-Peer (P2P) exchanges are the platforms that allow individuals to transfer cryptocurrency from one account to another account without going through a financial institution. These are of two types and are classified upon their working, namely as Escrow based and Automated exchange.

How does Escrow base Peer-to-Peer exchange work?

This exchange works like an escrow. For e.g. If you’re a buyer, you have to search for suitable advertisements, figure out the legitimacy of the person, analyze the quantity and the price of the cryptocurrency. If it suits your needs, send the trade request. Once the seller accepts your trade request, the trade is initiated and the seller’s cryptocurrency is locked in escrow. Both the traders can communicate mutually and finalize the trade. Once the payment is done, the locked cryptocurrency is deposited in your account.

How does Automated Peer-to-Peer exchange work?

This exchange is a decentralized platform where two people can interact with each other, without the intermediation of the third-party. In simple terms, the buyer and seller transact directly with each other without any trusted third party in between. These exchanges are operated and maintained by pre-programmed software which does not need any human involvement. This featured software connects the buyer and seller automatically.

Based on the terms selected by the traders, the software does not process the trade right away but first, it links the buyer and seller. This avoids the involvement of the third party, as done in the Centralised exchange. If there are any conflicts than the third parties can be involved for settlement. Otherwise, no human involvement is required by default. The software alone is capable of matching the traders in a decentralized manner. You just have to click the buy or sell button.

Advantages:

• Transaction censorship resistance- Regular cryptocurrency exchanges are controlled by the people, so they are vulnerable to government and may be enforced by administrative limitations. On the other hand, P2P exchanges are invulnerable to the government, as they do not have any central point of authority.
• Faster trading- The buyer and seller are linked directly, thus speeding the trade at a much faster rate as compared to normal exchange.
• Cheap operations- In P2P exchanges, there is no third party commission fee which makes the trade/operation cheap and cost-effective.
• Better pricing- A better price is possible than current market price (depends on the seller and terms of trade)
• Transparency- Buyer or seller can see the details of each other on the trading platform.

Hence, these Peer-to-Peer exchanges can be the next future. “A future of fair trade”.