Cryptocurrencies without intermediaries, how P2P works
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Benefits and disadvantages of P2P. Decentralized transactions allow buyers and sellers to set their own terms for digital asset transactions. We talk about the main advantages and disadvantages of the peer-to-peer service. Peer-to-peer (P2P) trading is the direct trading of users with each other without the involvement of the exchange as an intermediary.
When working on a traditional crypto exchange, the platform arranges the transaction on behalf of the client, and the market price determines the final value of the asset at the time of the transaction.
P2P commerce involves conducting a transaction directly between users on the terms chosen by them. However, such operations carry certain risks due to the absence of a third party. Large platforms provide some protection to parties to a trade by offering escrow accounts, feedback systems, and user ratings.
When conducting P2P transactions outside of the crypto platform, the risk of encountering scammers increases significantly. The P2P platform is a “meeting place” for the seller and the buyer, allowing them to conclude a deal on favorable terms for both parties.
The user posts an advertisement on the platform, specifying the specific conditions for buying or selling cryptocurrencies, such as price, payment methods and limits. The second party sees the ads and, having selected the appropriate conditions, places an order for a transaction with a specific seller.
The platforms offer a variety of search filters: You can select contractors by their location, payment methods, qualification, and even view only those that have passed full verification.
On most platforms, information about specific sellers is available: the number of orders they have completed, customer reviews, and trading volumes. The exchange is the guarantor of the transparency and honesty of the transaction, and the platform also resolves disputes between its participants.
Many sites offer escrow of funds for the duration of the transaction. In this case, escrow accounts are used: they hold assets until the buyer makes a payment. Verification is not always required to work on P2P sites.
In some services, you cannot provide personal data, in others they ask you to provide only a phone number or email, but there are also platforms that require you to complete KYC verification and connect Google Authenticator.
Sometimes the services ask for additional information to increase trading limits, but mostly they allow you to trade cryptocurrencies without revealing a lot of personal details. Automated P2P trading using bots is becoming more and more popular.
Cryptocurrency trading without intermediaries, How P2P works
They are divided into two types: individual trading bots that work on the principle of ordinary trading services, and programs linked to some well-known P2P platform. Also, to attract new users, crypto platforms offer referral programs: the client receives a percentage of the exchange commission for each transaction of the users invited by him. The opportunities for market participants to buy cryptocurrencies on P2P exchanges are constantly expanding.
Benefits of P2P
When trading on P2P exchanges, there are many more payment methods available compared to traditional platforms. Payment methods include bank transfers, cash, e-wallets, PayPal, gift cards, SWIFT transfers, Western Union, and others.
P2P platforms in most cases allow merchants to connect to the service and carry out transactions without commission. Not all P2P exchanges offer this service, so be sure to read the site’s terms and conditions.
Some exchanges set a small commission for placing an ad or a % of the transaction amount. Protecting a transaction through an escrow service locks the funds until the parties comply with the terms of the transaction.
If either party fails to do so, the cryptocurrency or fiat money will be returned. It is not necessary to have a bank account to buy cryptocurrencies on a P2P exchange. On most platforms, it only requires internet access and a phone.
Disadvantages of P2P
Although P2P transactions take place fairly quickly, one of the parties can delay the transaction for various reasons. Likewise, the buyer or seller can change their mind and reject the transaction already in process.
A typical transaction can take from 10 minutes to several days (depending on the chosen payment method). Liquidity on P2P platforms is lower than on centralized exchanges. Therefore, traders who transact on a large scale generally prefer to work on a standard exchange or over-the-counter, when the platforms provide the ability to buy and sell cryptocurrencies from a manager or broker (OTC).
Another disadvantage of the P2P service is the lack of popularity of this system. Due to the small number of users, it takes longer to find a suitable offer. In other cryptocurrency transactions, when trading on a P2P platform, there is a high risk of closing a deal with an unscrupulous counterparty. In order to avoid running into a scammer, you need to choose a reliable platform for making a deal and carefully read the statistics of the counterparty.