P2P trading
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P2P trading, or peer-to-peer trading, is the trading of cryptocurrency on a decentralized basis, directly between users without intermediaries.
The term is based on the concept of P2P (peer-to-peer), a network for data exchange where, for example, torrent trackers are based.
Difference between P2P marketplaces and centralized cryptocurrency exchanges
When operating on a centralized cryptocurrency exchange (CEX), it is not possible to directly engage in transactions with counterparts. The exchange itself, through its algorithms, determines the current market prices and the optimal time for an operation. Once the client agrees, the exchange records their order and conducts the transaction on their behalf.
P2P trading involves conducting transactions directly between users on the terms they choose. The marketplace client has full control over selecting the price, settlement time, and the user they want to trade with.
Advantages of P2P Trading
- Variety of payment methods. P2P platforms allow for bank transfers, cash payments, the use of electronic wallets, PayPal, gift cards, SWIFT transfers, Western Union, and more.
- Lower or zero commission fees.
- Transaction protection with an escrow service: the platform locks the funds until the parties fulfill the transaction conditions; otherwise, the cryptocurrency or fiat funds are returned.
- Independence and anonymity. Trading on a P2P exchange does not require having a bank account. Most platforms only require internet access and a phone.
Disadvantages of P2P trading
- Lower reliability. The counterparty's execution of the transaction may be delayed for various reasons, which the platform cannot influence. Additionally, the buyer or seller may change their mind and cancel the transaction during its process.
- Lower liquidity compared to centralized exchanges. Therefore, traders engaging in large-scale transactions typically prefer to work on a standard exchange or engage in over-the-counter (OTC) trading, where platforms allow buying and selling cryptocurrency directly with the administrator or broker.
- Cryptocurrency security issues. Like with many other cryptocurrency operations, there is a high risk of engaging in a transaction with an unscrupulous counterparty and becoming a victim of fraud.