What are P2P Cryptocurrency Exchanges?
P2P is a decentralized exchange of cryptocurrency directly between users. All logistics are carried out by special software, so no third parties are required. On the contrary, ordinary exchangers are companies that act as intermediaries between users, receiving remuneration for this.
How to trade through P2P?
The software automatically connects users with the same terms of sale and purchase of currencies. Let’s start with a description of the work of ordinary exchangers. To sell bitcoins, you need to specify their quantity and price, place the so-called. order.
To get rid of the need for a third party, P2P finds people who have placed matching orders. P2P connects the seller and the buyer, which allows them to make a deal without difficulty. Of course, arbitrators may be required, but in standard conditions, third parties are not involved and everything happens decentralized.
What are the advantages of P2P?
The absence of a weak link, on which exchange efficiency depends, is the main advantage of decentralization. Of course, a single center ensures the speed of transfers, but any vulnerability threatens the whole system. Resistance to state control. The staff of ordinary exchangers is subject to pressure from the state, which seeks to introduce favorable rules for the cryptocurrency.
On the other hand, P2P is almost invulnerable to government intervention, since there is no central organization that the state could regulate. This advantage led to an increase in the popularity of Local Bitcoins, one of the largest P2P exchangers, just after the actions of the Bank of China.
What are the disadvantages?
For a long time on transactions, a less intuitive process, lower liquidity does not allow P2P to be superior to conventional exchangers in all respects.
Most of the disadvantages of P2P occur due to the novelty of the technology. So, Bitsquare, one of the oldest P2P, has existed for only 3 years, including the development period. Since P2P is focused on a small group of enthusiasts, there was no need to attract new users and improve service. This results in small volumes of transactions.
For a long time waiting, most likely, it will not be possible to overcome because bitcoin and fiat currency transfers must pass. Together with reduced liquidity, this means that P2P is not so in demand by professional traders who need fast deals. However, the benefits that P2P offers can be beneficial for some people.
How to prevent fraud?
P2P exchangers use various protection mechanisms. Usually, they use public reputation arbitrators, mandatory buffer contributions for the duration of the transaction, and face-to-face meetings.
Bitcoin translation cannot be cancelled, but fiat currency translation is possible. Fraudsters get bitcoins, and then cancel the transfer, say, dollars. To prevent this, they use mandatory Bitcoin contributions, which participants in the transaction must make before they start to negotiate. If all goes well, the fees will be refunded.