What is Peer-to-Peer Trading?
P2P trading is the act of buying and selling cryptocurrencies directly between users, without a third party or intermediary. When you buy or sell cryptocurrencies using a traditional exchange, you don’t get to transact directly with the counterparty. Instead, you use charts and other market aggregators to determine the optimal time to buy, sell, or hold cryptocurrencies. The exchange organizes the transaction on your behalf, and the market price determines your final price at the time of transaction.
P2P trading gives you more control over who buys your cryptocurrencies and who you buy from, the pricing and settlement time. While P2P trading gives users finer control over the process, it is vital to note that peer-to-peer transactions carry some risks when there is no third party to broker the deal. This is where an exchange like Binance P2P becomes essential for risk-conscious users.
Why do people use the peer-to-peer network?
One of the main uses of the peer-to-peer network is file sharing, also called torrenting. If you are to use a client-server model for downloading, then it is usually extremely slow and entirely dependent on the health of the server. Plus, as we said, it is prone to censorship.
However, in a peer-to-peer system, there is no central authority, and hence if even one of the peers in the network goes out of the race, you still have more peers to download from. Plus, it is not subject to the idealistic standards of a central system, hence it is not prone to censorship. Various exchange platform offers peer to peer trading, but for the purpose of this guide, we will be focusing on Binance.
How Does a P2P Exchange Work?
Some people compare a P2P exchange to marketplaces like Craigslist or Facebook Marketplace, because P2P exchanges connect crypto buyers and sellers. Buyers and sellers can browse crypto ads or post ads of their own. P2P exchanges can also provide a layer of protection for everyone involved in the transaction, by implementing a feedback or rating system. Picture this: You meet someone on Twitter who is interested in buying Bitcoin—and you happen to have some Bitcoin to sell. Twitter is not a P2P platform, so it is difficult to establish trust. What happens when the buyer gets the Bitcoin but doesn’t send the payment? What happens when the buyer sends a lower payment amount than expected? Fraud is the biggest risk of conducting P2P trades without an exchange.
Exchanges like Binance P2P can protect both buyers and sellers to safeguard transactions and reduce the risk of fraud. In addition to a public rating system, Binance P2P uses escrow to secure the cryptocurrencies until both parties have confirmed the transaction. For example, if you are selling Bitcoin for fiat money, Binance will escrow your Bitcoin. Once you send the Bitcoin and the transaction is confirmed, Binance will subsequently credit you and the buyer, ensuring a safe and secure transaction. If either party is unhappy with the transaction, they can file an appeal to resolve the issue between counterparties, or have Binance Customer Support step in.
Advantages of P2P Exchanges
1. Global Marketplace
One advantage of using a local P2P Bitcoin exchange is that it gives you access to a global market of cryptocurrency buyers and sellers.
2. Multiple Payment Methods
When you trade on traditional exchanges, you may not get as many payment options compared to P2P exchanges like Binance. Binance has over 150 payment methods available, including in-person cash payment—which can be useful for those who prefer face-to-face transactions or those without access to a bank account.
3. Zero Trading Fees
While traditional cryptocurrency exchanges attract a fixed fee or percentage per trade, Binance P2P allows traders to connect and perform transactions with zero fees. Not all P2P exchanges offer this feature, so be sure to check the terms and conditions when choosing a peer-to-peer exchange.
4. Secured Transactions Using Escrow
As stated above, Binance has an escrow service to protect buyers and sellers. When opting to secure a transaction with escrow, funds are held by Binance and only released when the terms of the deal are met by both parties involved. Binance P2P transactions must be completed within a certain timeframe: If either party cannot meet the terms of the deal, the cryptocurrencies or fiat will be returned to your wallet.
Disadvantages of P2P Exchanges
1. Slower Trading Speeds
While P2P transactions can be conducted near-instantly once both parties have confirmed the transaction, one party might delay the transaction for various reasons. With traditional trading, you don’t need to wait for the buyer or seller to confirm before you can move on from the transaction. With P2P, the buyer or seller can change their minds halfway through the transaction and decide to end it.
2. Low Liquidity
P2P exchanges are still relatively new and have lower liquidity than centralized exchanges. For this reason, larger traders who need to complete major transactions may prefer to use OTC (over-the-counter) trades or buy/sell using the standard exchange.
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