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What is cryptocurrency trading?

What are the benefits of peer to peer trading?

Peer to peer trading is highly popular in cryptocurrency. In this guide we cover the basics of P2P trading and the benefits it offers.

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Introduction

One of the central philosophies behind the creation of Bitcoin, the original cryptocurrency, was to create a peer to peer electronic cash system. The intent was to allow people to have ‘self-governance’ over their finances. To enable peer to peer trading in cryptocurrency, a system must be decentralised.

A system that is decentralised has no central sever, location, or single authority in charge. Instead, the network is distributed across multiple nodes across the globe. Instead, every person within the network has equal privileges and potency. In the context of trading with cryptocurrency, peer to peer refers to buyers and sellers completing transactions directly with each other – with no middle-man needed to facilitate the trade.

Below, we take a look at the benefits of peer to peer trading.

Peer to peer trading is private

Since buyers and sellers alike are actively searching for people to match their order, a third party is not needed in peer to peer cryptocurrency trading. This provides the benefit of privacy. Since no third party is involved, only the buyer and seller negotiate. Communication between both parties is kept private. Only when the order has been submitted and is ready to be added to the blockchain does it become public. Since the trade will appear on the blockchain, no identifying information is used.

A lot of exchanges usually require users to complete a Know-Your-Customer test (KYC). A KYC test can help exchanges ensure that legitimate traders are using their service. On the other hand, it’s also a means to collect data on individuals. This could range from name, ID, phone numbers and so on. Peer to peer trading eliminates this data collection, adhering to anonymity.

Peer to peer is fair

When using an exchange platform, the prices for cryptocurrencies will be relatively fixed to reflect the pricing on all other exchanges. By opting for peer to peer trading, however, you can look for comparable prices and even better prices. With peer to peer trading, orders at better prices are more likely to be filled since parties have already expressed their interest. This type of trading also reduces the amount of cancellations on an order book as levels of commitment between traders is arguably higher than between traders using an exchange.

P2P marketplaces are often affordable and secure

One way of engaging in peer to peer trades is by using a dedicated marketplace. These marketplaces allow traders to contact each other by signing up and verifying their accounts for free. In comparison, most exchanges may charge a fee to sign up and/or trade. Unlike exchanges, P2P networks don’t hold any cryptocurrency. Deals are done directly and so the safety of your currency is always protected.

Most importantly, P2P trading offers a high resistance to transaction censorship. As there is no central authority in charge, or with access to transactional data, trading activity can’t be corrupted and your funds can’t be stolen.

Conclusion

Peer to peer cryptocurrency trading remains faithful to the intent of the original cryptocurrency. As the market evolves, however, crypto users expect more choice than ever before. Some prefer centralised exchanges, some prefer decentralised ones, and some prefer not to trade at all. As always, be sure to do your own research before committing to any decisions relating to investments.

If you want to know more about cryptocurrency trading, read our dedicated series! 

 

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