Cryptocurrency exchanges are the online platforms that allow the users to buy and sell the cryptocurrencies, or exchange the cryptos with the other digital assets as well as with the conventional fiat money. The exchange platform can be a traditional brick-and-mortar business or an online platform, where the users can trade in cryptocurrencies at its current market value.
The process of exchanging a cryptocurrency includes an ‘order book’ (a general ledger), in which the seller will register the request for selling their assets. Here the buyer, too, will look for good offers for buying the digital currency and if the buyers do not find any good offers in the order book, they can place their order along with the terms of buying in the order book.
The exchanges can be direct, i.e. peer to peer, or through an intermediate channel. Before discussing the peer-to-peer cryptocurrency exchanges, let’s discuss what is a centralized or regular cryptocurrency exchange:
Centralized Cryptocurrency Exchanges: The regular crypto exchanges are the centralized entities which carry out the trade for the cryptocurrency between two particular parties. This exchange seems to execute the trading directly, but on the contrary, it has multiple steps included. This type of exchange provides the facility for the users to buy, sell or exchange the digital currency at a fixed market price. But the process is more time-consuming.
Peer-to-Peer Cryptocurrency Exchanges: A peer-to-peer cryptocurrency exchange involves only two parties, the seller and the buyer. This type of exchange does not need a third party or any central authority to carry out the exchange between the two. Unlike the regular crypto exchange platforms, the prices for the exchange for the cryptocurrency is defined by the seller and may vary accordingly. There are no hidden charges included for the crypto exchange for either party, and the fee for transaction ranges between 0%-0.7%.
Along with matching the order value in the order book, the peer-to-peer exchange allow the buyer and the seller to connect directly and exchange information. The two peers can exchange the information with each other even if no transaction is going on. Even after the order has been matched, the software does not complete the trade by itself. The seller and the buyer can decide their new conditions for the trade before the completion of the transaction.
Advantages of Peer-to-Peer Crypto Exchange:
1) Security: Since there is no central authority involved in the exchange on a peer-to-peer network, the information shared between the two parties is always censored. Also when the order value is accepted by both the buyer and the seller, the platform locks the assets, such that those assets cannot be accessed by any other party, providing greater security for crypto being stolen.
2) Privacy: The Peer-to-Peer crypto exchange doesn’t include any third party for the trading, so it is more private. Even the communication between the parties, that are up for trading the crypto, is kept private and only the two parties are involved in the negotiation.
3) Immunity to Government Regulations: The regular crypto exchange is liable to the government authorities even for the smaller transactions, as it is the central authority such as a bank which is involved in the process of conversion, deposits and withdrawal of the cryptocurrency. But on the P2P exchange, the transactions are done mostly for the smaller amounts, and the assets can be deposited to the accounts of both the parties directly, without having to trust a third party to process their trades.
4) Minimal Charges: For the smaller transactions, the regular crypto exchange platforms can be a bit pricier as both the parties are charged with a fee on deposit, withdrawal as well as for the trade. But since the trading in P2P exchange is done without the help of a third party, the two parties are charged with a minimal fee for the trade.
Though the centralized or the regular crypto exchanges are the first exchange platforms and are still a popular choice among the people, with the time passing by people are becoming more aware of the concept of the digital currencies as well as the exchange platforms and are opting for the peer-to-peer exchange platforms for the trading.
The P2P exchange platforms are cheaper and are best suitable for smaller transactions. Also, the people who are concerned about the fees and security must go for this exchange platform.