P2P Trading & Cryptocurrencies: A Match Made In Heaven?
Over the past few years, cryptocurrencies have seen a sizable increase in peer-to-peer (P2P) transactions.
Peer-to-Peer transactions are a direct method of transactions that involve no middlemen. The decentralised nature of these types of transactions is what makes them a preferred method of buying and selling cryptocurrency.
As cryptocurrency continues to expand and evolve, P2P trading has become conventional means of payment for transactions involving cryptocurrencies. So, does cryptocurrency and P2P trading go hand in hand?
To understand this, we need to understand P2P trading first.
P2P Trading
Peer-to-Peer trading is a direct involvement of two parties while making a payment. There’s a buyer, a seller and the money that goes from one party to another without the involvement of any middleman.
This type of trading has become extremely popular over the years, especially with the growth of decentralisation and cryptocurrency trading.
In cryptocurrency terms, leveraging P2P trading allows individuals to trade cryptos with each other without needing any intermediary.
HOW DOES P2P TRADING WORK?
P2P trading connects buyers and sellers directly, enabling them to negotiate and exchange cryptocurrencies without intermediaries or centralised exchanges.
This P2P trading system is a rather simple trading method as well and here's how it works:
1. Finding a buyer/seller - Cryptocurrency exchanges such as Binance or OKX enable P2P trading. Within these platforms, you can connect with buyers and sellers of various assets and engage in transactions, preferably within the exchange's ecosystem for smoother interactions.
2. Choose what to buy/sell - If you have a portfolio from which you want to sell your assets, you can choose what portion of your assets to sell. Usually, exchanges will make this easier for you and allow you to sell some or the entire portion of your assets.
3. Complete the transaction - After the details have been verified by both the buyer and the seller, the transaction could be completed from either side. In exchanges like Binance, there’s a verification process between the buyer and seller to ensure there’s no loss of funds from either side.
There are tangible benefits of P2P trading that make it perfect for crypto trades:
Enhanced security: P2P trading platforms prioritise user security by implementing Know Your Customer (KYC) protocols and requesting necessary documents.
Ownership of funds: Engaging in P2P transactions grants users complete ownership and control over their funds.
Global nature: P2P transactions enable payments to be made globally, allowing for opportunities to trade in various currencies.
PEER-TO-PEER VS CENTRALISED TRADING, WHO WINS?
P2P trading also offers several advantages over traditional centralised trading when it comes to its application in the cryptocurrency realm:
Reduced fees: Users can avoid certain fees associated with traditional exchanges by opting for P2P trading.
Ownership of funds: P2P trading ensures that buyers have full ownership and control of their cryptocurrency holdings.
Increased liquidity: P2P trading can contribute to enhancing the liquidity of cryptocurrencies. As users can directly buy or sell cryptocurrencies with each other, exchanges do not need to withhold user funds, ultimately stabilising cryptocurrency prices.
Enhanced adoption and transparency: P2P trading promotes the adoption of cryptocurrencies by providing a transparent and secure mode of transactions and trading.
Conclusion
P2P trading presents a profitable and globally adopted approach to trading cryptocurrencies. It offers the advantages of cost savings, transaction security, and the alleviation of liquidity-related burdens from cryptocurrency exchanges.
However, it is crucial to be aware of common risks faced by traders, including fake proof of payment, chargeback fraud, wrong transfers, man-in-the-middle attacks, triangulation scams, and phishing attempts.
By exercising caution and employing necessary security measures, traders can navigate these risks and make the most of the opportunities P2P trading provides.
