With the blockchain technology being a new global phenomenon now, purchase and sale of cryptocurrencies have become rampant worldwide. To facilitate this trading, there is a myriad of online crypto exchanges in the market today. These exchanges work as intermediaries between two crypto trading parties and collect trading fees from them. Now, let us shed some light on these exchanges work.
Exchange Trading and the Associated Challenges
In crypto trading, there is a term “order book.” An order book is a ledger where buying or selling requests from traders are registered along with the prices and terms of deal or trade. Online exchanges find the buying and selling orders with the same prices and terms, and then, initiate the trade on behalf of the two parties.
Now, there are a number of challenges and risks associated with trading over regular exchanges. First of all, these exchanges are run by a single company or authority that can be manipulated or forced by the government or other external elements. Secondly, trading fees on such exchanges are high because of the cost of operations like employee wages, mining fees, etc. Further, traders’ coins are stored on the exchange until the completion of the trade which sometimes can take days. Thus, it makes users’ money exposed to a potential threat of exchange hacks.
The Era of Peer-to-Peer Trading
After being exploited on regular exchanges for years, P2P exchanges are the new hope for crypto users. These exchanges don’t need any human intermediaries to facilitate trading. Instead, they rely on automatically functioning software. This software helps you find buy and sell advertisement suiting with your terms of the deal and in lieu of initiating the trade itself, it connects the buyer to the seller and allows them to carry out the trade.
P2P trading platforms while giving users privileges that regular exchanges fail to provide, are still centralised and and sometimes opaque like regular exchanges. Some of these privileges are:
Low trading fees: As P2P platforms don't need many human intermediaries who work for wages, the cost of operation is quite low. Also, as the trading is done by two parties, there are no or nominal transaction fees. Thus, trading over P2P exchanges is relatively cheaper than regular exchanges.
Unrestricted trading: As P2P exchanges are self regulated, trading over them makes for an easy experience as direct intermediation goes away. There is generally no restrictions on the value of the trade. A trader can chose a payment mechanism he likes. Even if the operations of some parts of the system are influenced by external elements, the rest of the system works fine.
Faster transactions: With the reliable and timely functioning of software, untimely delays due to the involvement of humans are eradicated from the system of P2P exchanges. Thus, they facilitate faster transactions.
User privacy: Without any external influence from government entities, P2P exchanges don't require users to go through AML and KYC regulations. As money never passes through them. Some P2P exchanges, however, still get user verified as a self regulation. Users get much-needed privacy and anonymity on the network.
Some upcoming advance P2P platforms, however are addressing Security and Decentralisation issues effectively. For instance, PINTP2Pfrom Bitfia Labs is designed to provide users with an easier, cheaper, faster and safer P2P trading ecosystem. This marketplace hands the control over to the traders themselves by allowing them to choose their transaction speeds and the max/min limits on transactions.