What Is Escrowed Peer-To-Peer Trading?
Peer-to-peer (P2P) trading is a relatively new development in the cryptocurrency space, with major platforms like Binance implementing their own P2P systems in 2018. This article will explain the nature of peer-to-peer trading systems, as well as the benefits that can be enjoyed by those who choose to make use of these new and innovative trading systems.
A P2P service is simply a decentralized platform within which individuals are able to interact with one another without the need for any intervention or oversight by a third party. As opposed to traditional trading systems where buyers and sellers are matched by a brokerage service, P2P systems allow the buyer and seller to interact directly with each other. These services will typically provide escrow facilities as well as search, screening, rating, and payment processing functions.
Although P2P services such as these have only recently been applied to cryptocurrencies, the systems themselves are by no means a recent development. The modern form of P2P systems was popularised by the now antiquated file-sharing systems of the late 90s that were used to create music-sharing applications such as Limewire and Napster.
Though the development of P2P systems may not seem significant at first, these P2P systems have an extensive set of applications, and their benefits permeate a large number of assets, including cryptocurrency and NFTs.
Whilst many cryptocurrency traders and investors are aware of the existence of these escrowed P2P trading systems, relatively few of them are aware of the benefits of utilizing such systems. Let’s explore some of the benefits of P2P systems in the context of NFTs and examine why individuals may choose to trade on a P2P system instead of the traditional centralized exchanges.
What about Gaming?
A major theme in the cryptocurrency world is that of the sovereignty of the individual. The idea is that there should be no need for third parties and that money should trade in the free market without centralized organizations influencing its value and movement. This concept of digital self-sovereignty is one of the main benefits of P2P systems. This is because P2P systems can be implemented in digital environments, such as online games, to allow users to transact directly with one another without being hindered by the arbitrary rules that may have been implemented by the developers of that specific digital environment.
How would this work in practice? The best example can be found in gaming. There are a whole host of online games that have their own in-game items that can be created as NFTs. P2P systems give individuals the ability to trade, monetize, or even give away these items however they see fit. They would therefore afford users of these games greater control over their assets than that which would be afforded to them through the rules of the game that were developed by the game developers.
Beyond the gaming applications of P2P systems, they also offer other benefits in that they limit the counterparty risk suffered by traditional Over The Counter (OTC) systems. By implementing the smart contract features, which would prevent transactions from completing until both parties have complied with a mutually agreed set of terms, p2p trading eliminates counterparty risk.
More generally, because transactions on these systems are from person to person, they do not attract the usual high fees and commissions that are generally applied to transactions that take place via third parties. This means that individuals using these systems to trade their cryptocurrencies or NFTs are able to do so at more competitive prices and usually secure their assets for cheaper as a result.
Further, because the system is peer-to-peer, no third party is able to interfere with the transaction itself. This means that it is secure and free from government intervention, law enforcement, banks, and any other third party that may wish to interrupt or delay the transaction.
In summary, P2P trading systems allow users to transact directly with one another without the need for a third party. These kinds of trading systems offer users a number of benefits, including better prices, no third-party risk, and the ability to express a greater degree of control over digital assets within a digital environment created by third-party developers.