There is no doubt that cryptocurrencies are revolutionizing the business sphere and are all set to take over the future one hundred percent. The demand and competition around the cryptosphere are very much alive and are constantly evolving. Mainly, cryptocurrency exchanges are gaining more and more traction, prominence, and relevance with each passing day. They are known for their million-dollar profit revenues which is why entrepreneurs and investors are showing continuing interest in them.
With the prevailing acceptance and adoption, and with the evolving technological advancements, cryptocurrency development exchanges also emerged into new forms. One of the notable ones among them is the P2P Exchange Platform Development. P2P exchanges help entrepreneurs and investors unlock the true potential of decentralized blockchain technology and bring in enormous benefits. With more and more people realizing this, P2P exchanges are currently being one of the most popular crypto exchanges.
If you are interested in launching your own P2P exchange as well and tap into the million-dollar peer-to-peer crypto market, this blog is to help you understand everything you need to know before getting started. Let’s begin with the concept of a peer to peer exchange.
What Is A P2P Exchange And How Does It Work?
A P2P( peer-to-peer) exchange is a decentralized exchange platform that is operated and maintained entirely based on software. Unlike any other exchange, a P2P exchange platform does not involve a third party to conduct transactions or manage the user funds. Instead, the interactions between users in a peer-to-peer exchange platform take place directly through programmed software with no necessity for a middleman. A P2P exchange is underpinned by a smart contract-based escrow system that ensures secure transactions. There are several advantages a peer-to-peer exchange platform offers to the users. Let’s take a look at them.
Core Benefits Of a Peer To Peer Exchange Platform
- No Central Point Of Authority
Traditional exchanges are often intervened between governments and regulatory restrictions. This will disturb the freedom of the user to efficiently conduct trades and be entitled to decisions regarding the exchange and transactions. Whereas, a peer to peer exchange does not have a central point of authority. The main advantage is, even if there is interference in some parts of the business and is forced to be ceased, the others remain unaffected. This is the main reason, many investors are attracted to a peer-to-peer exchange.
- Cost-Effective Operations
An exchange that involves a third party has to pay added commission fees other than the actual exchange operational fees. But as a peer-to-peer exchange removes the need for a third party, and runs entirely on programmed software, it helps users with cost-effective operations.
- Enhanced User Privacy
In other exchanges, users are enforced to compulsorily provide their names, addresses, ID details, and more. But again, as a peer-to-peer exchange eliminates the involvement of a third party, users do not have to provide their personal details to conduct transactions on the platform. They can conduct trades in an anonymous and more private manner.
- Control Over Funds
In a regular exchange, the user funds are entirely managed and controlled by a third party or central authority. But in a P2P exchange platform, users get entire control over their funds. They can secure their funds with the smart contract escrow mechanism and store them in a multi-signature enabled wallet.
- Security
As traders directly get to connect and conduct transactions with each other in a peer-to-peer exchange platform, and they do not have to depend on a third party, the platform is completely secure and the users’ interest is protected. Chances for hacks, thefts, and any fraudulent activities are way lesser, or almost impossible in a P2P exchange, compared to other exchanges.
These are the key benefits of a peer-to-peer exchange platform. Now, let’s find out how a transaction takes place in a peer-to-peer exchange for your understanding.
How A Transaction Takes Place In A P2P Trading Software?
- Firstly, users have to register and create their own accounts on the P2P exchange trading platform.
- Once they have created the account, their information will be automatically verified and confirmed.
- Then users have to place their orders mentioning the order type (buy, sell), amount, and other necessary information.
- Users have to create their wallet address to be matched with another order.
- Then, the order book automatically matches an order between a buyer and a seller based on their preferences.
- Once the order is matched, the buyer and the seller have to confirm their orders.
- The smart contract-based escrow system holds the asset until the seller confirms the payment received from the buyer.
- The buyer makes the payment for the purchase, and the seller confirms receiving the payment.
- Once the confirmation is received, the smart contract-based escrow system releases the funds and transfers them to the buyers’ wallets.
- The buyer stores the received funds in the cold wallet.
This is how a transaction takes place in P2P trading software without any involvement of a third party. However, in case of any dispute between the users, there might be a need for third-party involvement as arbitrators. But, a smart contract-based P2P exchange software has all the potential to match trades without any dispute or difficulty.
What Are The Stumbling Blocks Involved With A P2P Exchange Software And How To Overcome Them?
- Liquidity
One major concern investors have with a peer-to-peer exchange platform is the lack of liquidity when compared to a centralized exchange. Liquidity is the key factor for any cryptocurrency development exchange as it is the degree to which the asset is being transferred or converted into cash quickly and efficiently. Therefore, investors are a bit uncertain about investing in a P2P exchange which is said to have a lesser degree of liquidity than a centralized exchange.
The solution to this is to carefully analyze and choose an exchange platform that allows the opportunity to boost liquidity for your exchange, such as flexibility to connect with a third-party exchange with high-volume liquidity, or an exchange that is tied up with a network of exchanges whose liquidities are also tied together.
- Disputes
As P2P exchange platforms do not operate depending on a central authority, the chances of disputes arising between the users are a bit more when compared to a centralized exchange platform. For example, users may claim that they have already sent the payment, or senders may claim that they never received the payment even if they did.
To resolve this issue and prevent further disputes, you need to ensure you obtain a P2P exchange platform that is integrated with advanced and legitimate blockchain technology, smart contract escrow with seamless functionality, and a dispute redressal system within the platform.
- Limited Order Types
Generally, P2P exchanges offer limited order types when compared to centralized exchanges. They mostly offer only market orders, while a centralized exchange also includes limit orders, stop losses, and more. But with the growing adoption and evolving market scenario, it won’t be long for P2P exchanges to also bring in advanced order types.
The current market scenario makes it evident that a P2P exchange platform has all the potential to become the future of cryptocurrency exchange software. They bring in every primary benefit a user would expect such as enhanced privacy, security, anonymity, efficiency, speediness, and seamlessness. If you are intrigued by setting foot in this revolutionary peer-to-peer world, all you have to do is undergo in-depth research and choose the right company that offers a robust, secure, reliable, and scalable P2P exchange platform.
At Infinite Block Tech, we have employed blockchain experts, developers, analysts, strategists with unmatched experience who will tick all the right boxes for your P2P exchange platform development, and help you step your game and gain a competitive edge in the marketplace. Get in touch with our expert team to find out more about P2P exchange software development.