P2P Trading

Understanding P2P Trading

P2P trading refers to decentralized transactions where two users directly exchange cryptocurrencies without the involvement of a third party.

This trading method builds upon the concept of earlier P2P networks, such as digital file-sharing.

In file-sharing networks, users create copies of digital files, with each user retaining their P2P Tradingcopy as files are duplicated.

From Origins to a Feeless Sharing Economy

Today, P2P expands beyond its initial origins and encompasses a sharing economy where users can engage in transactions with one another.

P2P trading involves the transfer of digital data between users without transaction fees and prevents data duplication.

Empowering Direct Trading

P2P decentralized exchanges (DEX), like AtomicDEX, provide a platform for such trading.

Users can trade cryptocurrencies like ETH for BTC (or vice versa) directly on these platforms.

NFT marketplaces, such as OpenSea, are another form of P2P trading platform where sellers offer unique digital assets like artwork to buyers who pay with a specific cryptocurrency like ETH.

While many DEXs are thought to be P2P, most actually employ a different technology called automated market makers (AMMs).

Empowering Traders, Ensuring Security

In AMM DEXs, liquidity providers (market makers) contribute funds to liquidity pools, which are smart contracts. Traders (market takers) access the liquidity pools to fulfill their orders.

AMM DEXs are permissionless, allowing anyone to become a liquidity provider or trader without requiring approval.

However, they are vulnerable to hacks targeting complex smart contracts that could result in funds being stolen from liquidity providers.

Enhancing Trust

In contrast, P2P DEXs like AtomicDEX utilize atomic swaps, a trading technology that enables direct wallet-to-wallet transfers between users.

P2P DEXs do not rely on centralized liquidity pools, so they generally offer greater trustlessness and have fewer attack vectors than AMM DEXs.

P2P trading also facilitates the exchange of cryptocurrencies across multiple blockchain networks, supporting efforts to achieve trustless blockchain interoperability.