P2P exchanges are platforms that allow users to directly exchange bitcoin and digital assets, removing the need for a middleman.
Unlike centralized exchanges, no intermediary is involved in P2P exchanges; digital assets are exchanged directly between users. P2P exchanges serve as a marketplace where buyers and sellers meet, each ready to publish their own buying or selling offers.
Unlike most centralized exchanges, P2P exchanges do not hold users’ funds; each participant must possess their own wallet to interact with the platform and engage in trades with other users.
Additionally, there is no order book that manages and coordinates users’ orders. In this case, a user publishes a buying offer specifying the desired quantity of bitcoin. Subsequently, the buyer can select a selling offer that meets their requirements and initiate a trade with the respective seller.
To ensure the security of transactions, most P2P exchanges implement an escrow service that protects both the buyer and the seller, ensuring that digital assets are sent only after the buyer has completed the payment. During this time interval, bitcoin are temporarily held in a multisig wallet and locked until the completion of the transaction.
Payment occurs directly from the buyer to the seller using the agreed-upon method, such as a bank transfer, PayPal, or other digital assets.
Once the seller confirms receipt of the payment, the escrow service transfers the digital assets directly to the buyer.
Advantages
The main advantages of a P2P exchange relate to the absence of intermediaries, increased privacy due to the lack of KYC & AML procedures, and the user’s complete control over their funds.
Disadvantages
P2P exchanges have some disadvantages, including high fees, slower transaction times, and potentially lower liquidity due to the presence of fewer users compared to centralized exchanges. These factors can impact the efficiency and attractiveness of P2P services.
The most well-known P2P exchanges are:
- Bisq
- Robosats
- Peach Bitcoin
- Lnp2pbot
- Hodl Hodl
