There are two types of bitcoin exchanges in use: centralized and decentralized exchanges. The regular bitcoin exchange involves the use of an order book to confirm buy and sell orders between people. However, both parties involved in the transaction don’t need to know each other. This provides a certain degree of anonymity and privacy protection.

P2P exchanges enable participants of the market to carry out trades directly with each other without needing a third-party. A peer-to-peer transaction means that you have the data of the person you’re conducting business with. The information you have on that person could include the cryptocurrency wallet address, forum username, and IP address.

In general, the peer-to-peer cryptocurrency exchanges are clear examples of the decentralization philosophy.

How Does A P2P Decentralized Exchange Work?

A decentralized peer-to-peer exchange depends entirely on the software that powers it. Plus, these exchanges are also developed by a P2P Exchange Development company looking to solve the issue of centralization in most cryptocurrency exchanges.

All aspects of the exchange are operated using this software without the need for a third party’s interference. The decentralized transactions are verified via cryptography. Hence the need for intermediaries is unnecessary.

Rather than matching transaction orders in an order book, P2P decentralized exchanges link the people behind the orders. What this means is that when a matching sell and buy order is found, the exchange connects the seller to the buyer, allowing them come to an agreement without needing a third-party.

Components Of P2P Cryptocurrency Exchanges

The peer to peer interconnectivity is an integral part of the exchange process. The individual peer, which is basically a computer system on the network, is most time considered as a node.

These interconnected peers on the network make their resources available to the other participants. Resources like their computing power, disk storage, bandwidth etc. are utilized on the decentralized network.

The peer to peer network requires certain components and configurations before they can be interconnected. These components are mainly;

• Local Area Network (LAN): This is the network interface adapter for each of the peer or computer. For optimal performance, the same manufacturer or producer of the local area network should be used.
• Cabling: This are connectors that should be work with the network card.
• Drivers: This is the software driver that fits with the network card.
• Network Protocol: For the peer to peer connection, a common network protocol has to be used.
• Named Peer: The different interconnected nodes have to be uniquely named in order to differentiate nodes that are interconnected and those that are not.

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