P2P

What is P2P

A P2P (peer-to-peer) network topology is a distributed topology in which peers or participants interact with each other directly, rather than through an intermediary. All nodes (participants) are both clients and servers in a P2P topology in the sense that information, resources, or services can be transferred directly between them.

P2P (peer-to-peer or person-to-person) in the context of financial markets is a method of trading in which assets are bought/sold at a pre-agreed price, without the involvement of third parties.

History and Evolution of P2P

The concept of P2P networks dates back to the early days of computing, but it was only in the late 1990s and early 2000s that their popularity began to grow, with file-sharing networks such as Napster, Kazaa, and BitTorrent facilitating their spread, that P2P technology came into the spotlight.

Gradually, P2P technology spread to other sectors of the economy and electronic industry, such as banking, blockchain technology, cloud computing, and electronic markets.

How P2P Works

P2P networks distribute tasks among all network participants and do not rely on a central server. This allows for greater resilience, scalability, and efficiency. There are two main classes of P2P architectures:

1. Pure P2P networks: equal access to all nodes without any centralized aspect or priority of a central server. Examples are decentralized blockchain networks such as Bitcoin and Ethereum.
2. Hybrid P2P networks: a mixture of decentralized and centralized systems, such as P2P lending sites or torrent indexing sites. The hybrid network design facilitates transactions.

P2P Technology Uses

P2P technology is used in many practical areas, including:

1. File sharing

• Large files are shared between users without the use of any central server using software and websites such as BitTorrent and eMule.

2. Cryptocurrencies and blockchain

• Bitcoin and other cryptocurrencies use P2P networks to authenticate transactions, as well as to achieve consensus on blockchains (e.g. Proof-of-Work, Proof-of-Stake mechanisms).

3. Decentralized finance (DeFi)

• P2P lending/borrowing platforms such as Compound and Aave allow users to make transactions without intermediaries.

4. P2P Payment Systems

• Payment systems like PayPal’s Venmo and cryptocurrencies allow counterparties to make payments directly without intermediaries.

5. P2P Marketplaces

• LocalBitcoins and OpenBazaar are some of the websites that host decentralized trading platforms for selling goods and services.

6. Distributed Computing

• The computing power of the participating computers in P2P networks is used by applications like Folding@home and SETI@home for scientific computing.

Advantages of P2P Networks

• Decentralization: Eliminates dependence on a single entity in the network, thereby ensuring security and less susceptibility to censorship.
• Scalability: Networks can easily scale with the addition of additional participating nodes.
• Cost Reduction: Saves on infrastructure costs by sharing resources.
• Fault Tolerance: Less susceptible to single points of failure.

P2P Weaknesses and Limitations

• Security Risks: P2P networks are vulnerable to attacks from computers using malware and Sybil attacks (a type of attack in peer-to-peer networks).
• Regulation Issues: Governments may impose restrictions on P2P services, particularly in the financial sector.
• Scalability Issues: Congestion and efficiency issues for certain networks when scaling.

P2P: The Future

P2P technology continues to evolve, finding practical applications in Web3, DAOs, and the metaverse industry. New technological advances and developments such as AI-based P2P algorithms and quantum-resistant cryptography should allow P2P systems to become faster and more secure in the future.