What is Peer-To-Peer (P2P)?
Peer-to-peer (P2P) refers to a decentralized network structure that allows individuals to interact directly with one another without relying on a centralized authority or intermediary. In P2P systems, each participant, or “peer,” acts as both a supplier and consumer of resources, enabling a more resilient and distributed network.
In the context of cryptocurrency, P2P networks are essential for the functioning of blockchain systems like Bitcoin. Transactions are validated and shared directly between users, bypassing traditional financial institutions. This reduces the risk of censorship, increases privacy, and ensures that no single entity controls the network.
For example, when someone uses Bitcoin, the transaction is verified by other peers in the network through a process called mining or consensus, depending on the cryptocurrency. This P2P structure makes cryptocurrency resilient to failures or attacks on a central point of control.
P2P is also popular in decentralized finance (DeFi), where users engage in lending, borrowing, or trading directly with others, facilitated by smart contracts. This decentralization empowers users to maintain control over their assets and financial activities.
