Guide to P2P Crypto Exchange
There are innovations, and then, there are innovations that take them to the common man.
Cryptocurrency exchanges did to cryptocurrency and blockchain watch Henry Ford did to cars. Although the inventor was someone else, it is only a transformation that made it more accessible to and empathizable for the common man.
Cryptocurrency exchanges do not need any introduction for either a blockchain technology enthusiast or a crypto investor. The crypto technology is in itself quite nascent, and it has still not attained its maturity.
It is only understandable that one of the manifestations of this cryptocurrency will have to undergo a lot of transformations before it attains something worthy to be called perfection.
The Centralized Crypto Exchange
Most cryptocurrency exchanges were, and to a considerable extent, are centralized. The way in which the function is quite simple and straightforward. The people who intend to sell a certain crypto asset place their orders in a common ledger called the order book. The buyers visit the audiobook and choose the selling order that suits their requirements.
In the event of the buyer not being able to find a satisfactory order from a seller, they can create their own buy order. The matching algorithm matches the buy and sell orders by price and processes the entire transaction.
Needless to say, this entire process involves a lot of intermediaries which is bound to consume quite a lot of time and money. Although it seems like a disadvantage on the surface, it also brings a lot of advantages like easy and convenient arbitration, and high liquidity.
It cannot, however, be denied that there is a considerable degree of centralization in this type of exchange. Centralization does not seem to be a concern when it comes to traditional financial institutions like banks, but having even an iota of centralization involving something that was created to beat censorship and centralization is what raises questions.
An inevitable outcome of centralization is vulnerability to hacks and security breaches. The blockchain had an impressive record of being immune to such attacks as a single point of vulnerability cannot break the system. Without social engineering, it was impossible to breach the blockchain. These centralized exchanges, however, store all the crypto assets of users in a central place quite similar to a bank vault, making it extremely prone to such security breaches and attacks.
What makes the entire vulnerability even more concerning is that the coins that are stored in the exchange are not protected in any way as they exist outside the current legal and financial system. This is one of the reasons why the money stolen from crypto exchanges have far exceeded in value, the money that has been stolen from bank robberies throughout history. Some of the most infamous crypto security breaches include the Mt. Gox which had around 7% of the total bitcoins in circulation stolen in a single hack.
See also: How Can Blockchain Be Used To Provide Certificate Transparency?
Introducing P2P Exchanges
Yes… Cryptocurrency exchanges have elevated the stance of cryptocurrency with respect to common investors, but it still has a long way to go in attaining perfection. One of the steps that was taken in this in the world is the introduction of decentralized cryptocurrency exchanges. Sometimes, alternatively referred to, and sometimes considered a subset of these decentralized cryptocurrency exchanges are peer-to-peer crypto exchanges, commonly abbreviated as a P2P cryptocurrency exchange.
P2P cryptocurrency exchanges… How do they work?
The way in which a P2P cryptocurrency exchange works is quite similar to that of a centralized crypto exchange at its surface. However, it is at the corner where the difference lies. The order book remains the same, but instead of the cryptocurrency exchange matching the orders, it matches the buyer and the seller. It connects the buyer and the seller and it enables them to transact their crypto trade without involving any intermediaries.
The transaction is effected by a smart contract-based escrow that provides a fast transaction between the parties, without any compromises or lapses in security and trust, while being cost-effective. There might be a few instances where there is an involvement of an arbitrator who takes care to resolve disputes.
Advantages of a P2P crypto exchange
There are a lot of advantages that a decentralized crypto exchange brings about compared to its centralized counterpart.
The transaction is entirely private, keeping in line with the basic philosophy on which cryptocurrency was conceptualized. P2P cryptocurrency exchanges do not have any third parties on intermediaries involved in the execution of the transaction. Therefore, the key attributes of the blockchain system like immutability and transparency are retained without any lapses, making the entire transaction extremely secure and private.
Intermediaries always translate into higher costs. Since P2P cryptocurrency exchange eliminates the need and relevance of intermediaries, a transaction is bound to cost less in a decentralized exchange them on a centralized one. It would not be an exaggeration to say that the cost of transactions is almost close to zero.
It is true that even centralized exchanges have their own KYC/AML formalities. However, the details exist outside the blockchain end it raises concerns over the security of personally identifiable data. However, on a P2P exchange, the KYC/AML details exist on the blockchain, and the chances of identity theft and fraud remain quite nominal if not zero, and at least, considerably less than that of a centralized exchange.
It is quite known that every transaction in the traditional banking world might take even days or weeks if it involves two international parties transacting. However, when you use a decentralized exchange, the transaction is fast and efficient, and that too, with a global reach. All that a user needs to transact is a device that can access the Internet. It breaks operational barriers concerning geography.
P2P crypto exchange development
It is well established that a P2P cryptocurrency exchange presents quite some advantages in comparison to a centralized exchange. There might be a few gaps that need to be fixed but it cannot be denied that a decentralized exchange is a favourite for purists.
If you are one of those entrepreneurs who would like to create a business out of a decentralized exchange, you will need to invest in developing a P2P crypto exchange software. There are a few features that need to be mandatorily present in your P2P cryptocurrency exchange platform.
The most important feature that distinguishes a good exchange from a great one is a high-performing matching engine. The matching engine can be considered the heart and soul of your P2P exchange system. The engine has to have its audit types of buying and selling built-in. In short, it has to deliver maximum efficiency with minimum latency.
Your P2P exchange should be extremely secure. Simple steps like in a flake SSL encryption, and two-factor authentication (like email authentication and Google authentication) can go a considerable distance in ensuring security.
KYC/AML formalities are inevitable for any financial business. The blockchain that you use for your P2P cryptocurrency exchange should be equipped with the right protocol. Having a proper KYC/AML processing engine in place has the potential to make your cryptocurrency exchange extremely user-friendly. It also gives users an assurance that they trade only with other authentic users who have undergone the same process of validation as they have.
Your P2P cryptocurrency exchange should be equipped with a blockchain-based smart contract powered escrow system that enables private, fast, secure, and efficient trading between the buyer and the seller.
One of the most prominent that decentralized exchanges find themselves juxtaposed against centralized exchanges is their user interface. Centralized exchanges like Binance have built an extremely easy and intuitive user interface that does not deter even novice users from participating in the exchange and trading using them. However, P2P exchanges have been quite difficult to operate, leaving them usable only to a handful of people who value their privacy more than ease of usage or liquidity.
Choosing the right blockchain
For a P2P exchange, the blockchain place a very important role in determining its performance. For all practical purposes, the Ethereum exchange is possibly the best blockchain that you can depend on. A P2P Ethereum exchange is quite simple to be built, although it still might require extensive lines of coding.
Your P2P Ethereum exchange software can also be purchased as a white label solution from a lot of providers in the market.
The legal perspective
Anything said, irrespective of your cryptocurrency exchange being a centralized one or a decentralized one, the legal processes still remain the same. The regulations governing anything related to crypto, as mandated by the different jurisdictions around the globe, have been shaky at best.
It might not be an exaggeration to say that the legal framework of countries around the world have not evolved to catch up with the rapid pace in which crypto and blockchain are progressing. Some jurisdictions like the United States, Malta, Estonia, and Gibraltar have been quite progressive and have gone ahead to the territory of regulating all activities rather than buying them.
Some countries like Australia have been quite progressive to even include crypto assets as a part of their stock exchanges.
India, on the other hand, has been slowly growing in its acceptance. Recently, the Supreme Court of India struck down a law banning cryptocurrency trading, opening up opportunities for Indian crypto enthusiasts and investors. The landmark judgment had so much of an impact that global exchanges saw a sudden spike in the extent of participation and the volume of trade from India.
On a completely polar opposite end of the spectrum, China and South Korea have invariably banned anything that has got to do with crypto. Cryptocurrency and cryptocurrency exchanges have been facing quite a lot of roadblocks in these forms of legal hassles. However, considering the fact that the entire technology is relatively new, it will just be a matter of time before all the jurisdictions evolve to accommodate cryptocurrency and cryptocurrency trading.
Marketing
Even if you were to build a top-notch cryptocurrency exchange with no lapses on the legal front, missing out on marketing would mean a great loss. Marketing your cryptocurrency exchange should be a combination of both traditional digital marketing and crypto-specific marketing.
On one side, you will need to engage in practices like search engine optimization and content marketing to ensure a better presence. On the other end, you will need to mark your presence in specialized crypto forms that will help you gain visibility in the right spaces where you can expect intense engagement among cryptocurrency enthusiasts and investors.
There might be a lot of restrictions when it comes to marketing your cryptocurrency exchange in mainstream advertising platforms like Google and Facebook. While it might not be possible to engage in bed advertising, it is highly recommended that you participate in dedicated Facebook and LinkedIn groups where you can talk about your crypto exchange. It should not be forgotten that even if you do not find users and investors to participate in your exchange, you can still open your exchange for IEOs and token listings. These earning opportunities might give your exchange the much needed financial fillip to launch it into the space of profitability.
See also: Identifying The Struggles with Initial Exchange Offering Marketing
Conclusion
There is no question on the profitability and reliability of cryptocurrency exchanges in terms of it being a dependable avenue of business. However, building your cryptocurrency exchange, either centralized or decentralized, from scratch would be quite a cumbersome and daunting task.
Instead of spending hours of development and humongous costs on blockchain developers, you can consider purchasing white label clones of decentralized cryptocurrency exchanges. These P2P exchanges are extremely easy to customize and can be purchased off the shelf, just like any other product.
Since you do not have to build it from scratch, there is not much of time involved in customizing these products either. This translates into you hitting the market faster and earlier than your competitors, which could be a key differentiator in the magnitude of profit that you can earn from your P2P cryptocurrency exchange.
All you need to do is get in touch with a company that specializes in customizing white label clones of the centralized cryptocurrency exchanges. They will take care to understand your requirements and customize the product according to your business needs. If the company offers holistic solutions, they will also be able to take care of the legal requirements, establishing your KYC/AML compliance, and even marketing your new P2P cryptocurrency exchange.
Since you do not have to build it from scratch, there is not much of time involved in customizing these products either. This translates into you hitting the market faster and earlier than your competitors, which could be a key differentiator in the magnitude of profit that you can earn from your P2P cryptocurrency exchange.
All you need to do is get in touch with a company that specializes in customizing white label clones of the centralized cryptocurrency exchanges. They will take care to understand your requirements and customize the product according to your business needs. If the company offers holistic solutions, they will also be able to take care of the legal requirements, establishing your KYC/AML compliance, and even marketing your new P2P cryptocurrency exchange.
See also: 15 Real World Use Cases and Applications of Blockchain Technology
Let us know what you think about P2P cryptocurrency exchange in the comment section below.
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