Understanding Peer-to-Peer Crypto Trading: Benefits and Threats

Before cryptocurrencies were introduced, computers used the P2P method to process file sharing.

Written by Radhika Parashar, Edited by Siddharth Suvarna | Updated: 3 May 2024 19:00 IST

Understanding Peer-to-Peer Crypto Trading: Benefits and Threats

Photo Credit: Pixabay/ WorldSpectrum

P2P crypto transactions could cause financial losses for the sending party due to lack of oversight

Highlights

P2P crypto transactions are more private than traditional exchanges
To process P2P transactions, exact wallet addresses need to be known
Scammers have been misusing P2P transactions

When two individuals or entities decide to exchange any asset directly between each other, this process is referred to as peer-to-peer (P2P) trading. In these transactions, the need for a mediator is eliminated, which reduces the fee of this mediator, hence making the process of transactions more cost effective. Before cryptocurrencies were introduced, computers used the P2P method to process file sharing. Now, crypto assets can be exchanged directly between two parties – bringing the element of decentralisation to financial transactions.

Satoshi Nakamoto, the anonymous creator of Bitcoin had intended to reduce the reliance on centralised organisations like banks – to process financial transactions between two or more entities. To do so, Nakamoto created Bitcoin as the world's first cryptocurrency, that could process financial transactions and get them validated on encrypted blockchains rather than from a centralised intermediate. P2P crypto exchanges are more private than traditional transactions and are largely anonymous.

To complete a pure P2P crypto transaction, one party enters the wallet details of the other one to process the transaction. In order to simplify this process even further alongside adding a layer of security to these transactions – crypto exchanges came into the picture. It is, however, noteworthy that despite smartly worded advertisements, crypto exchanges do not perform P2P transactions. These firms fall under the regulations of the countries they are operating in.

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In recent days, the law enforcement authorities in India have been issuing alert warnings to those involved in peer-to-peer crypto trading. If both the parties involved in such transactions do not thoroughly know each other, it could lead to a financial loss for the sending party.

With the crypto sector expanding and P2P trading becoming more accessible, the scope for cyber fraudsters to identify potential victims has become a regular thing. Through social networking channels like Telegram, LinkedIn, and X – scammers could exploit unsuspecting individuals.

The Indian authorities have informed the crypto community about a rise in scams related to P2P crypto transactions.

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Are you crypto trading in P2P mode – Beware, you might be
trading with a potential cyber-fraudster!

Various forms of cyber fraud are increasingly prevalent, leading unsuspecting victims to fall prey to schemes where they unknowingly transfer funds to accounts provided by… pic.twitter.com/6dyCQZKtdD
— Sudhakar Udumula (@sudhakarudumula) May 2, 2024

As part of its suggestions to the crypto community, the authorities have asked people not to engage with messages from unknown numbers, remain cautions while processing asset transfers to somebody they do not know, and keep the law enforcement authorities in the loop over suspicious entities.

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Further reading: Cryptocurrency, P2P Crypto Trading, Peer-to-Peer

Radhika Parashar

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Radhika Parashar is a senior correspondent for Gadgets 360. She has been reporting on tech and telecom for the last three years now and will be focussing on writing about all things crypto. Besides this, she is a major sitcom nerd and often replies in Chandler Bing and Michael Scott references. For tips or queries you could reach out to her at RadhikaP@ndtv.com. More