What is Peer-to-Peer?

Peer-to-Peer, commonly abbreviated as P2P, is a concept that has gained significance with the advent of the Internet and holds a special meaning. It refers to a system of “transactions without an intermediary.” This concept became particularly prominent with the emergence of Bitcoin and other cryptocurrencies, given that Bitcoin operates on a decentralized network where transactions occur directly between peers.

To illustrate, in a traditional financial system, if someone wants to send money (e.g., Bitcoin) to another person, they typically rely on intermediaries like banks or financial institutions to facilitate the transaction. However, when it comes to Bitcoin, all exchanges happen directly between users, eliminating the need for a central intermediary.

For instance, when sending Bitcoin to another individual, you don’t require a bank’s involvement. It’s a peer-to-peer transfer. However, if you’re new to cryptocurrency and wish to acquire Bitcoin, you might initially need a bank. This is because you typically use a bank to transfer traditional currency (e.g., US dollars, euros) to a cryptocurrency exchange, where you can then purchase Bitcoin. Subsequent transactions within the cryptocurrency ecosystem can then be conducted directly between peers.

In summary, cryptocurrencies and traditional banking systems can coexist, and they serve different purposes. Cryptocurrencies offer a decentralized and peer-to-peer alternative to traditional financial systems. While cryptocurrencies can operate without banks, using a bank to initially access cryptocurrency markets is common. Rather than being in opposition, these systems can complement each other, providing users with various options for managing their finances.