A peer-to-peer (P2P) network is a collection of computers that share and store files. Each node (participant) takes on the role of a peer. When it comes to network architecture, all nodes have equal power and execute the same functions.
The word “peer-to-peer” in financial technology refers to the trading of cryptocurrencies or digital assets via a dispersed network. Direct trading between buyers and sellers is made possible by a P2P platform, which eliminates the need for intermediaries. A P2P lending environment may also be provided via websites in some situations.
What Is Peer-To-Peer(P2P)?
Networks of devices that connect to one other in a “peer-to-peer” (P2P) fashion are known as peer-to-peer networks.
Sharing and storing files is possible after the network is established. Peer-to-peer networks often feature nodes with similar power and the ability to perform the same functions.
Depending on the industry, a P2P network can have a different definition. A P2P network can be defined as a distributed network where peers can exchange digital assets or cryptocurrencies, such as Bitcoin or Ethereum.
This eliminates the need for a middleman, allowing peers (sellers and purchasers) to transact directly.
The removal of intermediaries is the most important factor in this case. Different P2P settings or platforms link peers without interfering with the process itself.
First file sharing programs began using the P2P principal back in the 1990s, and it hasn’t changed much since then.
How Does Peer-To-Peer (P2P) Work?
A distributed network of users maintains a P2P system in essence. Because each node stores a copy of the files and acts as both a client and a server to other nodes, they usually don’t need a central administrator or server.
As a result, any node can download or upload files to other nodes. This is what sets P2P networks apart from more traditional client-server systems, which rely on client devices downloading files from a central server.
P2P networks allow connected devices to share files from their hard drives. Users can search for and download files from other devices on the network using software apps designed to facilitate data sharing. After downloading a file, a user can then act as a source for that file.
To put it another way, a client node is one that downloads files from other network nodes. They are, however, the source from which other nodes can get files when they are acting as a server. However, in practice, both functions can be run at the same time (e.g., downloading file A, and uploading file B).
Peer-To-Peer Network Types
P2P networks can be divided into three categories. Let’s take a look at them one by one.
- Unstructured networks
- Structured networks
- Hybrid networks
1. Unstructured networks
Unstructured networks do not have any predefined organization to their nodes. There is very little connectivity between the nodes.
If you need a lot of activity, an unstructured P2P system is the best choice. In a P2P-based platform, users have the option of joining and leaving the network at any time.
However, the unstructured P2P networks have a problem because they demand a lot of CPU and memory resources to run.
The network’s hardware should be able to support as many transactions as possible, which means that every node must be able to communicate with every other node at once.
2. Structured networks
Unlike unstructured networks, structured P2P networks have a well-defined set of rules. A means for the nodes to communicate with each other is provided here.
When looking for files and using them efficiently, rather than randomly, an ordered architecture is used. Hash functions are utilized to do database lookups in these types of structured P2P networks.
Structured P2P networks are unquestionably more efficient. In addition, they employ a structured architecture, which lends itself to centralization.
3. Hybrid networks
P2P networks that combine peer-to-peer and client-server paradigms are known as hybrid P2P networks. For networks that require a central server with P2P capabilities, this is a handy tool.
More efficient than both structured and unstructured P2P networks are hybrid P2P networks. There are many other important benefits, like improved approach and efficiency!
Examples Of Peer-To-Peer Services
The software’s code can be viewed and/or modified by anyone. A central publisher/editor of software is eliminated by crowdsourcing the coding, editing, and quality control of software among authors and users in the open source community.
Filesharing is a place where people who want to share files can do so. Additionally, file-sharing platforms can provide inspection and protection for data that are shared with others. Alternatively, they may provide a way for users to evade intellectual property laws, or they may enforce intellectual property.
Private sellers of goods can use an online marketplace to connect with potential purchasers. Promotion services for vendors, ratings of buyers and sellers based on their history, payment processing, and escrow services can all be offered by online marketplaces.
Cryptocurrency And Blockchain
It is a part of the technology behind cryptocurrencies, the blockchain. Without a central currency issuer or clearinghouse, users can make payments, process, and validate payments on the network. It is possible to do business using cryptocurrency and to enforce smart contracts utilizing blockchain technology.
All or part of a property may be rented to short-term renters through Homesharing. In most cases, home-sharing services handle payment processing, quality assurance, or the grading and certification of owners and renters alike.
Decentralized vs. Distributed
In spite of the fact that the P2P architecture is dispersed, it is crucial to remember that there are different degrees of decentralization. There are certain P2P networks that are not decentralized, such as BitTorrent.
In many systems, the network activity is controlled by a central authority. To give you an example of how this works: Some P2P file-sharing systems allow you to search and download files from other users, but you can’t participate in other operations like controlling search queries.
As a result, even though there is no centralized network architecture, small networks managed by a small user base with common aims can also be said to be more centralized.