How does a P2P crypto exchange work compared to centralized exchanges?

[aanaethan]

When it comes to cryptocurrency trading, users may exchange digital assets in two ways: through centralized platforms or directly with one another via peer-to-peer (P2P) networks. Both ways allow you to purchase and sell cryptocurrency, but their functionality and level of control varies significantly.

 

Centralized exchanges (CEX)

1. How it works: All trades pass via a central authority (the exchange). Buyers and sellers submit orders, and the exchange matches them.

2. Control: The Centralized exchange stores user funds in custodial wallets.

3. Speed: Internal order books allow for faster execution.

4. Risks: It include hacking, withdrawal limitations, and the exchange's ability to freeze accounts.

P2P exchanges

1. How it works: Buyers and vendors are directly connected. No central authority controls funding.

2. Process: Seller lists cryptocurrency with price and conditions.

3. The buyer picks the offer: The P2P exchange employs escrow smart contracts to secure the seller's cryptocurrency.

4. Buyers pay immediately: Once payment is confirmed, the cryptocurrency is released from escrow.

5. Control: Users always keep their monies till they trade.

6. Advantages: Increased privacy, worldwide accessibility, and no intermediary.

7. Risks: It include slower transactions, which are dependent on the reliability of counterparties.