Peer-to-peer networks are fundamental to Web3 applications. P2P systems are decentralised as they operate without a central authority (no bank or server). Instead, participants connect and interact directly with each other.
P2P participants are called nodes. Nodes are autonomous and have equal status within the system. Each peer has the same ability to validate, store and transmit data. In P2P systems, nodes have identical roles and there is no 'master' node that others refer to.
Bitcoin is the most famous example. Instead of one administrator recording transactions in a ledger, thousands of computers around the world share this task. It is therefore impossible to falsify a transaction. Similarly, banks are central authorities that hold the only copy of your financial records. In contrast, in a blockchain-based P2P network, everyone keeps the ledger.
How Do Peer-to-Peer Networks Work?
The conventional client-server model is centralised: the client sends a request and the server responds. The P2P network overturns this concept. The roles of client and server are reversed.
In a P2P network, each node is both server and client at the same time. In other words, a P2P node can download information from other peers and share it simultaneously. The structure of P2P networks is mesh-like, as each node is connected to many others. There is no central authority.
The more peers are connected, the more robust the network becomes. For instance, the process of downloading a file speeds up if several peers share it. If some connected peers disconnect, the network remains operational as data is shared by many other nodes.
The three types of P2P networks are:
Structured Networks
Nodes communicate according to a defined protocol. They follow an organised method of locating and sharing files. The disadvantage is the presence of a central node that indexes all resources.
Unstructured Networks
Nodes join a peer-to-peer network without a central authority, connecting randomly without a fixed pattern. They are easy to configure and more flexible. The problem is that they consume a lot of computing power when handling large numbers of nodes.
Hybrid Networks
They combine the client-server and peer-to-peer models. A central server maintains a list of peers, and a P2P connection is established for the direct exchange of data. Skype, in its early years, used this model.
The Importance of P2P in the Web3
The many advantages of P2P systems make them crucial for blockchain and Web3 technologies:
- No central point of failure: the network remains operational even if many nodes disconnect.
- Resistance to censorship: there is no authority to block the network or transactions.
- Cost efficiency: no expensive servers or complex operating systems are needed.
- Simple scalability: the addition of peers improves performance.
- Security: consensus and encipherment rules protect the system.
P2P networks are therefore a natural fit for cryptocurrencies, decentralised storage services such as IPFS and numerous decentralised applications.
The Limits of P2P Networks
The same decentralisation that makes P2P networks desirable also causes several problems. Malware on one computer can spread to others. Moreover, copyrighted digital content is easily copied and shared, in the absence of a central authority to regulate it.
Another problem is forking, when communities split up and develop different versions of the network. Ethereum, for example, split into Ethereum (ETH) and Ethereum Proof-of-Work (ETHW) after one faction went its own way. A further threat are the free-riders, i.e. users who take advantage of resources without contributing.
Is P2P Cryptocurrency Trading Safe?
Peer-to-peer crypto trading directly connects buyers and sellers, who interact via decentralised exchanges or dedicated P2P marketplaces. These platforms facilitate the direct transfer of funds between parties. Some use smart escrow contracts that hold the funds until the conditions are met.
The advantages are considerable: no commissions, flexible pricing and no middlemen. But there are also risks: liquidity is often lower than on centralised exchanges and fraudsters can exploit tools such as chargebacks to cancel payments.
To operate safely: use trusted platforms, favour escrow-protected transactions, do not cancel an exchange after payment and always keep proof of payment to resolve any disputes.
Conclusions
Peer-to-peer networks are the foundation of Web3. This technology decentralises systems by eliminating intermediaries, reducing costs and increasing security and resilience. Despite problems such as malware and scams, P2P continues to be a positive force in the digital world.
Peer-to-peer concepts have spawned some of the most revolutionary inventions in the way we share, exchange and connect online. From Bitcoin to decentralised apps, P2P is an integral part of the Web3 and will remain so for a long time to come.
