Cryptocurrency exchanges offer different methods for buying and selling cryptocurrencies. P2P (Peer-to-Peer or Person-to-Person) is one of the most popular of these methods. You can buy cryptocurrencies from one person and sell it to someone else when the price increases. It can be a little confusing. Here’s a calm look at what P2P is and how it works.
What is P2P?
In simple terms, P2P is like a marketplace just like OLX, Aliexpress, or Jiji.ng. If you visit any of these sites, you’ll see that people have listed items they want to sell and you can contact the seller directly to buy it.
Here’s an example: If you want to buy a phone on Aliexpress, you will see many people selling the same phone at different prices. You can choose who to buy from, and contact them. Aliexpress will hold the money and ship the phone to you. When you confirm that you have received the phone. Aliexpress will pay the seller.
Another example of P2P is when you want to change dollars on the street. You meet several people who want to sell dollars for naira and some of them have lower rates than others. The point is that you don’t know any of these people but you’ve come to a common meeting ground to swap money with them and after this transaction, you’ll go your own way.
The most important thing is that you can transact peacefully without having to know the other person. This is possible because a middle person between you and the seller who guarantees that things run smoothly.
The Role of the Middle person (or Escrow) in P2P
Imagine you go to your friend’s house and meet a bunch of people there. You’re feeling lucky so you tell a stranger “hey, let’s play Fifa and bet 50,000 Naira each”. The person doesn’t know you so they ask how they can be sure you’ll pay them if they win. The owner of the house who is your mutual friend steps in and says “I know both of you so I’ll hold the money as you play and pay whoever wins will get the money”.
This person has just stepped in as a middle person, just like aliexpress in our earlier example. In crypto, the exchange you use tends to act as the middle person between you and whoever you’ll be transacting with. A middle person ensures that you have a single point of contact that knows everyone involved in the transaction.
Benefits of P2P
P2P has several benefits especially for making profit. And the best part is that they come with low risk. The benefits include:
- Profit from trading cryptocurrencies. Imagine you’re one of the phone sellers on Aliexpress. The current price of a phone is ₦100,000. If you set a price of ₦110,000 and someone buys it, then you’ve made some profit. You can also list your cryptocurrencies like Bitcoin at a price above the current price and find buyers. And you can repeat this transaction many times as the price of Bitcoin increases.
- Profit from trading your local currency like the Naira directly with other people. For example, you can sell naira stored in your Quidax wallet to another quidax customer who’s trying to put money in their wallet. For this transaction, you can set an exchange rate of ₦1.02.
This means that for every ₦1 you sell, you’ll get ₦1.02 in return. If you sell ₦100,000 at that rate, it means the buyer will pay ₦102,000 into your bank account and receive ₦100,000 in their Quidax Naira wallet. If you repeat this transaction 10 times in one day, you’ll have ₦20,000 in profit daily.