What are Peer-to-Peer Networks?
A peer-to-peer (P2P) network is a system of decentralized computers known as peers or ‘nodes’. These nodes are all connected and exchange information without an intermediary. The nodes in a P2P network keep the entire network functional. They do this by receiving and broadcasting data to other nodes. Essentially, each computer on the network functions as a server to the rest of the nodes. They keep a copy of the network’s data on their hard drive.
P2P networks can be small-scale with just two computers connected by a USB cord. They can also be a vast worldwide network of computers linked by applications or software.
P2P networks usually process transactions faster because each node on the network can store, receive and send data independently. This contrasts with traditional communication networks, where a single server failure can crash the entire network. The decentralized nature of P2P networks also makes them resistant to cyberattacks.
Use Case of P2P Networks
The earliest use case of P2P networks was with file sharing systems in 1999 with Napster. Napster was a P2P file-sharing application that allowed users to illegally download and share Mp3 files. Whenever a user attempted to download an audio file using the app, it would download the file from another user’s computer on the Napster network.
The peer-to-peer concept was implemented in the Bitcoin network in 2008. Bitcoin’s founder Satoshi Nakamoto designed the digital currency in a way that allowed users to transfer Bitcoin anonymously in a peer-to-peer manner. The Bitcoin blockchain and subsequent blockchains used this model to operate without an intermediary. Public blockchains use a distributed ledger where each transaction is recorded and can be viewed by anyone.
The data on a blockchain is stored in blocks. These blocks form a chain called the blockchain. Each node on the network has a complete copy of all the blocks on the blockchain, this makes it impossible to tamper with the network’s data.
The P2P model makes cryptocurrencies resistant to censorship. There is no central server or ‘headquarters’ to shut down.
There are cryptocurrency exchanges that operate with a peer-to-peer model. They are known as decentralized exchanges (DEX), and they allow users to buy digital assets directly from another user.