What Is a Peer-to-Peer (P2P) Service?
A peer-to-peer (P2P) service is a decentralized platform through which two individuals interact directly with each other, without any third-party intermediate. Instead, the buyer and the seller directly transact with each other through the P2P service. The P2P platform may provide search, screening, rating, payment processing, or escrow services.
- A P2P service is a network that connects parties directly to a transaction without the third-party intermediary.
- Peer-to-peer networks exploit technology to resolve the trust, compliance, and data asymmetries transaction costs that have historically been tackled by the use of third-parties.
- Peer-to-peer platforms offer their users services, such as payment processing, buyer and seller information, and quality assurance.
Understanding P2P Services
File sharing systems such as the music-sharing application Napster which appeared in 1999 have popularized the modern peer-to-peer concept. The peer-to-peer movement enabled millions of Internet users to connect and form groups directly, and collaborate as user-created search engines, virtual supercomputers, and file systems. This network arrangement model differs from the client–server model, where communication usually takes place to and from a central server.
Peer-to-peer services today have moved beyond purely Internet services, although they are mostly considered to be at least Internet-based. Peer-to-peer networks cover practices ranging from basic purchase and selling to those deemed to be part of the shared economy. Some peer-to-peer networks don’t even require a users pay transaction at all, but they put individuals together to collaborate on collaborative ventures, exchange information, or connect without a direct intermediate. Such types of P2P services can be operated as free non-profit services or generate revenue by advertising to users or selling data to users.
When a third party is excluded from the transaction, there is a greater risk that the service provider will fail to perform, that the service may not be of the quality anticipated, that the customer may not be able to pay, or that one or both of the parties will benefit from asymmetric information. This extra risk constitutes a peer-to-peer transaction with added transaction costs. Peer-to-peer networks are also developed in an effort to promote these transactions and to reduce the risk to both buyer and seller. The buyer, seller, or both may pay the cost of the service, or the service may be provided for free and in some other way generate revenue.
Popular examples of P2P services include:
- Software that’s open-source: Anybody may access and/or change the software code. Open-source software aims to remove the central software publisher/editor by crowdsourcing the software’s coding, editing, and quality control among writers and users.
- Filesharing: Where uploaders and downloaders meet to share media and software files. Filesharing services can provide scanning and security for shared files, in addition to peer-to-peer networking. They may also provide users with the ability to anonymously bypass intellectual property rights or, alternatively, enforce intellectual property rights.
- Online marketplaces: A network to find potential customers for private sellers of products. Digital marketplaces are able to provide seller promo services, buyer and seller ratings based on experience, payment processing, and escrow services.
- Cryptocurrency and blockchain: A network that allows users to make payments, process and validate payments without a central money issuer or clearinghouse. Blockchain technology enables people to use cryptocurrencies to transact business, and to make and enforce smart contracts.
- Homesharing: Enables owners of properties to rent all or part of their land to short-term tenants. Home-sharing systems usually provide owners and tenants with payment collection, quality control, or ranking and certification.
- Ridesharing: A platform for car owners to provide chauffeur service as taxi-riders. Ridesharing apps provide services similar to home-sharing.