What is a non-custodial P2P exchange and how does it work?
A deep dive into a completely trustless way to buy & trade cryptocurrency.
TL;DR
A non-custodial P2P(peer-to-peer) exchange is a platform that enables crypto traders to directly trade with one another by removing any third-party involvement.
Usually, the amount is transferred to a third-party escrow (custodian), but in the case of non-custodial P2P exchanges the escrow is automated and the funds are held in a smart contract (computer code).
Introduction
P2P cryptocurrency trading is a way to buy and sell cryptocurrencies between users directly, eliminating the need for a centralized exchange. However, P2P still has one last aspect of a centralized exchange. The third-party escrow. A third-party escrow means trusting a centralized exchange. To de-risk this process, we need a non-custodial P2P exchange. This blog will explain what a non-custodial P2P exchange is and how it works. To understand non-custodial P2P exchanges we first need to understand what a P2P exchange is.
What is a P2P exchange?
A P2P (peer-to-peer) exchange is a platform that allows individuals to buy and sell cryptocurrencies directly without the need for a centralized exchange. This means that buyers and sellers can negotiate the price and terms of the trade themselves, making it a more flexible and cost-effective way to trade crypto.
P2P exchanges hold custody of crypto in an escrow, to facilitate trading between buyers and sellers.
P2P exchanges typically work by allowing buyers and sellers to create orders with their preferred prices and payment methods. These orders are then listed on the platform’s order book, where other users can browse and find suitable trades. When a buyer finds a seller with an order that meets their needs, they can accept the offer. Once the trade is agreed upon, the buyer and seller exchange their funds directly and complete the trade.
What is a non-custodial P2P exchange?
In a non-custodial P2P exchange users send their crypto to a smart contract escrow (computer code), instead of a centralized escrow. This last step makes P2P truly P2P. Crypto traders can finally have complete control over their funds throughout the entire trading process. This blog discusses how trading on Zapit’s non-custodial P2P exchange works.
How does non-custodial P2P trading work?
In a non-custodial P2P exchange, users create and manage their own orders. When a buyer finds a suitable seller, they can accept their offer. The seller can then accept or reject the trade request. Once the trade is agreed upon the seller funds the non-custodial escrow & the buyer makes the payment. Once both parties confirm the trade the non-custodial escrow automatically releases the funds. In case there’s a problem either party can raise a dispute.
How does dispute resolution work?
In case of a dispute either of the parties is able to raise an issue within the order which then goes into arbitration mode between the Buyer and Seller and the smart contract provider(in this case Zapit) acting as the arbiter where the payment proofs have to be exchanged. If any of the parties are found to be cheating/deceiving the other, then the arbiter can submit a signed message in favour of the winning party which can be used to retrieve the funds back from the escrow.
Note: The arbiter is not responsible for releasing the funds from the escrow. The funds need to be retrieved by the user. The arbiter only signs a message indicating that the dispute has been resolved in their favour.
Closing Thoughts
Zapit’s non-custodial P2P exchange is a welcome addition to the crypto trading ecosystem. Non-custodial P2P exchanges provide a safer and more secure way to trade crypto, and with the added convenience of being integrated within the Zapit wallet, users can enjoy the benefits of P2P trading without sacrificing security or control. We encourage crypto enthusiasts to try out Zapit’s P2P exchange and experience the benefits for themselves.
