Peer-To-Peer (Virtual Currency)

AAA

DEFINITION of 'Peer-To-Peer (Virtual Currency)'

The exchange or sharing of information, data, or assets between parties without the involvement of a central authority. Peer-to-peer, or P2P, takes a decentralized approach to interactions between individuals and groups. This approach has been used in computers and networking (peer-to-peer file sharing), as well as with currency trading (virtual currencies).

BREAKING DOWN 'Peer-To-Peer (Virtual Currency)'

The evolution of money from gold, to banknotes, to fiat currencies, and finally virtual currencies like bitcoins has been developing for thousands of years. In the context of currencies, P2P refers to the exchange of currencies that are not created by a central banking authority. Currencies that are not traded through a physical exchange, such as through the use of coins and banknotes, are considered virtual currencies. Virtual currencies are transferred between parties electronically.

Peer-to-peer exchanges allow individuals to move currencies from their accounts to the account of others without having to go through a financial institution. P2P networks rely on digital transfers, which in turn rely on the availability of an internet connection. This allows individuals to use computers as well as mobile devices, such as tablets and phones.

Peer-to-peer currencies are not created or exchanged in the same manner as those created by central banks. The creation of new currency as well as the recording of transactions between parties is managed through a network of computers that is not maintained by a government authority, and is thus maintained by the collective.

While privacy advocates may appreciate how peer-to-peer currency exchanges allow individuals to conduct business without government interference, the lack of transparency in virtual currencies may allow individuals and groups engaged in illegal activities to launder money without detection or oversight.

RELATED TERMS
  1. Peer-to-Peer (P2P) Economy

    A Peer-to-Peer, or P2P, Economy is a decentralized model whereby ...
  2. Peer-to-Peer (P2P) Service

    A Peer-to-Peer, or P2P, Service is a decentralized platform whereby ...
  3. Bitcoin Wallet

    A Bitcoin wallet is a software program where Bitcoins are stored. ...
  4. Block (Bitcoin Block)

    Blocks are files where data pertaining to the Bitcoin network ...
  5. Bitcoin Mining

    Bitcoin mining is the process by which transactions are verified ...
  6. Customer To Customer (C2C)

    A business model that facilitates an environment where customers ...
Related Articles
  1. Investing Basics

    The Easy Way To Measure Bitcoin's Fair Market Value: A Do-It-Yourself Guide

    How do you determine the fair market value of a currency that has appreciated faster than the shares of even the hottest technology stocks?
  2. Economics

    What Is Bitcoin's Intrinsic Value?

    What would bitcoin's price look like in the event of widespread adoption?
  3. Investing News

    Will Bitcoin And Walmart Force Western Union To Change Its Business Model?

    Western Union is recognized across the globe for providing a fast, efficient way to move money. Just walk into a Western Union office and you can transfer money to friends, relatives or business ...
  4. Investing Basics

    Basics For Buying And Investing In Bitcoin

    Bitcoin continues to experience growth in both users and merchants, generating a common question - how can you be part of the action?
  5. Investing Basics

    5 Ways Early Adopting Consumers Can Use Bitcoin

    How might consumers use Bitcoin in the near future?
  6. Investing Basics

    What is Bitcoin Mining?

    How does Bitcoin get released into circulation?
  7. Economics

    Who Is Satoshi Nakamoto, Mysterious Bitcoin Founder?

    Short answer: No one knows.
  8. Active Trading

    Bitcoin Mass Hysteria: The Disaster that Brought Down Mt. Gox

    The disastrous halt in trading on Mt. Gox, a popular Bitcoin-trading web site, sent the Bitcoin world into a panic.
  9. Economics

    How Bitcoin Works

    Bitcoin is a digital currency that exists almost wholly in the virtual realm, unlike physical currencies like dollars and euros. A growing number of proponents support its use as an alternative ...
  10. Options & Futures

    Peer-To-Peer Lending Breaks Down Financial Borders

    Banks are no longer the only option for a loan - the P2P lending system operates without them.
RELATED FAQS
  1. What does a block chain record in a bitcoin exchange transaction?

    The bitcoin blockchain is essentially an enormous, shared, encrypted list of which addresses hold what bitcoin balances. ... Read Full Answer >>
  2. How does a block chain prevent double-spending of Bitcoins?

    Double-spending – the incidence of one individual successfully spending a Bitcoin balance more than once – is a major concern ... Read Full Answer >>
  3. How has investing in the Internet sector evolved over time?

    Investing in the Internet sector has become more conservative over time. It reflects a more measured approach that shies ... Read Full Answer >>
  4. How have technical skills shifted over the past century in the workforce?

    Several changes have transformed the skills required of the modern workforce. The influence of technological change has undoubtedly ... Read Full Answer >>
  5. Why do Bitcoins have value?

    Bitcoin was launched in 2009 as the world's first decentralized, private digital currency. Because it has no physical denominations, ... Read Full Answer >>
  6. What are the advantages of paying with Bitcoin?

    Due to the unique nature of virtual currencies, there are some inherent advantages to transacting through Bitcoin that users ... Read Full Answer >>

You May Also Like

Hot Definitions
  1. Bubble Theory

    A school of thought that believes that the prices of assets can temporarily rise far above their true values and that these ...
  2. Stock Market Crash

    A rapid and often unanticipated drop in stock prices. A stock market crash can be the result of major catastrophic events, ...
  3. Financial Crisis

    A situation in which the value of financial institutions or assets drops rapidly. A financial crisis is often associated ...
  4. Election Period

    The period of time during which an investor who owns an extendable or retractable bond must indicate to the issuer whether ...
  5. Shanghai Stock Exchange

    The largest stock exchange in mainland China, the Shanghai Stock Exchange is a nonprofit organization run by the China Securities ...
  6. Dead Cat Bounce

    A temporary recovery from a prolonged decline or bear market, followed by the continuation of the downtrend. A dead cat bounce ...
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!