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. Closed Virtual Currency

    A closed Virtual Currency is an unregulated digital currency ...
  2. Convertible Virtual Currency

    Convertible virtual currency is an unregulated digital currency ...
  3. Peer-to-Peer (P2P) Service

    A Peer-to-Peer, or P2P, Service is a decentralized platform whereby ...
  4. Peer-To-Peer Lending (P2P)

    A method of debt financing that enables individuals to borrow ...
  5. Currency Exchange

    A business that allows customers to exchange one currency for ...
  6. Trade

    A basic economic concept that involves multiple parties participating ...
Related Articles
  1. Investing

    How to Invest in Peer-to-Peer Lending

    Peer-to-peer (P2P) loan investments offer an alternative fixed income investment for investors seeking low volatility with high yielding, steady streams of income.
  2. Investing

    The Top Uses For P2P Currency Exchange

    Peer-to-peer (P2P) currency exchange networks offer a viable and cheaper alternative for buying and selling currencies.
  3. Retirement

    Retirees: Make More Money as a Peer-to-Peer Lender

    With interest rates keeping traditional investment returns low, peer-to-peer lending offers retirees a chance for higher returns – along with higher risk.
  4. Personal Finance

    How Risky Is Borrowing Online?

    Peer-to-peer lending is a new but fast-growing market, but the ease and convenience of using online lenders can entice you to overspend. So how safe is it?
  5. Small Business

    Top 3 Safest Peer-to-Peer Lending Websites

    Add safety and reputation to your checklist when you consider borrowing from an online lender.
  6. Tech

    Why Governments Are Afraid Of Bitcoin

    Bitcoin is the first decentralized peer-to-peer payment network and cryptocurrency. Governments may fear Bitcoin because its value is determined by users and not central governments or banks. ...
  7. Tech

    3 Disrupters of Retail Banking

    Understand how the retail banking industry operates and why it's becoming outdated. Learn about three disrupters that are changing the way consumers bank.
  8. Insurance

    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.
  9. Tech

    Technology, The Biggest Threat For Big Banks

    Technology is the biggest threat to the future of big banks as we know them.
RELATED FAQS
  1. What types of companies benefit from reporting results utilizing constant currencies ...

    Understand constant currency figures, and explore some of the reasons why a company is likely to benefit from reporting using ... Read Answer >>
  2. What are the advantages of paying with Bitcoin?

    Learn how payments made with Bitcoins offer certain advantages over standard currency, including user anonymity, no taxation ... Read Answer >>
  3. What are key economic factors that can cause currency depreciation in a country?

    Read about the causes of currency devaluation, and find out how to differentiate between relative and absolute currency devaluation. Read Answer >>
  4. Is Bitcoin legal in the US?

    Learn about the legality of Bitcoin as a form of payment in the United States, as well as how it is produced and concerns ... Read Answer >>
  5. Why is the U.S. dollar shown on the top of some currency pairs and on the bottom ...

    All currencies are traded in pairs. The first currency in the pair is called the base currency while the second is called ... Read Answer >>
Hot Definitions
  1. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  2. Down Round

    A round of financing where investors purchase stock from a company at a lower valuation than the valuation placed upon the ...
  3. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  4. Portfolio Investment

    A holding of an asset in a portfolio. A portfolio investment is made with the expectation of earning a return on it. This ...
  5. Treynor Ratio

    A ratio developed by Jack Treynor that measures returns earned in excess of that which could have been earned on a riskless ...
  6. Buyback

    The repurchase of outstanding shares (repurchase) by a company in order to reduce the number of shares on the market. Companies ...
Trading Center