What Does Peer-to-Peer (P2P) Service Mean?

A peer-to-peer (P2P) service is a decentralized platform whereby two individuals interact directly with each other, without intermediation by a third-party. Instead, the buyer and the seller transact directly with each other via the P2P service.

Peer-to-Peer (P2P) Service Explained

Some peer-to-peer services don't involve an economic transaction, such as buying and selling, but they do bring together individuals to work on joint projects, share information, or communicate without intermediation.

When a third party is removed from the transaction, there is a greater risk that the provider of the service may fail to deliver, that the service will not be of the quality expected, or that the buyer may not pay. This extra risk is often defrayed by reduced transaction costs and lower prices. Often, businesses are created with the intent of facilitating P2P transactions and reducing risk for both buyer and seller. The majority of P2P services today are offered online.

Peer-to-peer services bring together individuals, as opposed to bringing together businesses (B2B) or a consumer to a business. Some popular examples of P2P services are:

  • Open-source Software – anybody can view and/or modify code for the software
  • BitTorrent – a popular anonymous file-sharing platform where uploaders and downloaders meet to swap media and software files.
  • AirBnB – allows property owners to lease all or part of their property to short-term renters.
  • Uber – a platform for car owners to offer livery service to people seeking a taxi ride
  • Spotify – uses P2P networking to efficiently stream real-time audio content on-demand
  • eBay – a marketplace for private sellers of goods to find interested buyers.
  • Etsy – producers of crafts and other homespun goods can sell them directly to the public.

History of the Peer-to-Peer Concept

The modern peer-to-peer concept was popularized by file sharing systems, such as the music-sharing application Napster, which appeared in 1999. The peer-to-peer movement allowed millions of Internet users to directly connect and form groups and collaborate with each other to function as user-created search engines, virtual supercomputers, and file systems. The basic concept of peer-to-peer computing was envisioned in earlier software systems and networking discussions, reaching back to principles stated in the first Request for Comments, RFC 1.

A peer-to-peer network is designed around the concept of equal peer nodes, simultaneously functioning as both "clients" and "servers" to the other nodes on the network. This model of network arrangement differs from the client–server model where communication is usually to and from a central server.