DEFINITION of 'Peer-to-Peer (P2P) Service'

A Peer-to-Peer, or P2P, Service is a decentralized platform whereby two individuals interact directly with each other, without intermediation by a third-party, or without the use of a company of business selling a product or service. The buyer and the seller transact directly with each other via the P2P service. Some P2P services do not involve an economic transaction such as buying and selling, but 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.

BREAKING DOWN 'Peer-to-Peer (P2P) Service'

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.
  • Air BnB – 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

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