Peer-to-peer (P2P) networks operate on interconnected computers that share resources and information with each other. “Peer” in this case refers to each computer in the network and can also be called a “node”.

To understand the usefulness of peer-to-peer Networks, it’s helpful to contrast them with centralized networks, such as you’d find at a bank or enterprise business:

Features of Traditional/Centralized Networks

  • Allows for centralized security and resource access on company-wide computers.
  • Enables an easy way to integrate levels of access.
  • Having a central point of control (the server/host) enables one person to exert heavy influence.
  • The central point of failure (all data is stored on one server/host) puts users at risk of hacks.
  • The more users that are added to the network, the more it can slow down.
  • If the system needs to be restored, is down, or gets hacked, all users are unable to use it.

Features of P2P Networks

  • Each peer is equal in authority.
  • Peers give computing resources to the network (i.e. processing power, disk storage, or bandwidth) in order to use the network.
  • Sometimes peers are referred to as nodes. Generally, running a node puts you in control of your network data.
  • No single party owns or controls the network.
  • Each user is essentially a server.
  • It’s almost impossible to hack because the network is distributed across many different computers.
  • The more users, the more powerful the network becomes.

As you can clearly see, peer-to-peer networks offer much in the way of security, scalability, and fairness.

A little P2P history

The very first use of P2P networks happened shortly after free-standing PCs hit the market in the 1980s. In contrast to the central mini-mainframes of the day, which served apps and word processing applications to dumb terminals, PCs had their own hard drives and CPUs. This was the first instance of a remote ‘brain’ having onboard applications that could be deployed to desktops without any connection to the mainframe.

In the late ‘90s, Napster brought the P2P model into the mainstream with its file-sharing app. Files for movies and music could be stored across many computers at once. If you wanted to download an album (remember, this is the ‘90s!), a peer on the Napster network could send you the music in MP3 format. Then you’d be able to upload the file to other users who were also wanting to download that album.

Unfortunately, Napster ran into big legal issues because they were essentially enabling the mass pirating of copyrighted music. But still, the P2P system worked well and Napster gained a lot of popularity while still solvent.

How P2P Networks work with blockchain

In the latest age of peer-to-peer networks, blockchain has taken center stage. The need for trusted 3rd parties, such as banks and payment processors, has virtually been eliminated. Data on the blockchain cannot be altered or lost, as its storage is distributed across a multitude of computers or nodes. You can literally send a payment in cryptocurrency from your phone to another user’s phone on a different continent, any time of the day for a tiny cost, and in a highly secure manner that offers financial privacy.

With all these benefits, you might wonder if there are any drawbacks. Here are some of the general downsides to modern P2P networks in the blockchain sphere:

  • The technology is young and is not as user-friendly as the mainstream, yet.
  • You’ll need some level of tech-savviness to keep digital assets secure.
  • Losing your private keys means the assets are gone forever, so the knowledge and use of hard wallets and cold storage are a must.
  • Regulations are iffy. These types of P2P payments might even be illegal in your country. On top of that, governments across the globe are attempting to rein in the proliferation of cryptocurrencies.

While federal regulatory agencies say they want to protect users who participate in P2P cryptocurrency networks like Bitcoin, it is these same users who feel they need data protection and financial privacy in this age of surveillance and big tech data mining. Once the understanding of bitcoin and other peer-to-peer protocols really sinks into the mainstream consciousness, the market will determine the direction.