Before we get into p2p, let me give you a quick overview of how bank transactions work to help you decide why p2p is so essential.
Assume you’re Person-A, and you deposit $100 in your Bank-A account, and you send $10 to your friend Person-B in his Bank-B account, the available balance you see $90 is actually the amount the bank owes you, not any kind of assets the bank has set aside for you or anything related, it’s a ledger based on trust, when you deposit $100, the bank’s ledger settles the amount with other banks or other balances which are overdue
Now, according to Bank-A’s ledger it owes you $90 and $10 to Bank-B, and Bank-B owes your friend-B $10, and Person-A lends Bank-A $90 and Person-B lends Bank-B $10. To settle this, there are many types of accounts with central banks but again its all under the same roof- system of trust, there’s no or very little settlements involved along the process, what you’re sending is just a digital number which is carried forward forever and that’s how banks have the ability to create new money out of thin air.
There are obviously many complications and different types of accounts that banks have with other banks and intermediaries, but the point is what if bank-A owes bank-B $900 and bank-C lends bank-H $50,000 and bank-R 3,000? What if the chain is not equal or well-organized at any point and one of the links fails? Isn’t it true that the entire system can fail? Something similar happened with Lehman Brothers, but in the housing market rather than direct lending and borrowing, which eventually affected not only their lending and borrowing but the majority of banks around the world, many of which went out of business, and it was ultimately the retail users who did suffer the most.
Now, what makes this system so dependent on so many intermediaries? There are several reasons for this, but the one I believe is the lack of infrastructure; the fintech wave moved too quickly for the financial system to first understand the internet and develop a global system.
Banking began as a way to pay for foreign goods and services with something that could be easily exchanged, not for retail users to manage their money.
If I wire $200 from America to India, it will take 2–3 days and may cost up to $20; however, I can physically travel to another continent in less than 3 days, so why? Because, unlike me, who travels to the airport and sits in a plane moved for another continent nonstop, consider the money travelling on connecting flights with hundreds of security checks and long queues at each stop before arriving at its destination.
So, how does peer-to-peer affect things?
It completely changes the game because not only are users connected directly but banks and literally everyone using the network are also connected directly, so if Bank-H or Person-A fails to make their payments, it has no effect on others on the network.
Bitcoin is an amazing use-case of p2p transaction, and I repeat, it is an important use-case of p2p. What matters is the network or base on which bitcoin is developed, which is what makes it so unique. It didn’t start with bitcoin, but bitcoin is the only one that incorporated every tech in a very good and actually useful manner, which is definitely unique to this day.
I strongly advise you to read Satoshi Nakamoto’s original paper.
Why Peer to Peer?
Because you’re not alone.
Peer-to-peer networking is a network architecture in which each computer or device on the network can function as both a server and a client. This means that rather than having a single central server hosting all of the content, each user can host some of it.
Sometimes called mesh networks because they are made up of many smaller networks that connect together to form one large network.
P2P systems are unbeatable; for example, bitcoin has been running continuously since 2009 without a single failure.
If Person-A wants to send $10 to Person-B, he/she can do so directly; if Person-A wants to send $10 to the bank, he/she can also do so directly; he doesn’t really need to rely on anyone because he is not only his own bank but also has 100 percent control over his own funds, by not sending a digital number from one account to another but actually setting the transaction in real-time, anywhere, and at any time.
Peer-to-peer can transform any industry and has enormous long-term potential because it eventually creates a trust-free environment, restoring power to stakeholders.
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Thank you, and cheers to a more decentralised future!