What is peer-to-peer (P2P)?

In computer science, a peer-to-peer network, or peer-to-peer (P2P) network, consists of a group of devices that collectively store and share files. Each participant (node) acts as an individual peer. Usually, all nodes have equal power and perform the same tasks.

In financial technology, the term peer-to-peer is often used to describe the process of exchanging cryptocurrencies or digital assets over a distributed network. P2P platforms allow buyers and sellers to make transactions without the need for intermediaries. In some cases, websites may also provide a P2P environment to connect lenders with borrowers.

P2P architecture can be suitable for many different use cases, but it became especially popular in the 1990s when the first file sharing programs were created. Today, P2P networks are the core element of most cryptocurrencies, making up a large part of the blockchain industry. However, they are also exploited in other distributed computing applications, including web search engines, streaming platforms, online marketplaces, and the Interplanetary File System (IPFS) web protocol. ).

How does a peer-to-peer network work?

In essence, a peer-to-peer system is maintained by a distributed network of users. This network typically does not have a central administrator or server because each node stores a copy of the files and each node acts as a client and server for the other nodes. Therefore, each node can download files from other nodes or upload files to other nodes. This is what differentiates peer-to-peer networks from more traditional server-client systems, in which client devices download files from a centralized server.

On a peer-to-peer network, connected devices share files stored on their hard drives. Using software applications designed to mediate data sharing, users can query other devices on the network to find and download files. Once a user has downloaded a file, they can act as the source of that file.

In other words, when a node acts as a client, they download files from other nodes on the network. But when they act as a server, they are the source from which other nodes can download files. However, in reality, buttons can perform two functions at the same time (for example, download file A and upload file B).

Because each node has functions to store, transmit, and receive files, peer-to-peer networks tend to operate faster and more efficiently as their user communities grow larger. Additionally, their distributed architecture makes P2P systems highly resistant to cyber attacks. Unlike traditional models, P2P networks do not have a single point of failure.

We can classify peer-to-peer systems according to three main architectural styles: unstructured, structured, and hybrid peer-to-peer networks.

Peer-to-peer (P2P) networks are unstructured

Nodes on an unstructured P2P network are not organized according to any particular structure. Participants communicate randomly with each other. These systems are considered to be robust against user churn (where certain nodes frequently join and leave the network).

Although easier to build, unstructured P2P networks may require higher memory and CPU usage because search queries are sent to the highest possible number of peers. This tends to flood the network with queries, especially if there are only a small number of nodes providing the desired content.

Structured peer-to-peer (P2P) network

In contrast, nodes on a P2P network have an organized architecture, allowing nodes to search for files efficiently, even when the content is not widely available. In most cases, this is achieved through the use of hash functions that allow database lookups.

While structured networks can be more efficient, they typically exhibit a higher degree of centralization and often require higher setup and maintenance costs. Additionally, networks are structurally less robust when faced with high user churn.

Hybrid peer-to-peer (P2P) network

Hybrid P2P networks combine a traditional client-server architecture with some aspects of a peer-to-peer architecture. For example, this network can design a central server to create connections between peer computers in the network.

Compared to the other two architectures, hybrid models often demonstrate higher operating performance. They combine the main advantages of each method, providing a significant degree of efficiency and decentralization.

Distributed versus decentralized

Although P2P architecture is distributed in nature, it is important to note that there are different levels of decentralization. So not all P2P networks are decentralized.

In fact, many systems rely on a central system to run network operations, making them somewhat centralized. For example, some peer-to-peer file sharing systems allow users to search and download files from other users, but that user cannot participate in other processes, such as managing search queries.

Additionally, small networks controlled by a small community of users with common goals can also be said to have a higher degree of centralization, despite not having a centralized network infrastructure.

The role of P2P in blockchain

In the early stages of Bitcoin, Satoshi Nakamoto defined it as a “Peer-to-Peer Electronic Cash System” Bitcoin was initially created as a form of digital currency. It can be transferred from one user to another through a peer-to-peer network, which manages a distributed ledger called  the blockchain.

In this context, it is the peer-to-peer architecture, a technology at the heart of blockchain, that allows users to trade Bitcoin and other cryptocurrencies around the world without the need for intermediaries or any servers. Which center? Additionally, anyone can become a node on the Bitcoin network if they want to participate in the process of verifying and validating blocks.

So, there is no bank to process or record transactions on the Bitcoin network. Instead, blockchain acts as a digital ledger that publicly records all activity. Essentially, each node keeps a copy of the blockchain and compares it with other nodes to ensure the data is accurate. The network quickly denies any malicious or incorrect activity.

In the context of cryptocurrency blockchains, nodes can take on different roles. For example, full nodes are nodes that help maintain network security by verifying transactions according to the system's consensus rules.

Each full node maintains a complete, up-to-date copy of the blockchain - allowing them to participate in joint work to verify the actual state of the distributed ledger. However, it is worth noting that not all fully validating nodes are miners.

Advantages of peer-to-peer networks

Blockchain's peer-to-peer architecture offers many benefits. The most important benefit is that peer-to-peer networks are more secure than traditional client-server architectures. The distribution of blockchains across a large number of nodes makes them virtually resistant to Denial of Service (DoS) attacks that have been used to attack many systems.

Likewise, because the majority of nodes must reach consensus before new data is added to the blockchain, it is nearly impossible for an attacker to change the data. This is especially true for large networks like the Bitcoin network. Smaller blockchains are more vulnerable to attacks because one person or group can gain control over the majority of nodes (this is known as a 51% attack).

Therefore, distributed peer-to-peer networks, when combined with the requirement for majority consensus, make blockchains highly resistant to malicious activities. It is the P2P model that makes it possible for Bitcoin (and other blockchains) to achieve so-called Byzantine fault tolerance.

In addition to security, the use of P2P architecture in cryptocurrency blockchains also makes them resistant to censorship by central authorities. Unlike standard bank accounts, governments cannot freeze or empty cryptocurrency wallets. Additionally, P2P architecture also helps blockchains resist censorship by private content platforms and payment processing platforms. Some content creators and online merchants have adopted cryptocurrency payments as a way to avoid payment blocking by third parties.

Limitations of peer-to-peer networks

Despite many advantages, using P2P networks on blockchain also has certain limitations.

Because the distributed ledger must be updated on each node rather than on a central server, adding transactions to the blockchain requires a large amount of computing power. While this increases security, it significantly reduces performance and is one of the main obstacles to scalability and widespread network adoption. However, cryptographers and blockchain developers are researching alternatives that can be used as scaling solutions. Prominent examples include the Lightning Network, Ethereum Plasma, and Mimblewimble protocols.

Another possible limitation concerns attacks that may arise during chain split (hard fork) events. Since most blockchains are decentralized and open source, groups of nodes are free to copy and modify the code and split off from the main chain to form a new parallel network. Chain splits (hard forks) are completely normal and are not a threat in themselves. However, if certain security methods are not applied properly, both chains can easily become targets of replay attacks.

Furthermore, the distributed nature of P2P networks makes them relatively difficult to control and regulate, not least in the blockchain segment. Some P2P apps and companies have engaged in illegal activities and piracy.

Conclude

Peer-to-peer architecture is the core element of blockchain technology - the foundation of cryptocurrency. There are many ways to develop and use peer-to-peer architecture. By dispersing transaction ledgers across a large network of nodes, P2P architecture provides security, decentralization, and censorship resistance.

In addition to their benefits in blockchain technology, P2P systems can also be applied in other distributed computing applications, from file sharing networks to energy trading platforms.