Understanding peer-to-peer Bitcoin transaction

[Ucy]

On a Bitcoin Whitepaper, Bitcoin is defined as a peer-to-peer(p2p) electronic cash system. The focus for today is on the p2p part and what it actually means in the context of the Whitepaper, so that when we see it anywhere we easily recognize it rather than confuse it with false or pseudo peer-to-peer.

What does it mean when a transaction or exchange is truely peer-to-peer? It should actually mean that an exchange happens while both transacting peers are in control of their funds or private keys. This could also be considered a decentralized peer-to-peer exchange, while cases where funds of one or two exchanging peers are controlled by centralized platforms are considered false p2p exchange. Again, p2p is false when one or two exchanging peers do not control their funds... the funds is/are controlled by a third party.  

So, for an exchange between peers to be truely p2p and decentralized, it has to happen between exchanging peers who control their funds or private keys rather than one or more third party platforms holding the funds on their behalf. Both the sending and receiving peers have to be in charge of their private keys.
And a two-way exchange method such as between an Instant Exchange platform and a second peer could also be considered decentralized exchange, as long as the peers (the instant exchanger and the second peer) control their keys.  Ofcourse, a better decentralized exchange should be done within a shared opensource platform that a peer can't unilaterally control, and that allows for running of nodes with smart-escrow/contract where exchanging funds are temporary held and later released to exchanging peers once term of contract is fulfilled or the right amount of funds from both peers are received by the smart contract.

[Agathamay]

Bitcoin on its own is a decentralized digital peer to peer currency but despite these fact, I think the issue of exchanging bitcoin for fiat would always be a problem because of TRUST issues and so far, I think using these exchanges wether centralized or decentralized as long as it's intended strictly just exchange and not holding our funds with it because one way or the other, for successful exchange transaction to be carried out especially among two total strangers, I think the use of escrow would alway be preferred for the safety of both the buyer and the seller and the moment a third party escrow is involved, the trade no longer counts as a decentralized transaction and that is why I think for an actual exchange transaction to go on, it might be difficult to ignore a third party to actualize it especially if it's a first time transaction.

[eternalgloom]

Instant exchange platform such as ChangeNOW or SimpleSwap act as service intermediaries. They have their own liquidity pool and central reserve. When we swap through them, we send them fund to an address and they send us fund from their address. It is P2B or Peer to Contract model.

It is not Peer to Peer by any mean. Because rate and condition of third party platform have to be followed.

Ofcourse, a better decentralized exchange should be done within a shared opensource platform that a peer can't unilaterally control, and that allows for running of nodes with smart-escrow/contract where exchanging funds are temporary held and later released to exchanging peers once term of contract is fulfilled or the right amount of funds from both peers are received by the smart contract.

Yes, to be true P2P transaction, this must be the case.

Funds will always be in on chain wallet controlled by your private key before and after transaction.

Open source platform like Bisq, Hodl Hodl or RoboSats are closest examples of true decentralized P2P today.

[joniboini]

I think changing the terms from peer to peer electronic system to peer to peer transaction itself is wrong. In the context of the whitepaper, satoshi talked about solving double-spending issue without reliance on a third party, hence where the peer to peer network comes in. I don't think the whitepaper defines exactly how and what a true P2P exchange is, or if that's their goals at all. Even the word "escrow" only comes up once iirc. I think it's fine to discuss that without including whitepaper as the context though.

[OcTradism]

On a Bitcoin Whitepaper, Bitcoin is defined as a peer-to-peer(p2p) electronic cash system. The focus for today is on the p2p part and what it actually means in the context of the Whitepaper, so that when we see it anywhere we easily recognize it rather than confuse it with false or pseudo peer-to-peer.

Actual Peer to Peer trades are only between people, buyers and sellers, no middle men as Escrow, no middle platforms such as P2P market places. If there are such middle ones, it's pseudo Peer to Peer trades.

A list of LocalBitcoin alternatives (P2P marketplaces).
Pseudo P2P marketplaces even require KYC on users.

Why KYC is extremely dangerous – and useless.

[pooya87]

Peer to Peer networks are any network where all participants in that network are considered peers aka equals and there is no hierarchy.

What does it mean when a transaction or exchange is truely peer-to-peer?

There is a slight difference here though.
A transaction (like a bitcoin tx) is 100% peer-to-peer since you are not leaving the network and you do not need something else. You send bitcoin and the other party receives it.

In a trade, you are getting something else that does not belong to this P2P network involved. For example you are exchanging your bitcoins for fiat or bitcoin for another cryptocurrency. That additional thing sometimes beings in centralization and lack of P2P-ness!

For example if you want to exchange your bitcoin for dollar, because of the centralized nature of fiat and reversibility of majority of fiat-related payment methods, sometimes you need that centralization too if you want to be safe.
In other cases it is not necessary even if it is used. Like swapping bitcoin for some other altcoin like LTC. It could be done with protocols like Atomic Swap and in a purely decentralized and P2P way without needing any third party. Which is what you said here yourself:

So, for an exchange between peers to be truely p2p and decentralized, it has to happen between exchanging peers who control their funds or private keys rather than one or more third party platforms holding the funds on their behalf. Both the sending and receiving peers have to be in charge of their private keys.

[Agbe]

Peer to Peer networks are any network where all participants in that network are considered peers aka equals and there is no hierarchy.

And also, it is the the direct transaction between two people without a third party involvement. Example. I went to a shop/store, I bought a phone and send the bitcoins direct to the seller's non custodial wallet and not to his centralized exchange. But if the seller received it from an exchange, it is not p2p because that exchange is the third party and it is a business platform which the government is regulating.

Therefore peer - to - peer doesn't need centralized exchange but the direct exchange of coins between two users in the Blockchain.

[SeriouslyGiveaway]

And also, it is the the direct transaction between two people without a third party involvement. Example. I went to a shop/store, I bought a phone and send the bitcoins direct to the seller's non custodial wallet and not to his centralized exchange. But if the seller received it from an exchange, it is not p2p because that exchange is the third party and it is a business platform which the government is regulating.

Therefore peer - to - peer doesn't need centralized exchange but the direct exchange of coins between two users in the Blockchain.

Peers on Bitcoin network are people who run their Bitcoin nodes, either full nodes or prune nodes or light nodes like SPV nodes, and their trades are directly with each other, peer to peer on Bitcoin blockchain, through their nodes.

Of course their trades are something like pizzas, honey pots, books, anything else but firstly and most importantly, the buyer and seller sends bitcoin and receive bitcoin of the trade peer to peer. Pizzas, honey pots, books, other things will still need to be delivered but it's another part of their trade.

This trade is peer to peer
Pizza for bitcoins?
Bitcoin Pizza Day: Urban Legend or Real Transaction?
Different types of Bitcoin nodes.

[snowpega]

When it comes to such cases, we need to understand the nuance of this matter that P2P really include big risks sometimes.
This is why it is better if you have a trusted person who can exchange the amount directly; then you should not use any custodial or non-custodial platforms in such conditions. But such a case is very rare at some point. So, if we talk about the second priority, then I think using a non-custodial platform can also be a better choice, but before using any non-custodial service, one should make sure that the platform has insurance funds and, in case you get stuck in any problem, you can claim back the funds you lost.

Your last choice can be custodial platforms, but we all know using such platforms can be way riskier than one can even imagine. In the recent time, a friend of mine got into legal trouble due to P2P coins being exchanged on CEX. The person who sent him money was using illegal money, but my friend didn't know that. One day later, he got a notice from the authorities, and his bank account was blocked. This is why it is better to avoid using CEX or use it as a last resort.

[noorman0]

When it comes to such cases, we need to understand the nuance of this matter that P2P really include big risks sometimes.
This is why it is better if you have a trusted person who can exchange the amount directly; then you should not use any custodial or non-custodial platforms in such conditions. But such a case is very rare at some point. So, if we talk about the second priority, then I think using a non-custodial platform can also be a better choice, but before using any non-custodial service, one should make sure that the platform has insurance funds and, in case you get stuck in any problem, you can claim back the funds you lost.

Non-custodial platforms place the risk on the end user (involving only you, another user, and the blockchain), so how could a transaction reversal be carried out by the user themselves? Do you mean that this involves escrow, or are you perhaps misinterpreting the concepts of custodial and non-custodial? Honestly, I have never come across a non-custodial service that also offers recovery insurance.

[slaman29]

Non-custodial platforms place the risk on the end user (involving only you, another user, and the blockchain), so how could a transaction reversal be carried out by the user themselves? Do you mean that this involves escrow, or are you perhaps misinterpreting the concepts of custodial and non-custodial? Honestly, I have never come across a non-custodial service that also offers recovery insurance.

I think he means escrow. There are non-custodial platforms that you can perform P2P transactions where the insurance is locked in by smart contract. So usually the seller has to do this, signed in multisig escrow (they can call it insurance). After the trade is completed, both seller and buyer sign, and the insurance is released back to the seller.

[Aanuoluwatofunmi]

What does it mean when a transaction or exchange is truely peer-to-peer?

To me, are we even allowed to make use of a centralized platform P2P for our maximum privacy, maybe P2P is expected to take place under a decentralized platform ideally, but it's such an incident today that has been happening that many are depending on using centralized exchange for their P2P, which is not perfectly advisable as expected, exchange shouldn't be the major custodial to using P2P when we can have it on a decentralized platform.

[aoluain]

On a Bitcoin Whitepaper, Bitcoin is defined as a peer-to-peer(p2p) electronic cash system. The focus for today is on the p2p part and what it actually means in the context of the Whitepaper, so that when we see it anywhere we easily recognize it rather than confuse it with false or pseudo peer-to-peer.

What does it mean when a transaction or exchange is truely peer-to-peer? It should actually mean that an exchange happens while both transacting peers are in control of their funds or private keys.  

So really to nail it down to its exact meaning the two parties have to face-to-face, nobody in
the middle. This can still happen today and can be setup anywhere online with plans made to
trade purely peer-to-peer, Isnt that what 'localbitcoins' is based on?

Unfortunately/fortunately there are automatic exchanges as per my Signature which handle
the transaction or other exchanges which I would refer to as semi-automatic like HodlHodl which
only hold the transacted Bitcoin for the duration of the trade, probably average of 15 minutes.

For me this is an acceptable compromise because ATM I dont want to transact face-to-face or transact
address to address with someone I dont know.

[Hyphen(-)]

Peer to Peer networks are any network where all participants in that network are considered peers aka equals and there is no hierarchy.

And also, it is the the direct transaction between two people without a third party involvement. Example. I went to a shop/store, I bought a phone and send the bitcoins direct to the seller's non custodial wallet and not to his centralized exchange. But if the seller received it from an exchange, it is not p2p because that exchange is the third party and it is a business platform which the government is regulating.

Therefore peer - to - peer doesn't need centralized exchange but the direct exchange of coins between two users in the Blockchain.

What so many crypto users refers to as p2p system is exchanging crypto to fiat, some of them don’t know the exact meaning if peer to peer, maybe because centralized exchanges has come with means of buying and selling or exchanging of crypto Bitcoin through the exchange without knowing the exact meaning of peer to peer which shouldn’t involved any third party. It should  be direct between both parties to the blockchain and none should be an escrow.

Decentralized exchanges offer similar services where everyone will have the control of their coin, you interact direct to the blockchain without bothering for KYC, and you get your service done.

[Catenaccio]

What so many crypto users refers to as p2p system is exchanging crypto to fiat, some of them don’t know the exact meaning if peer to peer, maybe because centralized exchanges has come with means of buying and selling or exchanging of crypto Bitcoin through the exchange without knowing the exact meaning of peer to peer which shouldn’t involved any third party. It should  be direct between both parties to the blockchain and none should be an escrow.

Peer to peer means there are two peers trade with each other.
Escrow is something always third party but it can be a person acts as an Escrow or a platform like P2P marketplace. You misunderstood the meaning of Escrow because it's never about one of two peers in a Peer to Peer trade plays as an Escrow.

Escrow nowadays is different than what Satoshi Nakamoto thought of.
Escrow with raw ideas in August 2010.

[Wind_FURY]

OP, although, Bitcoin isn't technically a peer-to-peer network. It's a broadcast network where the transactions go to the mempool, then the miners pull the transactions from the mempool to include in a block. It's not really going from one peer directly to another peer.

[Btcdeybodi]

When talking about the bitcoin whitepaper, you need to remove the word "exchange" because it doesn't exist. The Bitcoin whitepaper do not recognise P2P exchanges, it is strictly about decentralised payment system that will involve only the sender and the receiver without a third party intruder. The P2P transaction that the whitepaper is talking about is not an exchange because you are literally sending same coin to the receiver, you ain't trading the coin. When you talk about exchange it means you are moving away from bitcoin to another coin or to fiat which are done on centralized platforms.