Understanding peer-to-peer Bitcoin transaction

[osasshem]

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.  

This statement connotes why exchanges rendering P2P services will put it clearly for people carrying out such transactions to take note of the sender/receiver's details before executing the transaction, to prevent scam activities happening to any of the users. In other to manage the risk behind P2P, that's the reason for escrow services, which was a tool for local P2P exchanges years back, and anyone who uses a non-trusted platform will have his/her heart in hand when executing the transactions. Building TRUST when it comes to P2P is almost impossible without an escrow.

[snowpega]

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.

Whoops! Haha, my bad. I meant to say that one should make sure to check insurance funds before using custodial platforms. But I said the opposite of that. Using a custodial platform is really like something you fear: you are standing on a mountain verge where you can slip at any time, suddenly. Thanks for mentioning this mistake of mine. That was a writing mistake.

In some cases, escrow is a different thing, which is offered only when a new project promotes its platform to boost the trust level in the community. And, in case any incident occurs or any users become victims of that platform, then they can claim their lost amount back.

[ZAINmalik75]

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.

Miners don't control your funds or even the transactions in the mempool, they simply use their computational power to mine blocks and get rewarded for it, the system isn't controlled by a central authority, it's all decentralized and happens within the ecosystem, which is why you can't say that Bitcoin transactions aren't P2P, because they are, since you send the funds, and I receive them directly without them going to a third-party before reaching me where the third-party can possibly stop them from reaching me or make any changes in it, but that's not the case here.

To @OP, I think we can simply say that Bitcoin is a decentralized peer to peer payment system, and P2P systems where escrows or third-parties are involved, such as the ones we see within centralized exchanges, they are centralized P2P systems, could also be called pseudo P2P, but we can't say they are fake P2P, it's just that both have different working systems. In a decentralized P2P system, the funds go directly from one peer to the other, and in a centralized P2P system, the funds first go to the third-party, and then they are released to the receiving peer upon confirmation from the sending peer.

[ColdLava40]

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.

In theory, peer-to-peer transactions without an intermediary are possible. But then, if the transaction does not take place on a secure platform, how can we be sure that the other party will be honest and fulfil their part of the deal?

This creates doubt and distrust between both parties because neither wants to send their payment first for fear that the other person might not complete the transaction.

An intermediary helps provide a safer way for both parties to complete the transaction without worrying too much about the other party failing to fulfil their obligations.

[Floxynice]

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.

In theory, peer-to-peer transactions without an intermediary are possible. But then, if the transaction does not take place on a secure platform, how can we be sure that the other party will be honest and fulfil their part of the deal?

This creates doubt and distrust between both parties because neither wants to send their payment first for fear that the other person might not complete the transaction.

An intermediary helps provide a safer way for both parties to complete the transaction without worrying too much about the other party failing to fulfil their obligations.

Does the introduction of an intermediary really solve the problem? The issue of trust was not fully eliminated here after introducing an escrow. What happened is that, the trust was shifted from one party to the transaction, to another person being the escrow. Now both parties will have to trust the intermediary to be honest enough to release funds to the right person when needed.

Escrow or not, just do your findings well before transacting p2p with anyone. Be sure that you are not dealing with a scammer 

[lombok]

In theory, peer-to-peer transactions without an intermediary are possible. But then, if the transaction does not take place on a secure platform, how can we be sure that the other party will be honest and fulfil their part of the deal?

This creates doubt and distrust between both parties because neither wants to send their payment first for fear that the other person might not complete the transaction.

An intermediary helps provide a safer way for both parties to complete the transaction without worrying too much about the other party failing to fulfil their obligations.

Autonomous exchange of values between the parties in the absence of a mediator leads to a problem of honesty due to the unwillingness of each side to accept the first loss. Lack of a reliable guarantor results in deadlock in the process of transferring because of the risk of the loss of the goods or financial resources.

Mediation solves the problem through temporary storage of money until all requirements are fulfilled. Trust in implementation of trade deals is gained through the supervisory body which guarantees a fair process of delivery of the goods.

[Sonia_123]

Peer to Peer transaction either by buying or selling bitcoin which ever way has to be done among two genuine persons who wish to send Bitcoin directly to one another account not through the bank or any other third party .

It directly send funds from your digital wallet address to another with a decentralized global network which the miners will now verify your transactions successfully and records it  using cryptographic measures which records it on the block chain permanently without the involvement of any intermediary.

[OcTradism]

Does the introduction of an intermediary really solve the problem? The issue of trust was not fully eliminated here after introducing an escrow. What happened is that, the trust was shifted from one party to the transaction, to another person being the escrow. Now both parties will have to trust the intermediary to be honest enough to release funds to the right person when needed.

Escrow or not, just do your findings well before transacting p2p with anyone. Be sure that you are not dealing with a scammer 

Escrow is for very high trusted person or service, because Escrow acts for safety of a trade for both sides: buyer and seller. There is always risk with anything, and it's the same with Escrow but if buyer and seller actually trade directly peer to peer, with each other, without an Escrow, one of them will have to go first, and  if there is a planned scam, the scammer will not go first, while who go first will be scammed.

It's why we need an Escrow but as said, Escrow can be a scammer.

[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.

Miners don't control your funds or even the transactions in the mempool, they simply use their computational power to mine blocks and get rewarded for it, the system isn't controlled by a central authority, it's all decentralized and happens within the ecosystem, which is why you can't say that Bitcoin transactions aren't P2P, because they are, since you send the funds, and I receive them directly without them going to a third-party before reaching me where the third-party can possibly stop them from reaching me or make any changes in it, but that's not the case here.

Ser, where in my post said that miners control your funds and those transactions in the mempool?

I'm not trying to offend you, BUT I believe you need to learn some basic understanding about the network.

   ¯\_(ツ)_/¯

[Floxynice]

Does the introduction of an intermediary really solve the problem? The issue of trust was not fully eliminated here after introducing an escrow. What happened is that, the trust was shifted from one party to the transaction, to another person being the escrow. Now both parties will have to trust the intermediary to be honest enough to release funds to the right person when needed.

Escrow or not, just do your findings well before transacting p2p with anyone. Be sure that you are not dealing with a scammer 

Escrow is for very high trusted person or service, because Escrow acts for safety of a trade for both sides: buyer and seller. There is always risk with anything, and it's the same with Escrow but if buyer and seller actually trade directly peer to peer, with each other, without an Escrow, one of them will have to go first, and  if there is a planned scam, the scammer will not go first, while who go first will be scammed.

It's why we need an Escrow but as said, Escrow can be a scammer.

Yea, I understand the usefulness of an escrow, however my point is that an intermediary like an escrow should not be treated as the final solution to the issue of trust which gave rise to the introduction of the escrow system in the first place. Even as both peers are trying to eliminate the possible attempt of scam, they should make sure that they employ the services of a reputable and highly trustworthy escrow to avoid running into thesame problems they were running away from by transacting with each other directly.

[Davidvictorson]

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.

Well said.
Once I was done reading the OP, what immediately came to mind was is there a distinction? And which type was being referred to in the Whitepaper by Satoshi?
Since transacting bitcoin became banned in my country, we turned to using the P2P feature of some crypto exchanges. In this case it involved a third party which is the crypto exchange. I have also done P2P without a third party, how for the sake of trust and reliability that the other party will keep their end of the transaction, we most rely on P2P with a third party when it involves strangers. But then like you said, I don't know if this is the context the whitepaper was referring to when it was being published.

[Cookdata]

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.

In theory, peer-to-peer transactions without an intermediary are possible. But then, if the transaction does not take place on a secure platform, how can we be sure that the other party will be honest and fulfil their part of the deal?

This creates doubt and distrust between both parties because neither wants to send their payment first for fear that the other person might not complete the transaction.

An intermediary helps provide a safer way for both parties to complete the transaction without worrying too much about the other party failing to fulfil their obligations.

I'm curious if you know how a peer to peer exchange work or if you have used a decentralized one. If you have not use one, I will advice you use one before you jump into conclusion. You don't need an intermediary in a decentralized p2p, the system is designed to work without any interference. The seller gives Bitcoin and it's lock waiting for the buyer to pay and once transactions is confirmed by the seller, Bitcoin is release to the seller to claim, it's simple.

When there is an intermediary, it's no longer decentralized, that's a middleman which Bitcoin was never a friend. Sadly, everyone prefered centralized exchanges for doing this and it's not even because there is anything special about centralized exchanges, the users refused to used dex to boost liquidity. Most Dex are having liquidity fragmentation, only the privacy ones are fair.

[Asiska02]

I'm curious if you know how a peer to peer exchange work or if you have used a decentralized one. If you have not use one, I will advice you use one before you jump into conclusion. You don't need an intermediary in a decentralized p2p, the system is designed to work without any interference. The seller gives Bitcoin and it's lock waiting for the buyer to pay and once transactions is confirmed by the seller, Bitcoin is release to the seller to claim, it's simple.

To the buyer you meant to say here.
One simple way of interpreting this is simple;

Seller: Bitcoin is locked in escrow by the seller
Buyer: The buyer sends bitcoin to the seller
Seller: Payment is received from the buyer and confirmed
Escrow: Buyer receives the bitcoin from escrow

When there is an intermediary, it's no longer decentralized, that's a middleman which Bitcoin was never a friend. Sadly, everyone prefered centralized exchanges for doing this and it's not even because there is anything special about centralized exchanges, the users refused to used dex to boost liquidity. Most Dex are having liquidity fragmentation, only the privacy ones are fair.

There is another reason for reliance on centralized exchange. Not all direct p2p market place is fully working as a decentralized exchange. How the decentralized escrow mechanism of a DEX is being designed is worthy of being considered when choosing a DEX exchange to use. Eliminating escrow service means accepting likely counterparty risk and DEX doesn’t mean it is safe.

[Alphakilo]

Does the introduction of an intermediary really solve the problem? The issue of trust was not fully eliminated here after introducing an escrow. What happened is that, the trust was shifted from one party to the transaction, to another person being the escrow. Now both parties will have to trust the intermediary to be honest enough to release funds to the right person when needed.

Escrow or not, just do your findings well before transacting p2p with anyone. Be sure that you are not dealing with a scammer 

Escrow is for very high trusted person or service, because Escrow acts for safety of a trade for both sides: buyer and seller. There is always risk with anything, and it's the same with Escrow but if buyer and seller actually trade directly peer to peer, with each other, without an Escrow, one of them will have to go first, and  if there is a planned scam, the scammer will not go first, while who go first will be scammed.

It's why we need an Escrow but as said, Escrow can be a scammer.

Yea, I understand the usefulness of an escrow, however my point is that an intermediary like an escrow should not be treated as the final solution to the issue of trust which gave rise to the introduction of the escrow system in the first place. Even as both peers are trying to eliminate the possible attempt of scam, they should make sure that they employ the services of a reputable and highly trustworthy escrow to avoid running into thesame problems they were running away from by transacting with each other directly.

P2P is successful when the codes, the consensus rules are trusted and in this mode, intermediaries don't interfere and both parties involved have utmost control via their private keys. That's why systems like DEX smart contracts escrows, direct wallet to wallet transfer and on-chain atomic swaps are the best examples where P2P works efficiently and is most effective to achieve the desired aim.

It's even better for traders to run their own nodes for P2P to function at best instead of using third party gateways because this would ensure elimination of scams in the highest degree possible.

[Sandra_hakeem]

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.

Why does it matter? Exchanges have been the only way to break the barrier and initiate a trustless trade (especially for transactions that involve a small amount), so the double spending isn't a problem at all. If you're just trying to discuss the newbies about the differences, make sure to include the risk involved---- in decentralized p2p, you're trading money with someone you barely even know and there's no dispute arbitration team to freeze or make an immediate recovery should things go south.

Eliminating escrow service means accepting likely counterparty risk and DEX doesn’t mean it is safe.

Why the hassle when I can simply get connected with whomever, with a temporary hash and  API, and the transaction goes smoothly even if I decide to not comply after receiving my payment.

[pooya87]

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.

Bitcoin is technically and by all definitions a peer-to-peer network. All full nodes are equals in this network and are considered peers without any form of hierarchy.

Also "the mempool" is not some centralized location where transactions go to for the miners to pull one from it. Whenever someone broadcasts a transaction, they are sending it to other peers in the network each of which have their own mempool. Miners who are workers in this ecosystem, have to run a full node and become a peer in this P2P network to be able to have "a" mempool and construct a candid block to work on based on that mempool.

[OcTradism]

Bitcoin is technically and by all definitions a peer-to-peer network. All full nodes are equals in this network and are considered peers without any form of hierarchy.

Also "the mempool" is not some centralized location where transactions go to for the miners to pull one from it. Whenever someone broadcasts a transaction, they are sending it to other peers in the network each of which have their own mempool. Miners who are workers in this ecosystem, have to run a full node and become a peer in this P2P network to be able to have "a" mempool and construct a candid block to work on based on that mempool.

There are many Bitcoin nodes and Bitcoin mempools with their own configurations.

A transaction with very low fee rate can be not chosen by a mempool because of that node and mempool settings like dropping after 2016 blocks (about 14 days) but is still available in another or other mempools. If that low-fee-rate transaction is not yet dropped out of all Bitcoin mempools, it will stay there till getting a confirmation in the future or the user bumps the fee or double spends.