After blockchain gradually crept into the online space, cryptocurrency became the buzzword. In a short time, users started transacting with cryptocurrencies, which were viewed as an alternative form of money. Traditionally, financial transactions have to pass through the banks, which are seen as the central authorities licensed by the governments. The question is, how did cryptocurrency bypass the existing structure and become an industry of its own without the backing of the government or a central server managed by a board of directors?  The answer is “Peer-to-Peer Network,” a key component of the Blockchain System.

Understanding Peer-to-Peer (P2P) Networks

What are P2P Networks?

Peer-to-peer, or P2P, technology is at the core of decentralization, allowing network participants to conduct transactions without involving an intermediary or centralized authority. Connected computers, known as nodes, make these peer-to-peer networks. These nodes are primarily connected devices scattered across the globe, hence the word “peer-to-peer.” All nodes communicate with each other, perform transactions, and store transaction records, making them transparent, immutable, and unforgeable.

The Mechanics of P2P Networks

In a P2P network, there’s no central authority or server. Instead, each peer acts as both a client and a server, offering resources and consuming them simultaneously. This could be anything from bandwidth and storage space to files and information. The network is self-organizing and adaptive, meaning that as peers join or leave the network, it adjusts itself accordingly. This makes P2P networks highly scalable and robust, as there’s no single point of failure.

The History of P2P Networks

The concept of P2P networks isn’t new. It dates back to the early days of the internet, with the advent of file-sharing platforms like Napster and Gnutella. These platforms leveraged the power of P2P networks to enable users to share music files directly with each other, bypassing traditional distribution channels.

P2P Networks Today

Today, P2P networks have evolved far beyond simple file sharing. They’re at the heart of some of the most innovative and disruptive technologies of our time. From the blockchain technology that powers cryptocurrencies like Bitcoin, to the distributed computing power of projects like SETI@home, P2P networks are reshaping the digital landscape.

Types of Peer-to-Peer (P2P) Networks?

There are different architectures for connecting nodes that form a P2P network, eventually influencing their mode of operations and effectiveness. Below are the three types of peer-to-peer networks:

1. Structured peer-to-peer network
2. Unstructured peer-to-peer network
3. Hybrid peer-to-peer network

1. Structured Peer-to-Peer Networks

Structured P2P networks have data arranged structurally, enabling effective queries or access to data. Nodes in this type of network are organized, making communication efficient. Despite the ease of access to data, setting up this type of network can be stressful. This network’s structure serves as its downside since an organized data structure comes with some sort of centralization, unlike the unstructured network.

2. Unstructured Peer-to-Peer Networks

Network participants (nodes) can join or leave as they please since there is no rigid or restrictive structure. The absence of structure allows random communication between nodes. In order to power a large number of transactions, all nodes must be active, i.e., a large amount of CPU power must be maintained on the network. Generally, they aren’t as efficient as the structured network.

3. Hybrid Peer-to-Peer Networks

These are usually a combination of peer-to-peer and client-server networks with a central server. The central server can locate a node, but the hybrid rarely performs better than its two counterparts. 

8 Benefits of a P2P Blockchain Network

The activeness of nodes or peers in the P2P network cancels out the possibility of a single point of failure (SPOF) as it is with centralized servers. Compared to the traditional client-server architecture, peer-to-peer networks offer additional benefits, which are listed below:

1. In contrast to client-server architectures, which experience “server not reachable” delays whenever the central server goes down, peer-to-peer networks are always accessible.
2. In a peer-to-peer network, each computer manages itself compared to the general maintenance needed for a centralized server. As a result, setting up and maintaining the network is quite simple.
3. P2P networks are economical; they lower operational costs since they are easily scalable and do not need a network operating system.
4. Users can easily download or interact with the servers in closer proximity, which is faster than traditional client-server systems since files are distributed across many nodes (computers).
5. Since each node transmits, receives, and stores data, P2P networks become more efficient as the number of nodes increases.
6. Due to their decentralized nature, peer-to-peer systems are resistant to cyberattacks.
7. The P2P architecture in cryptocurrency and alternative finance, such as DeFi, limits the power of the traditional financial system while offering resistance against censorship from the government and central authorities.
8. It is nearly impossible for an attacker to add a false block of information or edit the already added records due to the need for most nodes to establish consensus before adding data to the blockchain (immutability of records).

The Future of P2P Networks

P2P Networks and the Internet of Things (IoT)

As the Internet of Things (IoT) continues to grow, P2P networks could play a crucial role. With potentially billions of devices needing to communicate, traditional client-server models may not be able to keep up. P2P networks, with their scalability and resilience, could provide the solution.

For instance, in a smart home scenario, various devices like thermostats, lights, and security systems could communicate and share data directly with each other using a P2P network, improving efficiency and reducing reliance on a central server. This could lead to more responsive and adaptable smart home systems.

P2P Networks and Decentralized Finance (DeFi)

Decentralized Finance (DeFi) is another area where P2P networks are set to make a big impact. By eliminating the need for intermediaries, P2P networks could enable more efficient, transparent, and inclusive financial systems.

In the DeFi space, P2P networks could facilitate direct transactions between parties, bypassing traditional financial institutions. This could lead to faster transaction times, lower fees, and greater financial inclusion, as anyone with an internet connection could potentially access DeFi services. Furthermore, P2P networks could enable innovative financial services like peer-to-peer lending and decentralized exchanges, opening up new possibilities for the financial sector.

Conclusion

The peer-to-peer network isn’t a new concept; blockchain has only embraced it and brought it to the forefront. With blockchain technology growing and being adopted in different sectors of the economy, peer-to-peer networks will also grow in popularity and be applied to various fields beyond being a key component of blockchain technology. As a result, Blockchain has led the way, and it is a welcome development.

Identity.com

Blockchain is the future, and it is impressive to see Identity.com contributing to this desired future through the Solana ecosystem and other Web3 projects. Also, as a member of the World Wide Web Consortium (W3C), the standards body for the World Wide Web.

Identity.com, as a future-oriented company, is an open-source ecosystem providing access to on-chain and secure identity verification for businesses,  giving their customers a hassle-free experience. Our solutions improve the user experience and reduce onboarding friction through reusable and interoperable Gateway Passes. Please refer to our docs about how to help you with identity verification and general KYC processes.