It might have appeared that the definition of P2P is problematic—well, it is! P2P can be so broad in scope and definition that getting one's arms around P2P can be an enormous task. P2P came about as an answer to user needs for Internet-enabled application software. The Internet is always evolving and offering up new technologies, techniques, and user behavior every day. P2P is evolving along with the Internet, so fixed definitions do not usually last long.
WHAT IS P2P?
An easy way to get your arms around a P2P definition is to look at the functions delivered by the most notable P2P applications, including the following:
- Instant messaging
- Managing and sharing information
What started out as simple file sharing, such as exchanging music files, has grown to include a wide array of applications and services. These are grouped under the umbrella term distributed P2P services. These include network and infrastructure software to enable:
- Distributed processing (grid computing)
- Distributed storage
- Distributed network services
Although many of these applications began as ways to distribute stolen copyrighted music and video files, P2P has reached a level of maturity that is no longer confined to personal, casual use, but rather to build e-market hubs, corporate infrastructure, and Internet-enabled applications. In addition, single-function P2P applications are giving way to multifunction service-based architectures. For instance, it is common to aggregate instant messaging, file sharing, and content management to build distributed collaborative P2P applications.
P2P EVOLUTION: 14 MAJOR STEPS
The history of P2P is permeated with hundreds of initiatives that could make for a comprehensive list - this is only meant to be a gentle introduction to a field of research that has been increasingly spawning global socio-economic experiments.
The peer to peer movement is rooted in the early internet and has given birth to countless protocols and applications that, on the most extreme cases, redefined our way of consuming entertainment (Content delivery, File-sharing networks, Multimedia, Finance, E-commerce). P2P can be self-scalable, censorship-resistant, anonymous — and the robustness of present implementations is the product of incremental evolution.
1969 - ARPANET
- The ARPANET originally connected the UCLA, Stanford Research Institute, UC Santa Barbara and the University of Utah not in a client/server format but treating them as equal computing peers.
- 1973 Public Key Cryptography. What would later spawn the RSA encryption algorithm is first implemented
1979 - USENET
- Usenet was developed by American graduate students, based on the Unix-to-Unix-copy protocol (UUCP). Through it, a Unix machine could automatically dial another, exchange a file, and disconnect, in what resembled a bulletin board system (BBS) that’s somehow precursor to the forums and feeds we have today. Usenet arguably gave birth to terms such as “FAQ” and “spam”
- MERKLE TREES - Ralph Merkle invents what would become the basis of git - and other versioning systems.
- 1981 - UNTRACEABLE ELECTRONIC MAIL RETURN ADDRESSES, AND DIGITAL PSEUDONYMS. David Chaum proposes “mix networks” for anonymous communication
- 1983 - E-CASH. David Chaum
- 1984 - SONY X UNIVERSAL. The Betamax case, and jurisprudence in favor of P2P
- 1992 - PRICING VIA PROCESSING
- 1993 - RAR. The popular compression format is invented
- 1995 - DIGICASH. David Chaum founds the first known “electronic money corporation”
- 1996 - INDEPENDENCE. A Declaration of the independence of Cyberspace is published by John Perry Barlow
1997 - HOTLINE
- Distributed shareware
- HASCASH. Adam Back re-proposes the Hashcash
- 1998 - DMCA
- 1998 - BITGOLD, B-MONEY
1999 - NAPSTER
- “MP3” becomes more popular in search than “sex”
- Throughout the 80s and 90s, the client-server model flourished since the power of CPUs available to consumers was still small (albeit rising). Most file transfers happened over the landline telephone, with FTP and USENET gaining usage along the period, and the IRCbeing invented in 88. In the late 90s, new data compression technologies (MP3, MPEG) came into mainstream use and were probably the last straw.
- This Internet zeitgeist began shifting back peer to peer with the introduction of Napster, developed by Shawn Fanning while still a freshman at Northeastern University. Users downloaded a free program that searched the local disks of neighboring computers for MP3 files and they were able to download these directly from one another.
2000 - FREENET
- Freenet brought a major improvement in regards to user anonymity, inaugurating what would later be labeled the “darknet” category. It made users store encrypted snippets of files, connecting them only through intermediate computers that passed forth and back requests without knowing the contents being sought. The design resembles how routers on the Internet exchange packets without knowing anything about them.
- GNUTELLA - Napster still relied on the operation of central indexing servers, and thus was susceptible to shut down. A new breed of file-sharing spearheaded by Gnutella eliminated such vulnerability by allowing users to find each other and connect remotely. By employing a query flooding model, the protocol made each search be broadcast successively to other machines in the network (which, in the case, was significantly less efficient than querying the central indexer). Another difference between Gnutella and its predecessors was the number of clients now available to run the protocol. LimeWire, for example, was one of many Gnutella clients.
- LIMEWIRE - One of the most popular Gnutella clients
2001 - BitTorrent
- Bram Cohen designs BitTorrent, which soon becomes one of the most popular ways of sharing large files over the internet
- NAPSTER SHUTDOWN. In less than one year, Napster had over a million members. In less than two, Metallica filed a lawsuit against the company. In less than three (July 2001) it was shut down after legal suffocation and a failed attempt to become a pay-based service.
2002 - RAPIDSHARE
- File sharing services begin to sprawl
2004 - PIRATE BAY
- PTB is built as an easy gateway to torrents
2005 - MEGAUPLOAD
- Mostly around ad-based business models
2006 - PIRATEBAY 1ST RAID
- Servers are seized in Sweden - the pressure would only increase
2009 - BITCOIN
- Satoshi makes the first transaction
- Bitcoin was not designed with file sharing in mind, but eventually spawned an entirely new class of p2p storage frameworks. The blockchain is a distributed registry with a different purpose than that of DHTs: Satoshi wanted to store with each node an ever-growing transaction record without any chance of tampering and revision; DHTs aims at providing an efficient (in terms of lookup time and storage footprint) structure to divide data over a network, where immutability isn’t the main priority. What miners probably didn’t expect was that their core activity would soon be abstracted into the generic category of consensus mechanisms, and applied to use cases far different from that of storing and transacting financial value
2011 - NAMECOIN
- The first bitcoin fork
- Namecoin was born out of the will to register data on the blockchain and make it less application-specific - it’s flagship use-case is the top-level domain .bit. The first bitcoin fork, it’s roughly a key/value pair registration and transfer system based on its fathering technology. It might be fair to say Namecoin represented the first non-monetary approach to a blockchain
2012 - DIASPORA
- The first mainstream “decentralized social network”
- Diaspora marketed itself as an open-source personal web server and decentralized social network. It was funded with over U$ 200.000 via Kickstarter in 2010, and released a short-lived consumer alpha shortly after, but reached a stable community release only in 2012.
2013-14 - DSNs
- Decentralized Storage Networks. The idea behind decentralized storage networks is basically to turn cloud storage into an algorithmic market, by incentivizing “miner” nodes to share storage space in order to be rewarded in a native token. Incentivising is the keyword here. In BitTorrent, we already had some kind of content-addressed system where nodes seeded the files of others. Also, there was already a basic tit for tat mechanism for punishing badly behaving nodes.
- MASTER COIN. One of the earliest ICOs later turned into Omni
- 2014-15. SWARM Ethereum’s vision of web 3 has Swarm as its file-sharing pillar
- IPFS - Juan Benet designs a trustless network upon a generalized Merkle DAG
- STORJ - A decentralized end-to-end encrypted Dropbox
- MAID SAFE - A file-sharing project fundraised and built on Omni
A peer-to-peer (P2P) economy is a decentralized model whereby two individuals interact to buy or sell goods and services directly with each other, without an intermediary third-party, or without the use of a company of business. The buyer and the seller transact directly with each other. Because of this, the producer owns both their tools (or means of production) and their finished product.
The modern state of emerging P2P economies is just the latest example of the internet’s value to consumers. The emerging internet-empowered, self-producer model of capitalism is now big and disruptive enough for regulators and companies to have woken up to it. That is a sign of its immense potential for such innovative business models in years to come.
Peer-to-peer lending reinvents banking as we know it. What began about a decade ago as a means to borrow money for those who couldn’t do it at the banks is now becoming a mainstream financial instrument.
What is Peer-to-Peer (P2P) Lending?
Peer-to-peer lending is a form of direct lending of money to individuals or businesses without an official financial institution participating as an intermediary in the deal. P2P lending is generally done through online platforms that match lenders with potential borrowers.
Peer-to-peer lending fills a void in the marketplace and is a natural extension of the sharing economy. It brings investors and business people together to create a mutually beneficial arrangement without extensive red tape, which amounts to a win-win for both parties.
Peer-to-Peer lending is becoming an increasingly popular option for savers and investors looking to get more from their money. With low-interest rates and rising inflation, it is no surprise that peer-to-peer lending (P2P) has grown so significantly over the last few years.
If you are considering P2P lending as an investment option for your money, it is important to understand both the benefits and risks of this relatively new asset class. Only then, can you make an informed decision as to whether P2P is right for you. In order to give you a fuller picture, we’ve outlined some of the key advantages and disadvantages of P2P lending.
P2P lending also referred to as direct lending, is over 10 years old. It is however only in the last few years that it has become recognized as a mainstream asset class. Simplistically put P2P lending brings together investors (you) with borrowers (this could be an individual or a business) via an online lending platform. Platforms can offer potentially higher returns because of lower operating costs (there are none of the costs associated with bricks and mortar branches) and by deducting fees from the loan repayments made.
P2P lending offers both secured and unsecured loans. However, most of the loans in P2P lending are unsecured personal loans. Secured loans are rare for the industry and are usually backed by luxury goods. Due to some unique characteristics, peer-to-peer lending is considered as an alternative source of financing.
How does P2P lending work?
Peer-to-peer lending is a fairly straightforward process. All the transactions are carried out through a specialized online platform. The steps below describe the general P2P lending process:
- A potential borrower interested in obtaining a loan completes an online application on the peer-to-peer lending platform.
- The platform assesses the application and determines the risk and credit rating of the applicant. Then, the applicant is assigned the appropriate interest rates.
- When the application is approved, the applicant receives the available options from the investors based on his credit rating and assigned interest rates.
- The applicant can evaluate the suggested options and choose one of them.
- The applicant is responsible for paying periodic (usually monthly) interest payments and repaying the principal amount at maturity.
- The company that maintains the online platform charges a fee for both borrowers and investors for the provided services.
P2P lending provides some significant advantages to both borrowers and lenders:
- Higher returns to the investors: P2P lending generally provides higher returns to the investors relative to other types of investments
- More accessible source of funding: For some borrowers, P2P lending is a more accessible source of funding than conventional loans from financial institutions
- Lower interest rates: P2P loans usually come with lower interest rates because of the greater competition between lenders and lower origination fees
- Access to higher returns: P2P can potentially give you access to significantly higher returns than you could get through a high-street savings account
- Risk diversification: P2P platforms let you spread your capital across multiple loans. This enables you to better manage your exposure to risk
- Choice: You can choose whom you want to lend to
- Access to your money at short notice: Many P2P lenders let you liquidate your funds before the loan ends if you need, as long as they can sell that loan position on.
Nevertheless, P2P lending comes with a few disadvantages:
- Credit risk: P2P loans are exposed to high credit risks. Many borrowers who apply for P2P loans possess low credit ratings that do not allow them obtaining a conventional loan from a bank. Therefore, a lender should be aware of the default probability of his/her counterparty.
- No insurance/government protection: The government does not provide insurance or any form of protection to the lenders in case of the borrower’s default.
- Legislation: Some jurisdictions do not allow P2P lending or require the companies that provide such services to comply with investment regulations. Therefore, peer-to-peer lending may not be available to some borrowers or lenders.
- Your money is at risk: Probably the most important risk you need to understand is that, unlike mainstream banks, your money is not covered by the Financial Services Compensation Scheme (FSCS). Therefore, if you decide to deploy your capital through a P2P platform, choosing your platform carefully is essential. Make sure they are clear and upfront about the risks involved and any plans they have in place in the event something goes wrong.
- Your cash may not be lent immediately: Whilst you are waiting for your cash to be lent it won’t be earning any interest. However, most P2P platforms will be as eager as you are to get your cash deployed. In fact, even if your money is slower to get lent out, the overall effect on your return is likely to be minimal in the long term.
P2P LENDING REGULATION
As an industry, Peer-to-Peer welcomes regulation – anything that protects the consumer can only be positive. It is however imperative to remember that FCA regulation does not in itself guarantee the quality of a platform. It is important not to assume that just because a platform carries an FCA logo that your capital is safe.
When choosing a Peer-to-Peer lending platform, even if that platform has FCA regulation, the key two things to check are:
- The investment experience of the team behind the platform. It is important that the platform has a strong financial background – the more experience the better. This way you know that they are going to be making informed and sensible choices about originating and managing loans as well as being able to identify loans and lenders to avoid.
- Are the platforms aligned with your interests? For example, do they invest in loans alongside you?
Direct Lending is growing and becoming far more mainstream and can be an excellent way to access higher returns. However, in order to decide whether is the right option for you, it is important that you do your research and take the time to understand the risks associated with P2P.
BEST P2P INVESTMENT PLATFORM
Now that you know about P2P lending and investing, as well as the broader concept of alternative investing, you may wonder how to find the best company to invest with.
You’ll probably agree that finding a reputable and trustworthy investment platform is on top of the priority list. While there are plenty of online investment sites out there, do your research before you commit to any of them.
The ideal company to invest money with should:
- Offer a high return on investment (ROI), obviously! You’re investing in P2P loans to make money after all. ROI varies with different companies, but look for something not lower than 10-12%
- Make the process smooth, easy and quick with a user-friendly platform and an efficient financing system
- Offer protection from late borrower repayments with a BuyBack Guarantee that if the borrower is late to make a payment, it’ll be covered by the company
Now, funnily enough – FAST INVEST ticks many of these boxes!