Peer-to-Peer (P2P) Network

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What is a Peer-to-Peer Network?

In the most common meaning, a peer-to-peer (P2P) network is a group of computers, each of which acts as a node for sharing files within the group. Instead of having a central server to act as a shared drive, each computer acts as the server for the files stored upon it.

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When a P2P network is established over the Internet, a central server can be used to index files, or a distributed network can be established where the sharing of files is split between all the users in the network that are storing a given file.

However, a P2P network could also be a payment network, such as Bitcoin. Cryptocurrencies enable peer-to-peer transactions without banks or payment services.

Techopedia Explains the Peer-to-Peer Network Meaning

Techopedia Explains the Peer-to-Peer Network Meaning

In the most basic sense, the peer-to-peer network definition refers to a simple network where each computer doubles as a client (requesting files) and server (providing files). This structure is similar to a home or small office network. When you connect your phone to your computer and enable file sharing, you’ve built a simple P2P network. Each device holds files that can be accessed by the other device.

However, when P2P networks are established over the Internet, the size of the network and the files available allow a wider range of data to be shared. Early P2P networks like Napster used client software and a central server. Later networks like Kazaa (now defunct) and BitTorrent did away with the central server. BitTorrent, still in use, uses a .torrent file that maps to online devices that hold specific files.

Brave Browser Torrent Download Screenshot
Source: Brave Browser Torrent Download Screenshot

Earlier peer-to-peer networks were often associated with Internet piracy and illegal file sharing. However, peer-to-peer networks now also power today’s blockchain technology, including the Bitcoin and Ethereum networks, as well as private blockchains used in industry. In blockchains, nodes often host the entire blockchain (blocks of data) rather than specific files, as seen with other types of P2P networks.

How a Peer-to-Peer Network Works

Peer-to-peer networks use various ways to communicate with other nodes on the network. All of these methods share one commonality: a central server typically isn’t required for the P2P connection.

For example, BitTorrent uses client-side software to find and connect computers, called seeds, that hold a specific file. These computers then share bits of the file with the requesting computer.

In the example below, the file is shared from six seeds, each of which shares small amounts of the file to assemble the complete file at the receiving computer. However, only one seed is required for a P2P BitTorrent transfer.

Draw.io Diagram
Source Draw.io Diagram

In a home or small office P2P network, however, individual computers typically connect to each other through a router or switch. The administrator for each computer enables or disables file sharing for specific directories, allowing other computers on the network to access sharing-enabled files. The switch simply enables communication between connected devices.

Source: Draw.io Diagram
Source: Draw.io Diagram

What is a P2P Network Architecture?

Peer-to-peer network architecture refers to the type of P2P network in use and which elements allow peer-to-peer interaction.

For example, in an unstructured P2P network, each computer or node acts as both a client (requesting files and data) and a server (providing files and data). Unlike centralized network architectures in which a server provides data based on client requests, there is no central point. Any node can communicate with any other node, sharing files or data according to permissions.

However, hybrid P2P networks are another type of P2P network architecture. In hybrid P2P networks. peers may interact and share data in limited ways while querying a centralized server for permission data or larger data sets.

What are P2P Transactions?

Peer-to-peer transactions refer to payments made without an intermediary. In simple terms, P2P transactions are permissionless; no central authority needs to approve transactions.

By contrast, In many transactions we make daily, we use an intermediary such as a bank or payment service. These intermediaries perform a similar role to servers in a centralized network. Much like servers transfer data based on requests and permissions, payment intermediaries process transactions based on requests and authorizations.

P2P transactions eliminate the intermediary. Cash payments offer the simplest example. If you pay someone cash to shovel your driveway after a winter storm, the cash payment is a P2P transaction. No centralized authority needs to approve the payment.

Cryptocurrency transactions provide another way to make P2P transactions. In a cryptocurrency transaction, you initiate a transaction from your crypto wallet. The transaction is then broadcast to the blockchain network that records the transaction in its decentralized ledger.

In this example, no centralized authority is required. The blockchain network isn’t an intermediary. Instead, the network nodes verify wallet balances to prevent double-spending and then record the transaction as well as the new wallet balances post-transaction.

Features of Peer-to-Peer Networks

Peer-to-peer networks share several features and characteristics. Many of these stem from the first feature: decentralization of the network.

Decentralization
Most peer-to-peer networks do not use a centralized server. Instead, each node can operate as both a client and server, requesting or providing data in each respective role.

Resource sharing
P2P networks allow the sharing of additional resources. For example, in a home network, one computer with a connected printer can share its printer with other computers on the network.

Equal Access
Many types of P2P networks provide equal access to all nodes and users. BitTorrent and public blockchain networks work this way. However, local area networks (LANs) may implement permission-based access for files or resources.
Resilience
Peer-to-peer networks like BitTorrent and public blockchain prove more resilient compared to centralized networks in which a downed server can bring the entire network to a halt. P2P networks can continue to work if a node goes offline.
Censorship resistance
Decentralization and equal access make peer-to-peer networks resistant to attempts to restrict interactions, prohibit transactions, or prevent data transfer.
Anonymity
Many P2P networks allow anonymous access in which participants do not need to identify themselves or pseudonymous access in which a crypto wallet address, for example, acts as an identifier on the network.

Types of P2P Networks

Because of the broad scope of applications, several types of P2P networks exist. For example, centralized P2P networks connect peers while using a centralized server, whereas unstructured P2P networks allow any peer to connect to any other peer.

Centralized P2P NetworksStructured P2P NetworksUnstructured P2P NetworksHybrid P2P Networks

Some P2P networks enable peer-to-peer interactions while using a centralized server to connect individuals. Chat rooms could be one example. In this case, P2P only describes the ability to interact with other peers. P2P cryptocurrency exchanges provide another example. While users can transact with other peers, often these interactions are facilitated by a central server.

In a structured peer-to-peer network, the network maps resources to the nodes that hold those resources. Some file or resource sharing can occur at the node level as opposed to all interactions running through a main server.

Any node or computer on the network can communicate with any other node in the network, and any computer can connect to the network to access files or resources.

Hybrid peer-to-peer networks allow P2P interaction as well as access to a centralized server.

Key Applications of P2P Networks

P2P eliminates the middleman between users, enabling applications like file-sharing, social networking and messaging, and even financial transactions.

  1. File Sharing

    P2P networks rose to popularity with file-sharing programs such as Napster. Today, BitTorrent remains popular as a way to distribute open-source operating systems and other files. Protocols like the Interplanetary File System (IPFS) even allow content delivery through P2P file storage. Entire websites can live on the computers that have visited the site, sharing the content with new site visitors.
  2. Social Interaction

    Gaming and messaging thrive on P2P interaction. In most cases, these remain on hybrid systems or centralized P2P networks that utilize a central server for message delivery. However, blockchains like Internet Computer (ICP) aim to decentralize these functions by bringing compute power to the blockchain.
  3. Financial Transactions

    Bitcoin and other P2P cryptocurrency networks enable permissionless transactions between peers. Smart contract-enabled P2P blockchains such as Ethereum allow tokenization of assets, lending, borrowing, and crypto-to-crypto swaps without an intermediary.

    Peer-to-Peer Network Examples

    While not always evident, P2P networks are widespread, and the growth of distributed ledger technology will only expand the number of ways we use peer-to-peer networks.

    IPFS
    The Interplanetary File System (IPFS) is a protocol that enables computers worldwide to serve files. Specific web browsers support IPFS, allowing access to websites without using a centralized server. This is an example of a structured P2P network that uses hash values to map content identifiers (CIDs) to computers that hold the content.

    BitTorrent
    Most commonly used for large files, BitTorrent lets users access these files from any other computer that holds the file and is seeding through a BitTorrent client like Transmission. Peers who download a torrent can then choose to seed the network as well.

    Bitcoin
    The Bitcoin whitepaper describes the Bitcoin network as a peer-to-peer electronic cash system. Bitcoin and the cryptocurrencies that followed realize the goal of making P2P transactions without traditional financial intermediaries.
    Gaming
    From metaverse projects to first-person shooters, P2P interaction is intrinsic to gaming. While many games still manage P2P interaction through centralized servers, web3 gaming could shift the balance to decentralized messaging. Blockchain games also enable P2P transactions involving in-game services or in-game assets.

    Peer-to-Peer Network Pros and Cons

    P2P networks bring advantages and disadvantages compared to traditional client-server networks. However, disadvantages may indicate a mismatched use case. A client-server or hybrid architecture may be better suited to the task.

    Pros

    • P2P networks provide decentralization, making them more robust and censorship-resistant
    • Storage can be scaled by adding more nodes
    • Network load for large files or frequently accessed files can be distributed

    Cons

    • Open access enables malware distribution, possibly disguised as other files
    • The number of peers available to serve content can affect speed
    • Difficult to enforce security policies or manage usage

    P2P Network Security

    One of the largest concerns for P2P networks revolves around security, and security concerns can reach beyond individual computers that connect to the network.

    Open access without a centralized server provides a way to distribute legitimate content but also a trojan horse for disguised malware. To counter this, many providers and organizations distributing files offer an MD5 hash value to verify the file contents before opening. Any change to the original file will result in a mismatch. However, this safety check represents an extra step that users may not take.

    Certain types of P2P networks may also leak IP addresses, usernames, or operating system information.

    Future of P2P Networks

    Peer-to-peer networks are seeing a resurgence in popularity following the success of blockchain networks and a renewed interest in censorship resistance. Projects like Internet Computer aim to create a blockchain-based Internet in which files and apps are stored across a distributed network. IPFS, another peer-to-peer protocol, already enables file storage with peer-to-peer sharing.

    However, the most impactful way P2P networks will affect daily life will likely revolve around finance. Cryptocurrency networks allow us to transact and transfer value anywhere in the world without intermediaries. Smart contract platforms enable decentralized finance (DeFi) transactions that offer much more powerful ways to grow and store value compared to traditional finance – and it all happens peer-to-peer.

    The Bottom Line

    P2P networks allow direct connections to other computers or users (peers) without using an intermediary or a centralized server. Some peer-to-peer networks utilize a hybrid or structured architecture that restricts access to certain resources or maps network resources to a host for those resources.

    While P2P protocols like BitTorrent have been in use for decades, innovations in the blockchain space are likely to drive the next wave of adoption for P2P networks.

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    Eric Huffman
    Editor
    Eric Huffman
    Editor

    Eric Huffman has a diverse background ranging from business management to insurance and personal finance. In recent years, Eric's interest in finance topics and in making personal finance accessible led to a focus on cryptocurrency topics. Eric specializes in crypto, blockchain, and finance guides that make these important topics easier to understand. Publications include Milk Road, Benzinga, CryptoNews.com, Motor Trend, CoverWallet, and others. Always learning, Eric holds several certifications related to crypto and finance, including certificates from the Blockchain Council, Duke University, and SUNY. When he's not writing, you might find Eric teaching karate or exploring the woods.