What is a P2P (Peer-to-Peer) Network?

A Peer-to-Peer network popularly known as the P2P network is initiated when 2 or more PCs (Personal Computers) are connected for sharing their resources through a common server.

This could be in the form of:

  • Ad-hoc connections like those available in a coffee shop
  • Connection through a USB for file transfer
  • A mini establishment running a business through a common Wi-Fi connection
  • On a large scale, it can also involve special protocols and applications setting up direct connections amongst the users.

Such technology makes ‘the world a smaller place’ since tons of data/information can be easily shared without any boundaries.

USES

Some of the widespread benefits of this network are:

  • It is difficult to break down. Since multiple users are connected, if one fails, the others will continue to operate ensuring the momentum is maintained.
  • It is scalable as the addition of new peers is simple since one does not require any central configuration or server.
  • A large P2P network enables high-speed information sharing. The file is available on the server and easily downloadable.

NAVIGATING P2P NETWORK

The below diagram shows how networks can be easily connected:

From the above diagram, the link between the internet and the router is clearly visible. The router is connected to a hub through which multiple computers are connected thus enabling to communicate with each other and share resources seamlessly.

In the lower section, we can also view how a printer is connected to one of the computers. This specific computer can share the facility of printers with other networks as well.

P2P Lending

With the advent of technology, P2P is making complex business and financial activities simple and quick. Traditionally, a borrower approaches banks/financial institutions for debt, where a lengthy process of due diligence is conducted to check the credibility of the borrower to ensure timely repayment. The traditional method of borrowing may involve high rates of interest, delays, and rejection.

P2P lending allows borrowers to take loans from individual investors/lenders who are willing to lend their money at a pre-decided rate of interest. Borrowers enter the desired amount of loan required on a common platform. The prospective investors will do a risk assessment after looking at the borrower’s profile and then take a call on partial or full lending. Such platforms are created by peer-to-peer profit-making intermediaries. Here are some important points to consider before entering P2P networking:

  • It offers loans for various purposes such as commercial, education, payday, etc.
  • The borrowers have access to attractive interest rates.
  • The provision includes secured and unsecured loans.
  • Individuals and businesses in need of debt can file an application, and the intermediaries will assess the credit rating and apply a rate of interest.
  • Monthly repayments are made through the P2P intermediary who will further process and forward the amount to the lender.

The government does not guarantee this method of lending. Therefore, the P2P networking facility is a boon in many ways but requires careful consideration and requisite security norms have to be followed.  Close scrutiny will ensure this method of the financial transaction to go global.

Financial Analyst for JP Morgan Chase | Content Writer for eduCBA | Mentor

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