In the world of networking and internet connectivity, IP Peering and IP Transit are two important concepts often used by internet service providers (ISPs) and large enterprises to connect their networks to the global internet. While both aim to connect networks, there are fundamental differences in how they work, benefits, and costs.

What is IP Peering?

IP Peering is the process by which two connectivity networks exchange internet traffic directly, without going through a third party. Peering is usually done between two ISPs, large enterprises, or content service providers. With IP Peering, these networks can exchange data directly without having to pass through transit from another network, thus reducing costs and latency.

There are two main types of peering to know: Public Peering and Private Peering. Public peering is done at Internet Exchange Points (IXPs), where multiple networks are connected in the same physical location and can exchange data directly. Whereas private peering is done directly between two networks through a dedicated connection.

The main advantages of IP Peering are cost savings and improved network access performance. Other benefits of IP Peering are:

1. Better Control: With peering, networks can control the routing of their data traffic, thus reducing dependency on third-party service providers.

2. Redundancy and Reliability: Peering with multiple networks can increase redundancy, as if one path fails, data can still be routed through other networks, increasing connectivity reliability.

3. Lower Latency: Direct peering allows traffic to take the shortest route between two networks, which often reduces data travel time (latency) compared to transit through multiple intermediate networks.

4. Better Security: By reducing the number of intermediaries handling data traffic, the risk of attacks or tampering along the path is also reduced, thus improving security.

5. Business Partnerships: Peering often builds strategic relationships between companies, especially content service providers, which can benefit both parties in the long run.

However, peering also has its limitations. IP Peering allows traffic exchange only between two networks that agree to share data because the relationship is direct and equal without intermediaries. Both networks must agree to share traffic directly with each other without going through a third party. This agreement is usually made to reduce costs and improve performance, but is limited to the networks involved in the agreement. 

If there is no agreement, traffic cannot be routed through peering, so data exchange only occurs between the networks that have agreed. This means that if you need access to other networks that are not connected through peering, you need another solution, such as IP Transit.

What is IP Transit?

IP Transit is a service provided by internet service providers (ISPs) where one network pays to gain access to the rest of the internet through that ISP's network. With IP Transit, your network can exchange data not only with the ISP you are using, but also with the entire global internet network.

Also, IP Transit provides complete access to all internet routes, so your network can communicate with any network in the world. This is a more comprehensive solution than IP Peering, as it allows your network to connect to all internet destinations that may be unreachable through direct peering.

Another major advantage of IP Transit is its wide reach. Unlike peering which only allows data exchange with specific networks, IP Transit allows access to the entire internet. This is especially important for businesses that need global access or smaller networks that cannot peering with many large networks.

However, the cost of IP Transit is usually higher than IP Peering, as you are paying for access to the entire internet route, not just the exchange of data between two networks.

Key Differences of IP Peering and IP Transit

1. Network Coverage: IP Peering only allows data exchange between two networks that agree to peering. Whereas, IP Transit provides more network access to the entire global internet.

2. Cost: IP Peering is often cheaper or even free if done at an IXP, as it does not require payment to a third party for traffic between networks. Whereas, IP Transit requires repayment to ISPs that require connection access to global internet routes.

3. Performance: Peering can reduce latency and improve performance by providing a direct path between two networks. IP Transit provides a wider connection, but may involve higher latency if traffic must pass through multiple networks.

From the explanation above, then, it can be seen that IP Peering and IP Transit have slightly different roles in internet infrastructure. IP Peering is suitable for companies or ISPs that want to reduce costs and latency by exchanging data directly between networks. On the other hand, IP Transit is more suitable for networks that require full coverage global access.

Choosing between IP Peering and IP Transit depends on your business needs, budget, and network scale. In many cases, a combination of both can be the optimal solution, with peering for data exchange with frequently accessed networks, and transit for accessing the rest of the internet.