A system and method for secure data transmission over an unsecured communication channel by means of public key cryptography is disclosed. A plurality of digital certificates associated with a plurality of user devices within a peer network are maintained at each of the user devices in a certificate database. Each user device is assigned with a secure hardware token. The hardware token stores a private key and a local encryption key associated with the corresponding device. In order to transfer data between a first user device and a second user device, a public key of second user device stored in the certificate database is used to encrypt a data to be transferred from a first user device to the second user device within the peer network. At the second user device, the encrypted data is decrypted using a private key associated with the second user device to retrieve the data.