So my question isn't about what technology to use or how to do this or that, but a more general question.

I'm currently developing a action third person shooter. With elements of RPG - weapon,armor upgrades and items.

Players will be able to create new games or join old ones. So my question is how to create the game server that players will play in. I have two ideas on my mind.

1. The player who made the game is the server. All data passes trough him and he send this data to the server updating the database of the players with their XP points kills/deaths score and other.
2. Or my host machine is the server, the player who made the game just will open new instance on my host and will be like client. And all players send their input data to the host, the host updates the game and send response back to client for any new changes like where is the enemy and other.

And if i choose option 1 is there a chance the host to change the game content and manipulate the game results? (I think there is but i'm not sure)

And if i choose option 2 isn't that raising the response time and potentially the game lag?

or maybe there is another option?