provide a viable alternative with more
functionality. 20 Smart contracts could
be used to set up complex financial instruments with preset rules for paying
dividends to investors. Table 2 outlines
caveats concerning decentralization
for a variety of e-marketplaces.
Decentralization is used to create a social network (such as Steem)
example, market platforms Duo Search
and Bazaar Bay provide search listings
Transactions. Transaction costs
are minimized because intermediaries (such as payment gateways) are
excluded. Buyers pay sellers directly,
and the current network or other cryptocurrency networks validate payment
transactions. Transactions are more
secure, owing to the fact they cannot be manipulated by anyone in the
marketplace. Transactional anonymity and transactional privacy reduce
incentives for cyberattacks on both
individual accounts and transactions.
Micro-transactions (such as tipping
and micropayments) are also facilitated. Disputes involving transactions
are handled by third-party conflict brokers. The reputations of both sellers
and buyers are thus managed independent of the marketplace. And returning goods and payments is handled in
accordance with the mediation facilitated by brokers through such mechanisms as multi-signature contracts,
notarization, and arbitration.
Programmable contracts facilitated
through the network of nodes ensure buyers and sellers adhere to
the rules and norms of a contract.
Fully automated enforcement, partial
automation, and manual enforcement
modes for contracts thus ensure all
participants in a transaction adhere to
the negotiated, agreed-upon terms. Table 1 compares various features of decentralized e-marketplaces with those
of their counterparts in traditional e-marketplaces.
Decentralized marketplaces provide
many advantages to all market participants, including security, trust, privacy, lower transaction costs, and transaction integrity. Decentralization
alters the paradigms of today’s conventional marketplaces in which a large
intermediary firm that controls the
platform is able to control every aspect
of a trade, from product listings to
price discovery, product search, logistics, and the customer experience.
While I have proposed an alterna-
tive to the existing firm-controlled
marketplace, it is likely only certain
functions within existing centralized
marketplaces would be better off de-
centralized. For example, transaction
facilitation on many centralized plat-
forms (such as Amazon and Overstock)
accept cryptocurrencies as an payment
option. However, in certain market-
places (such as crowdfunding and ven-
ture-finance IPOs), initial coin offers
can replace existing mechanisms to
Table 1. Decentralized e-marketplaces vs. traditional marketplaces.
Marketplace Traditional E-Marketplace
Distributed validation, including proof-of-work
mechanisms or proof-of-stake mechanisms.
The network enforces the contract between
seller and buyer.
The network validates reputation ratings,
including reviews and feedback mechanisms.
Third parties (such as a bank,
certifying authority, promissory
note, transfer systems, or other
forms of contractual mechanisms).
Usually controlled by the firm.
Potential for significant alteration.
Transaction time Can be instantaneous due to fast network
Delays can be mitigated using proof-of-stake/
proof-by-consensus algorithms. 3, 19
Promissory note, letter of credit, or
acceptance of credits that
can take a long time.
Value The network can reward participants with
tokens or by accepting third-party tokens.
Banking systems (such as
national exchanges, currency, and
Identity is not disclosed on the network.
Tracking transactions can be facilitated,
though with difficulty.
Transaction details can be hidden behind
layers of encryption.
Cost of tampering with the network’s
validation mechanism is high.a
Identity fully disclosed in
As secure as the network’s
a To break the network’s validation, an attacker would have to be able to
control >50% of the network’s hash power, involving a huge economic
cost in case of proof-of-work validation mechanisms.
For proof-of-stake or proof-by-consensus mechanisms, tampering with
the network’s validation represents an economic disincentive.
Table 2. Decentralization in different e-marketplaces.
Physical products Partly decentralized Many components to
B2B support, accounting,
payment gateway, and
Bitcoin, Dash, Ethereum,
Digital products (such
as e-books, music,
video, and domains)
Very likely Fully online payment and
delivery of goods
Bitcoin, Dash, Ethereum
Very likely Online content, including
blogs, reviews, and online
Prediction markets Very likely Blockchain-based
validation to enforce
Augur, Bitcoin, Ethereum,
Very likely Simpler validation;
functionality supported by
Very likely Easy-to-create complex
contracts and low
Bitcoin, Dash, Ethereum,