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 for OpenBazaar.

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.

Institutional infrastructure. 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.

 

Conclusion

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
Feature
Blockchain-Based Decentralized
Marketplace Traditional E-Marketplace

Trust through contract enforcement

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
validation.

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 underwriters).

Privacy and
security
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
the marketplace.

As secure as the network’s components.

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.

E-Marketplace
Decentralization
Possibility Reasons
Cryptocurrency
Support

Physical products Partly decentralized Many components to
decntralize, including
B2B support, accounting,
payment gateway, and
reputation
Bitcoin, Dash, Ethereum,
Monero
Digital products (such
as e-books, music,
video, and domains)

Very likely Fully online payment and
delivery of goods
Bitcoin, Dash, Ethereum
User-generated
content marketplace
Very likely Online content, including
blogs, reviews, and online
reputation
Bitcoin, Ethereum,
Steem
Prediction markets Very likely Blockchain-based
validation to enforce
contracts
Augur, Bitcoin, Ethereum,
Truthcoin
Crowdfunding,
sharing marketplaces
Very likely Simpler validation;

functionality supported by blockchain

Bitcoind, Dash,
Ethereum, Zooz
Currency exchanges,
remittances, complex
financial contracts
Very likely Easy-to-create complex
contracts and low
transaction costs
Bitcoin, Dash, Ethereum,
Ripple