Creating a Private Decentralized Marketplace
A Private Decentralized marketplace is an emerging trend that is impacting the traditional online marketplace that has been dominated by companies like Amazon and eBay. Instead, buyers and sellers are opting to deal directly between each other to bypass expense fees and having centralized markets collect their personal and financial data by using blockchain technology.
How Decentralized Markets Work
The simplest definition of decentralized markets is provided by Dean Walsh, Founder, Editor, and lead writer for Cryptorials, who says, “a decentralized marketplace provides a way for its users to trade directly with each other using a peer-to-peer network.” Just like any other blockchain technology, decentralized marketplaces is run by its users who record every transaction on a public ledger.
Walsh goes on to explain that “there are two quite different methods which are used to create decentralized marketplace software.”
The first method is relies on “an encrypted messaging protocol for posting public listings and completing communications and a separate cryptocurrency payment system.”
The other method “is to build marketplace tools directly into the blockchain of a digital currency.”
When a transaction is implemented a client uses a protocol, such as BitMarkets, “to post, browse and execute transactions, “ as well as host a Bitcoin wallet. Sales and transactions are then broadcast through a Bitmessage (a decentralized identity hiding messaging network) and a Tor (a communications source hiding network). Transactions are then only completed after it’s been proven that both parties have sufficient funds in their wallets and escrow.
The problem, however, is that trusting an anonymous person online is a major concern. That’s why escrow services that contain a third party were put into place. This third party would make the final decision on whether or not a transaction would go through or not if there was a disagreement.
As the BitMarkets White Paper states, this isn’t exactly the best option since there were a number of problems with third party escrow systems. These include;
- The escrow agent may not be qualified to fairly handle a dispute.
- The escrow agent may not be trustworthy and either steal escrow or pull a con.
- Expenses, such as labor and risk, fall on the buyer and seller.
- Finding a trustworthy agent can be a lengthy process.
Fortunately, bitcoin’s multi-signature transactions have made it possible to have a two-party escrow system that addresses these problems.
Additionally, users could keep lists of of other users that they trust and share reviews within the network to resolve both reputation systems and trust networks.
The Advantages of Decentralized Marketplaces
Unlike centralized marketplaces, decentralized marketplaces have a variety advantages that are beneficial to both buyers and sellers. These include;
- Lower fees and cheaper prices since the cost of a third party has been cutout.
- There are no limits on what you can buy or sell.
- It eliminates fraudback charges, which is when a seller’s makes a credit card purchase and reverses the charge.
- Gives sellers the opportunity to specify their own terms and conditions.
- Personal information does not have to be shared.
- Payments are made directly between the buyer and seller which replaces the “trustless” middleman.
- Dropshipping can become easier and more accessible.
Leading Decentralized Marketplaces
If you’re looking to partake, and eventually create, you own private decentralized marketplace, learn from the following industry leaders;
- OpenBazzar uses the BitMessage protocol and accepts bitcoins.
- Syscoin Market has been built directly onto the blockchain and uses it’s own altcoins.
- BitHalo and BlackHalo both rely on a smart contract system.
- NXT Market, like Syscoin Market, uses it’s own altcoin and has been built directly onto the blockchain.
- BitMarkets is a decentralized marketplace that uses Tor to preserve users anonymity.