Many shoppers think of using a shopping center that provides a variety of goods and services all in one place. Buyers want to shop conveniently, buying anything and everything ranging from T-Shirts to books, without stressing. One valid way to explore and subscribe to all of these services is via a marketplace.
A marketplace is a virtual shopping platform that works as an intermediary between buyers and sellers. It’s usually a go-to location for many merchants and buyers, as thousands of customers can shop online from a variety of merchants in one place. Some of the most popular centralized marketplaces happen to be e-commerce platforms such as Ebay, Amazon, Alibaba, and Uber for transport.
Trust is a fundamental component in creating the presence of a marketplace, hence the need for middlemen. However, the presence of intermediates come along with an extra cost as marketplace platforms tend to charge commission for each product sold. Depending on the marketplace, commission could range from 5-20% on each product.
In light of this, a decentralized marketplace is an intriguing proposition.
What Is A Decentralized Marketplace
A decentralized marketplace is a permissionless and self-executing platform, operated on a blockchain network. The platform facilitates the matching of buyers and sellers of goods and services. The platform makes interactions and transactions possible between buyers and sellers without needing to trust a middleman. With the absence of an intermediary, fees become less.
With a decentralized marketplace, most of the essential market functions like execution of trades and the release of funds are conducted by a program (smart contract), rather than a person. A transaction can take place easily, as soon as a buyer and seller agree to terms and when those terms are met. Again, the matching of buyers and sellers is done in a more transparent way which gives a buyer more options to choose from, thereby, ultimately heightening the chance of finding a good match.
The business model for these decentralized marketplaces is built around tokens. The payment process uses cryptocurrencies. Buyers will have to pay fees with the marketplace token while sellers earn tokens in return. This eliminates the third party payment providers and brings about the advantage of a global 24/7 payment system.
Daniel Kimotho, Ecosystem Lead, Celo Kenya, gave a simple explanation on this during the African Blockchain Developers Call virtual weekend series
“With all the costs involved in moving money around different countries in the continent, it becomes a better option to make use of a marketplace powered by cryptocurrency as the cost of service becomes very small”. He said.
Centralized vs Decentralized Marketplace
The major factor which differentiates a centralized marketplace from a decentralized one, is the need for intermediaries. In a centralized marketplace, the issue of trust is resolved by depending on a trusted third party who takes responsibility for the adequate operation of the marketplace.
Centralized marketplace has the ability to provide an amount of dependability and service that users have come to expect, but they also lack transparency, charge high fees and impose standards that users may not be in agreement with. Debating on the point, Ciaran McGowan, CEO, we.trade, notes the presence of an intermediary comes with a lot of drawbacks.
“In centralized markets, it is easy to get access and there are lots of choices. However, there are drawbacks. They are solely dependent on the intermediaries, they have the penchant to block merchants at their own whim, they could charge quite high fees, and there can be concerns over lack of privacy.” — Ciaran McGowan, CEO at we.trade.
On the other hand, a decentralized marketplace possesses many of the advantages of traditional marketplaces and more; they are transparent, permissionless, resistant to censorship, and trustless. The marketplace is decentralized and as a result, responsibilities for the proper operation of the market, guarantees for accountability and privacy comes from the platform.
The marketplace members consent to a set of business rules that will regulate the transactions and they are each responsible for taking part in running the marketplace infrastructure, cutting out the middleman. The rules and infrastructure provide a framework that makes it possible to set up agreements which have been made automatic.
There is an enormous prospect in the integration of blockchain technology with marketplaces through revolutionary new business models, smart contracts, and cryptocurrencies, to make international trade more efficient. The speed and reliability of blockchain can reduce the friction of international commerce, trade, and finance.
“I certainly see that while it’s still in its early days, I think decentralized marketplace is very much the future.” — Ciaran McGowan concluded.
Decentralized marketplace is still nowhere near the magnitude and usage of its centralized equivalents. However, blockchain-based decentralized markets could be the engine that helps African businesses grow and could as well leapfrog the continent in the area of trade and finance.