In this article, we will discuss what is a decentralized online marketplace in detail. Let’s start.
What is a decentralized online marketplace?
A decentralized online marketplace is an eCommerce platform operated on a blockchain.
These are the distinguishing characteristics:
- No middleman controls the trade between buyers and sellers;
- The terms of trade are determined by buyers and sellers, and no middlemen intervene;
- The terms of trade are open, transparent, and immutable;
- No tampering with transactions is possible;
- Payment between buyers and sellers is direct, no intermediary has any role to play;
- A decentralized payment system for marketplace transactions does not require a third party;
- Transactions are instantaneous, without depending on a third party;
- The marketplace is global as soon as it‘s up;
- It‘s a permanent marketplace that can‘t be destroyed;
- No personal sensitive data is needed.
Read more about it in “4 Reasons Why Decentralized Marketplaces Are Inevitable”.
Blockchain gives advantages over centralized marketplaces:
A decentralized online marketplace, which is an online marketplace on the blockchain, has advantages over its centralized counterparts. Centralized online marketplaces have the following characteristics:
- A centralized company owns the platform, for e.g. eBay, and takes a commission from sales;
- The infrastructure is centralized, and can be hacked;
- The company owning the marketplace can change terms and conditions (T&Cs) of trade at will;
- You need to rely on third-party financial services and payment systems;
- Your personal sensitive data is held by the centralized owner and they can sell it to third parties.
It‘s blockchain technology that gives a clear advantage to decentralized marketplaces. These advantages include:
- Blockchain is a decentralized distributed database, and all nodes are involved in maintaining the database. Each has a full record of the database. There’s no central server for hackers to destroy;
- It‘s a peer-to-peer (P2P) network, hence sellers can directly transact with buyers without intermediaries;
- T&Cs are coded in immutable smart contracts; besides they are transparent;
- The payment process uses cryptocurrencies thus eliminating third-party payment providers;
- Cryptographic hash functions, data encryption, and blockchain consensus algorithm make the system secure.
To know more about how blockchain provides these advantages, read “CREATING A PRIVATE DECENTRALIZED MARKETPLACE”.
Why build decentralized online marketplaces?
The advantages of an online marketplace based on blockchain are clear.
To be successful a marketplace should have the following:
- A network of buyers and sellers;
- User and transaction history for Analytics;
- A robust infrastructure.
Read more about these business and technical prerequisites in “The Impact Of Blockchain On Marketplace Platforms”.
To know more on how to build your own marketplace using blockchain, read our guide that discusses building an online marketplace on blockchain like OpenBazaar in a detail.
Planning to Build a Blockchain Market Platform?
Blockchain-based online markets will solve a lot of problems that come with traditional marketplaces. Blockchain marketplaces ought to be more secure, transparent, and robust. No doubt, in the coming years, we will see a major percentage of sellers moving to a blockchain alternative to online marketplaces.
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If you, as a business owner are looking forward to investing in a blockchain marketplace, you are making a lucrative business development decision.
However, be wary that decentralized blockchain technology is sufficiently new and evolving. You will need high-quality software developers experienced in blockchain technologies to develop a robust and secure blockchain marketplace solution successfully.
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Frequently Asked Questions
Some of the benefits of a decentralized marketplace based on a peer-to-peer network and smart contract code include enhanced security, transparency, reduced transactions costs, more privacy of user data, etc. as compared to a centralized marketplace.
To create a decentralized marketplace on the blockchain, you will first create an account, purchase a digital wallet, test software code on testnet, and finally start trading goods on your marketplace with other users. Read more details here.
Decentralized technology has no centralized authority or data storage. This means it has no single point of failure. The data is distributed over all the nodes part of the decentralized technology network and all nodes are linked with each other. A Blockchain network is such a distributed ledger technology.