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Decentralized Marketplace via Blockchain

decentralized marketplace

Problem Statement

As the Internet became popular, traditional store commerce shifted to online marketplaces, which today control e-commerce activity and users’ data. In 2018, approximately 1.8 billion people worldwide purchased goods online, with China having the highest online shopping penetration rate (83%). In Europe, the penetration rate on e-commerce marketplaces is growing steadily with 69% of EU costumers having bought or ordered goods or services online. The interaction between the merchant and the customer is centralised in an e-commerce website and involves multiple players. Therefore, to transact, merchants and customers are subject to fees and restrictive terms and conditions from payment providers and the website itself. Current developments see a centralisation of online trade in large e-commerce marketplaces. For instance, marketplaces like Amazon and Alibaba are capturing a significant share of value while defining their own rules for transaction control, validation, etc. A widely used decentralised marketplace would help customers and companies to both buy and sell products across the world at lower prices while preserving transaction privacy and ownership of data.

Solution

E-commerce platforms operating on a blockchain, also known as decentralised marketplaces, aim to allow anyone, anywhere in the world, to transact on the marketplace, free of charge with users governing the development of the protocol, rules and restrictions. Decentralised marketplace solutions rely on a peer-to-peer network, where user information and trade exchanges are protected by an end-to-end encryption. Instantaneous transactions would be free of charge and independent from third parties, following thus only the terms of trade determined by the merchant and the customer. Although such solutions rely on a permissionless network, only parties involved in the sale would have access to transaction details.

Adoption

Decentralised marketplace adoption is still at the very early stages of development in comparison to centralised marketplaces like Amazon, eBay, Alibaba, Aliexpress, etc. For instance, OpenBazaar, has developed a fee-less peer-to-peer commerce network using Bitcoin, which resembles a sort of hybrid eBay or Amazon for crypto-based transactions. The general idea of such a decentralised marketplace is that the infrastructure of the marketplace should be run by the users themselves (producers and customers, being able to deploy a node of the network) rather than by a third-party. OpenBazaar’s marketplace reports approximately250,000 nodes in its network since its launch and uses Bitcoin Cash to pay for a growing array of goods and services.

Economic Perspective

The economic impact of decentralised marketplaces is essentially to increase efficiency in the purchasing process. A centralised online marketplace (which already has several efficiency related benefits compared to offline marketplaces) has several systems supporting the procedures, which all charge a fee. In addition to the large corporations behind the actual platform, each transaction (banks, credit institutions, logistics providers or a legal entity enforcing a legal contracts) charges a fee, increasing the price for the purchaser and decreasing possible profit for the seller. The need for such actors is to act as trusted intermediary in order to verify information. Their work could be made more cost-efficient through decentralised platforms and thereby also reducing the costs charged by economic operators. Furthermore, centralised marketplaces have a central entity that decides how products are displayed, how search functions work and what information is available acrossthe platform. While this is typically set up in a way to maximise buyer and seller matching, a decentralised marketplace provides access to information as desired by the seller. Sellers themselves become responsible for creating product listing and the information they provide is also shared in a more transparent manner. The possibility of selling and buying goods without having to sign up for an account can also be beneficial to smaller firms. As there is no listing or platform fee applied, entrepreneurs or SMEs can experience lower thresholds for using platforms to sell their goods and make use of the beneficial network effects offered by such platforms.

Social Perspective

One of the larger issues with cross-border e-commerce is the difficulty in checking compliance with internal legislation in the importing country. Products sold online are harder to screen, track and monitor. A possible increase in e-commerce (especially on a decentralised platform) would therefore mean a possible increase of unchecked products coming into the market. Recent developments in centralised marketplaces (e.g. Alibaba, eBay, Amazon) show how they increase access for consumers to cheaper but also often more unsustainable or even outright illegal products. Enforcement has already proven difficult in cases with a centralised authority running marketplaces; decentralised ones might only complicate this further. However, consumers do stand to gain in other channels. Transparency is an issue with online purchases, with fake reviews by unidentified sellers distorting the information available to potential buyers. The nature of using blockchain for these purchases will make the buying or faking of reviews nearly impossible. In addition, decentralised marketplaces will increase supply and choice for consumers by allowing more economic operators to make use of online channels.

Security perspective

With respect to security, one of the key questions is provided by the need to differentiate between permissioned and permissionless marketplaces. Within a permissioned setting a typical access control architecture would be put in place in order to on-board the participants and stakeholders to the marketplace. Hence, a permissioned market place can provide a higher level of trustfulness since the participants are verified in advance and typical identity swapping attacks are not possible as is the case in typically open and public permissionless marketplaces. Furthermore, we presume that the blockchain marketplace should be secured by an appropriate public key infrastructure consisting of chains of certificates, trusted services list and certificate revocation lists thus providing the means for encryption of data and signature based verification. The sufficient vulnerability protection and general quality assurance is also a topic of paramount importance, which seems to be reasonably addressed by the latest versions of different available products. The quality of assurance of smart contracts is another topic which requires the attention when developing trading based solutions including automated transactions and potentially payments. Available smart contract scripting languages might be difficult and cumbersome to use leading to undesired errors and dormant faults in the smart contract code, thereby creating potential vulnerabilities. Hence, careful testing and potentially model checking approaches need to be applied to the belonging development process.

Data protection and privacy perspective

Data protection and privacy laws are an important part of e-commerce, especially considering the number of online businesses which handle personal electronic data or use cookies to provide customised services and advertising. It is therefore key to treat data rights with care to avoid fraudulent uses of consumers’ data. As observed, blockchain eases transaction processing and other financial and nonfinancial services without the need for intermediaries or central parties for validation. Decentralised marketplace solutions relying on blockchains would be typically based on permissionless networks, where every transaction taking place is published and linked to a public key and each key represents a participant. While public blockchain might entail some risks in relation to data protection and privacy, encryption will ensure that only parties involved in the transaction have access to relevant data, avoiding direct identification and protecting user’s information.
Although the GDPR has in principle no direct relevance to trade, as the data involved usually relates to companies rather than individuals, it is noted that blockchain-based decentralised marketplaces could store data related to payment or contact details. To the extent such data fall within the scope of the relevant regulation, they will have to be treated in accordance with it, i.e. they shall be used lawfully and in a way that is adequate and necessary for the relevant purposes, be accurate and upto-date, kept for no longer than strictly necessary, etc. Yet, it does not seem that e-commerce operating on a blockchain would imply specific challenges on a data protection and privacy perspective: transactions’ terms and conditions for the sale of goods or the supply of services will be typically agreed between the seller and the customer, also covering issues such as data privacy.

Transparency perspective

Transparency from the beginning to the end of the supply chain is key in ecommerce: as noted in a recent report by UPS, it is one of the three main factors that affect online sales (together with incentives and customisation). This is all the more important today in so far as relevant actors in online marketplaces, from manufacturer to end consumer, may each be in a different continent with increasingly remote connections and reduced face-to-face interactions. Accordingly, there is growing market pressure in favour of transparency in online marketplaces, driven by all parties from consumers to business and regulatory requirements. Permissionless blockchains, whereby the parties involved in the sale have access to relevant transaction details, not subject to tamper, allow immediate and all-embracing transparency together with the possibility to easily trace transactions and products throughout the supply chain. As a consequence, the technology lays the foundations for a truly transparent e-commerce marketplace, which reduces business risk (by enabling companies to trust their partners and shedding light on corporate responsibility) and encourages integrity to the end consumers, maintaining control and visibility throughout the entire network.

150 150 Vidhyanand CS

Vidhyanand CS

I am Vidhyanand from India. I love to build applications on blockchain. I write regularly about blockchain and its use cases to increase awareness about web 3.0

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