Blockchain’s impact on marketplaces: what’s the future for decentralized marketplaces?

By boris, August 08, 2017

Nearly two years ago, we published our first ebook, A Guide to Marketplaces. Towards the end, we touched briefly on emerging marketplace types and included decentralized marketplaces in the mix. At the time, OpenBazaar was still in beta. Since then, we’ve been closely following the evolution of blockchain technology and looking at the potential impact that blockchain will have on the marketplace landscape.

In terms of decentralized marketplaces today, OpenBazaar is really the only game in town for buying/selling physical products and reminds one of a decentralized version of eBay. It’s an open source project to create a peer-to-peer commerce network using Bitcoin. With OpenBazaar, there’s no middle man: the platform connects buyers and sellers directly. And since there’s no one in the middle of a transaction, there are no fees and no restrictions on what goods can be listed and sold. OpenBazaar realizes blockchain’s promise to bring power back to the edge (aka the users).

A decentralized marketplace is an interesting proposition and we are eagerly watching how new marketplaces based on blockchain may disrupt existing (centralized) marketplaces. However, the big question of the day is if a decentralized platform will be able to create the same great customer experience that we’ve grown accustomed to on centralized marketplaces. Can a decentralized platform offer the same kind of UX, conflict resolution tools, and customer service? The other question is will decentralized marketplaces be pushed to the fringe and just attract buyers and sellers for illicit goods? If so, just how scalable are these kinds of use cases?

These are important questions and we’re still not certain in what ways a decentralized marketplace can disrupt a well-functioning centralized marketplace. Will a decentralized marketplace replace a centralized one, or will blockchain technology become a part of an existing marketplace?

While there may be challenges associated with replacing well-established marketplaces, tremendous opportunities exist to enable something new and create a brand new generation of marketplaces. Prime candidates are marketplaces for digital assets that allow anyone in the world to conduct a transaction with any other participant without having a central instance manage the transaction (e.g. payment settlement, etc.). Examples include:

  • Prediction markets like Augur or Gnosis that enable completely new financial products (buying and selling options; insurances/betting on potentially any “event” in the world)
  • Decentralized storage (Filecoin, Sia) and computing markets (Golem) that can leverage underused computing power and replicate the AirBnB model for digital assets
  • Decentralized exchanges that allow for trading the ever rising amount of tokens and currencies supporting the buying and selling of this new asset class
  • Data marketplaces: there is potential to create decentralized marketplaces around the collection and distribution of data – there are no specific projects yet but it’s certainly an area we are watching.

The business model for these decentralized marketplaces will likely be built around tokens where buyers will have to pay fees (with the marketplace token) and sellers earn tokens by contributing to the marketplace.

As the marketplace’s usage grows, those tokens will hopefully further appreciate, making participation from the supply side even more attractive. This will solve the chicken and egg dynamic that can pose such a problem for young marketplaces. It will also create strong network effects as the platform grows, resulting in a winner-takes-all where the biggest player is way bigger than its competitors.

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