With the advent of Amazon and eBay in 1994, the process of selling goods and services has changed dramatically.
“The great strength of the free market lies in the fact that it minimizes threats and mistakes,” wrote Peter Drucker in his book “Drucker on Asia” (1997).
The free market eliminated the inefficiency of market relations by intervening in the market of third parties, which helped it to become very successful.
Intermediaries, or as they are called, middle-level people, and their control over the business are among the many shortcomings of the modern economy that the free market easily eliminates. This happens in stages. At present, we see a stage when intermediaries in the Internet markets are becoming increasingly marginalized.
Early markets were limited, but opened up new opportunities for producers, sellers and consumers of goods. With the advent of the Internet, everything changed again. Internet markets partially replaced all the usual stores, urging every store owner, if not completely reorient to the online store, then at least partially transfer the load there.
We are witnessing a new development cycle of the market with the advent of blockchain technology today. Partially destroying the set of formed concepts of various industries, the blockchain provides new opportunities for markets, changing the way transactions are performed on the Internet along with our lives.
It is worth considering how the blockchain technology will affect the markets. However, first you need to answer the obvious question: what is a market based on blockchain technology?
What is a blockchain-based market?
A blockchain is a platform technology consisting of decentralized blocks that records, verifies, and tracks cryptocurrency transactions and contracts between the parties.
Decentralized markets, in turn, are peer-to-peer networks that directly connect consumers and merchants without any intermediaries. The decentralized market brings together three groups of users: producers, retailers and consumers.
As with traditional online markets, manufacturers with decentralized markets provide information about their products. Sellers offer product information and product information. Consumers are looking for products on the market and make purchases.
Unlike traditional markets, manufacturers do not pay on the blockchain market until their product is purchased. Vendors also have the advantage that they can position and evaluate their product as they see fit, making higher profits per sale. Most importantly, the customer purchases the best products at the most competitive prices, which makes it an ideal solution for all participants!
So far, nothing revolutionary. But here are the main differences that blockchain brings to the market.
Qualitative differences between market and traditional markets
Since the blockchain market, based on a blockchain, removes intermediaries, all transactions are tracked in public access, demonstrating a high level of security and transparency.
In addition, the blockchain technology includes intelligent contracts – agreements with digital signatures made using distributed computing platforms such as Ethereum. Smart contracts are kept publicly, preventing fraud.
Having joined the blockchain market, manufacturers, sellers and consumers have the opportunity to sell and buy services and goods, which provides a high level of trust and transparency, allowing them to interact by their rules without restrictions imposed by third parties.
The blockchain-based market is supported by users or nodes that contribute their computing power to the network, ensuring full day availability and service. Payment for a product or service is made for cryptocurrency (tokens), but can be converted to bitcoin or fiat money. Very low fees (about 0.0001 BTC ~ 1 USD) are needed only to confirm the transaction, although they may not even be charged. Instant payments optimize the market and do not require intermediaries. The market based on blockchain technology allows retailers to effectively market products and services, as well as receive feedback from customers. Data is immutable, so it cannot be deleted or changed. Network validation prevents fraud and fraudulent schemes. Personal information cannot be hacked or stolen due to the high quality of network security. Created smart contracts are indestructible. No intermediaries are required, as intelligent contracts are automatically executed.
The normal market is regulated by a third party and is also owned by. Platform users must comply with the conditions set by a third party. Transactions go through intermediaries. They charge a percentage of each transaction, the percentage varies depending on the trading platform, for example, Amazon ~ 15%, Ebay ~ 10%, Etsy ~ 2.5-3.5%. Traditional markets sometimes lack transparency: sales algorithms, requirements and vendor performance are not always available. Payments go through intermediaries. Personal information required. Terms of agreements are subject to change. All processes are regulated by a third party.
How blockchain can help resolve controversies?
Thanks to its decentralized model, there are no intermediaries between sellers and consumers in the market. So, who controversies and protects consumers and sellers?
Just like on traditional trading floors, blockchain networks have agreements – these agreements are intellectual contracts. Before making a purchase, the customer and the seller agree to the terms and write these conditions in a smart contract. There are at least two ways that digital smart contracts can protect consumers and merchants: using escrow services or trusted third parties.
Escrow works as follows:
1. After agreeing the conditions, the consumer pays for the product.
2. After agreeing to the product conditions.
3. As soon as the consumer receives the product, he confirms that everything is in order, the money stored on escrow is paid to the seller.
4. If something goes wrong, the money stored on escrow is returned to the consumer.
Along with the consumer there is a second party – the seller – who may consider this compensation unfair or violating the terms of the contract.
Dispute resolution involving a trusted third party is as follows:
1. When discussing the conditions of purchase, the consumer and the seller agree to involve an intermediary in the operation who may participate in the dispute. Market participants or any nodes in the network can act as an intermediary.
2. After agreeing and signing the smart contract, the intermediary obtains keys for decrypting messages between the consumer and the seller.
3. If a dispute arises, this trustee decrypts the contract and works with both parties to resolve the situation, that is, roughly speaking, works like a court.
How Blockchain Affects Market Concept?
The blockchain offers a new network business model, which gives markets new opportunities for interaction between users, payments and agreements.But what next? Where blockchain technology improves the market using its cryptocurrency transactions, smart contracts and decentralization? Let’s look at some of the innovative qualities that affect the market with the advent of blockchain.
A market based on a block chain is hosted by users and supported by their computing power. This ongoing service ensures that the market is always available, that is, 24/7. In addition, rethinking how data is organized leads to greater security, confidentiality and transparency.
Another result of removing centralized hosting is the ability to avoid hosting costs and set the lowest possible prices for producers, retailers and consumers.
One example of decentralized hosting is Sia. It allows you to create markets based on decentralized cloud technologies. The technology that Sia uses ensures constant availability and is at least ten times cheaper than other cloud storage providers.
Removing resellers eliminates the need to accept third-party terms. Decentralized markets allow each seller to set their own conditions and create more offers in stores to increase revenue.
Manufacturers and sellers can distribute their product data, prices and all other materials in the form in which they are most comfortable.
OpenBazaar – a frequently discussed platform that combines the best practices of traditional markets, allowing brands and retailers to set their own terms.
The ability to set flexible conditions helps manufacturers and sellers balance between excess volume, search speed and cost, while encouraging tough competition between producers and sellers to provide consumers with better prices.
Low prices, low commission
The cost of selling products using the blockchain model is significantly lower than the cost of selling in any large traditional market. Since the markets on the blockchain offer lower tariffs to producers and sellers, prices for consumers are also lower than in modern markets.
Using digital currency, producers and sellers reject those who accept payments on their behalf, since payments are made directly between the consumer and the manufacturer or seller. For example, BitBay offers Bitcoin payment integration, low tariffs and low prices for consumers.
Drop-shipping through a decentralized platform gives manufacturers a set of sales management tools, vendors with mechanisms that will help get more revenue, customers access to a wide selection of products from around the world.
When manufacturers do not want to represent their brands directly, promotion of their products through sellers is exactly what you need. Amazon and eBay remain the most popular sellers used by the traditional market model. Blockchain technology provides new ways for sellers and consumers to interact.
First, manufacturers do not have to pay for placing their products on the market. Sellers can offer any products they desire and promote them in any way, receiving a commission for each sale. And finally, customers can choose products from all over the world at the most attractive price for them.
The Harvest network is a prime example of a blockchain-based online trading model. This platform offers consumers a rewards program where they can earn up to 60% with every purchase. Vendors can monetize their audience, and manufacturers can increase sales through sellers. In other words, this is the model where all parties have great advantages.
Blockchain-based markets offer a stable check of every transaction recorded in any block. This approach simplifies transaction tracking as well as prevents mutual charges, fraud, abuse and any other kind of manipulation.
Syscoin offers a blockchain market solution focused on consumer safety. Syscoin-based markets provide security through arbitration escrow services and digital certificates for storing and transferring documents.
Transparency is an important part of the blockchain concept. Blockchain-based marketplaces facilitate transaction and agreement transparency.
In particular, such markets encourage manufacturers and sellers to test their businesses and prove the quality of their products to increase confidence.
In addition, blockchain-based market trading platforms offer manufacturers and retailers digital identifiers to verify their products. These unique digital identifiers can be used to track goods in the supply chain, know where the goods are located, and ensure that claims are not unfounded.
Provenance – one example of a decentralized market that allows companies to increase trust in their products and supply chains. His approach allows manufacturers and retailers to track product delivery from the place of production to the destination, thereby helping to improve customer service. For example, a producer owns vineyards, prepares and stores wines at home, then sends these wines to a seller who sells them to consumers in the market Provenance.
Smart contracts are exactly what helps to completely remove third parties from trading and achieve a true peer-to-peer model. As shown in practice, smart contracts are unbreakable and reliable, allowing the parties to establish any agreements.
Intellectual contracts contribute to the development of markets – this is a convenient tool for creating a new generation of platforms where retailers, retailers and consumers can easily make trusted transactions.
Canya, a service market that implements intelligent contracts to track transactions, implement monthly subscriptions, and agreements between platform users.
Examples of online decentralized markets
This is probably the most famous market based on blockchain technology. It was created by a group of enthusiasts in April 2014 in Toronto. Later, other developers supported this project and received venture capital (VC) funding.
All users on this platform have a personal key pair. They use them to digitally sign transactions and to anonymize data. OpenBazaar is an anonymous market. The platform uses escrow contracts that require multiple meanings from the buyer and the seller.
ModulTrade is a market that helps small businesses develop their global trade. The platform helps to solve the most important problem faced by such enterprises – where to look for a consumer? This is where the platform helps. Small businesses often find that their financial bids are not cost-effective. ModulTrade uses intellectual contracts that do deposit operations and allow small businesses to exchange around the world.
Blockchain: future markets?
9 years ago, when Satoshi Nakamoto presented the new technology Blockchain, on the basis of which no less innovative payment system was built, the most advanced and far-sighted players realized the need to revise the infrastructure of financial services around the world.
Some experts say that there is no doubt that the blockchain will change the structure of online markets. Other experts believe that blockchain markets will not be able to compete with traditional online markets.
Nevertheless, it makes no sense to deny that the blockchain is gradually destroying many concepts of industries, creating more competitive structures for them. Among these industries is retail. Already, early blockchain-based markets show that they will eventually wed traditional platforms out of everyday life.
Decentralized markets are inevitable. Throughout history, intermediaries have lost their positions, they are being replaced by more profitable alternatives.
It should be noted that blockchain based technology markets are global. According to John Fraser, “Blockchain-based markets have a non-trivial advantage over anyone trying to create a centralized market. A company on such a platform should not wade through local laws and banking rules for every jurisdiction in the world where they want to work”.