How to Build a Decentralized Online P2P Marketplace on Blockchain Like OpenBazaar

Decentralized marketplace is an e-commerce platform where buyers and sellers make deals directly with each other through peer-to-peer networks. Such sites are user-driven and are usually based on blockchain technology.

The main advantage of peer-to-peer markets is the absence of most intermediaries and, as a result, lower prices. For example, the traditional centralized sites of Amazon, Ebay, and Etsy charge each transaction 15%, 10%, and 2–3.5%, respectively, while the decentralized OpenBazaar service is completely free. In addition, OpenBazaar does not collect personal user data.

In this article, we have gathered several practices that will help you create your own peer-to-peer marketplace and increase interest in it in the face of fierce competition.

#1: Choose an approach to development

There are two approaches to the implementation of peer-to-peer markets. The first involves the creation of a platform where messages and transactions are encrypted, and financial transactions are serviced by separate payment systems. That is, platform users need to trust and pay a commission to a third party, which makes the transaction more expensive and less secure.

The second approach is to integrate payment instruments directly into the blockchain platform. This increases the risk of fraud by dishonest buyers and sellers, but they can be avoided by using smart contracts to carry out transactions with a two-sided escrow system and various reputation systems.

What industry leaders have chosen:

1. OpenBazzar and BitMarkets use the protocols BitMessag, the Tor network and accept calculations in Bitcoins.
2. Syscoin Market and NXT Market use their own altcoins for calculations.
3. BlackHalo and BitHalo rely on smart contracts with escrow.

#2: Choose a niche

To increase the chances of success, it is better to bet on the vertical market instead of the horizontal one. Suppliers of the horizontal market sell everything to everyone. Vertical market providers specialize in providing services or products that meet the needs of a specific target group.

In other words, instead of trying to sell a lot to many, as Amazon and Bonanza do, focus on a specific set of products or services. For example, as did the portal UpCounsel, which has chosen to specialize in legal services, or the website Rover.com, which provides services for pets.

This approach is more promising, since vertical trading platforms know their niche and target audience precisely, which means they can design a better user experience, create a more specialized website and thus gain a competitive advantage at the start.

In addition, the orientation to vertical markets greatly saves money on marketing promotion. For example, in 2008, the Airbnb startup (a short-term rental of private housing bulletin board) used ads on Craigslist (an all-for-all bulletin board) to find people who rented private housing. Everyone got a call and asked to place an ad on the Airbnb website. After which they began to hire freelance photographers to make professional housing photos.

That is, Airbnb used a Craigslist monopolist to “crack” the right target audience for minimal money — a great example of vertical-market-oriented marketing. Result: In 2017, Airbnb earned 2.5 billion in revenue, 450 million in operating income and 100 million in net profit.

#3: Start from a small area (region)

Along with the orientation on the vertical market, it is also recommended to start a business in a specific region and gradually expand. Such an approach will provide an opportunity to test the value of a business idea with minimal risks and costs before going global.

Many well-known marketplaces followed this strategy. For example, Classpass (a platform for searching and booking classes in fitness studios) started in New York and gradually expanded its area to the entire US East Coast.

Another example is TaskRabbit. This is a platform to search for performers of various tasks (cleaning, adjusting the stereo system, urgent transfer of a passport to the airport, and much more) started in Boston in 2008 with hundreds of employees called RunMyErrand. For two years, the startup team tested the idea, then changed its name, entered global markets, and moved to San Francisco Bay.

#4: Create a strong network effect

The Network Effect implies the influence of users of goods or services on their value. This usually means a simple direct relationship: the more users, the greater the value of the product or service. In our case, an increase in the number of users may reduce the cost of marketplace promotion and increase the number of service providers and buyers.

How it works, consider the example of Uber. When a new driver is registered in the system, it increases the availability of the trip for passengers by reducing the waiting time for the car and, probably, reducing the price of the trip (due to increased competition). And when a new passenger is registered in the system, this increases the probability of getting an order for a taxi driver.

This creates a simple dependency: the more passengers use Uber, the more drivers will register and provide taxi services through this service and vice versa. This is the Network Effect.

With a centralized marketplace, the dependence is the same: the more suppliers of goods and services, the greater the choice and the lower the price, and the more buyers will want to use the site. And vice versa.

#5: Create a positive reputation

The security of transactions and the reliability of suppliers is the number one issue of all trading platforms. You can solve the transaction security problem through smart contracts that will use two-way deposit and, if desired, GPS tags to control the delivery of goods to the buyer.

The problem with the reliability of suppliers (and buyers) is more complicated. There are several ways to solve it:

1. Reputation system. The easiest option - reviews and points. More complicated is the grading of suppliers on a scale that will depend on feedback, points, the number of deliveries made and so on. This reputation system is used by AliExpress.
2. Verification of participants. You can implement inside the marketplace, and you can use external services, such as KYCLegal.
3. Item Tracking. Like verification, it can be implemented inside or with external resources. Provenance will be suitable for tracking supply chains and product authenticity.
4. Oracles. These are people or companies that check the goods or market participants. They can be used to check licenses, certificates and other documents, up to and including whether a person has studied at a university, which he indicated in his profile.

These things can be used together, separately and in different combinations, based on what is sold on the site. So, for expensive goods you need a guarantee of security transactions. For babysitting, cleaning, repair and the like, you need to enter identity verification. You can also enter the option of sharing offline, as in the LocalBitcoins peer-to-peer platform, where people buy and sell bitcoins.

#6: Create Added Value

To increase customer loyalty and increase brand awareness, many companies offer their customers additional features and different bonuses. In order to use this tactic, you need to look at the business from the client’s point of view.

Just do not go on a simple path, offering users useless things. Instead, think about how a marketplace can help the target audience. What problem can decentralization solve? What obstacle does it help to get around and how can this path be made even easier?

Consider the example of Etsy - P2P trading platform for handicrafts, vintage items and unique products of limited release (another example of a vertical market). This platform has created additional value by supporting forums, blogs, ratings and feedback systems. Etsy conducts and helps to organize online seminars, and also publishes a magazine, the content of which is created by the employees of the site and its users.

Etsy has created a strong, organized and close-knit community around its site, whose members help each other with everything from simple advice on how to make dolls at home to detailed marketing promotion instructions. Of course, Etsy did not forget about the quality of the software platform, and about the satisfaction of the basic needs of customers - buying and selling original things.

#7: Remember the quality of service

Now it is customary to evaluate the quality of service through the prism of Customer Experience (CX) - the totality of impressions that the user receives during the use of the service. User experience design is carried out by Customer Experience Management marketing, and Customer Satisfaction is evaluated.

In a simplified form, the quality of customer service can be represented by a combination of characteristics (calls):

1. Utility. The correct operation of the service solves customer problems and has value for them.
2. Convenience. The site should be simple, intuitive and have no barriers to entry, for example, such as learning special terminology or rules for using a third-party service.
3. Enjoyment. A good customer experience should bring pleasure to users and thus increase loyalty to the service.

For example, look at the model of interaction between Apple and customers. The company has always focused on user experience, and therefore it is nice to look at its products, hold in their hands and use. Due to this, the “apple” devices became status, despite the average characteristics, problems with reliability, power and the constant desire to sell customers at exorbitant prices that others simply give.

And this is not strange. Studies conducted in the last ten years have shown that attention to user experience increases customer loyalty and raises their costs for products of their favorite brands. And this approach helps to spread positive information about the company, which increases the number of customers.

#8: Avoid custom scripts outside your site

Despite the fact that the decentralized platform reduces the prices of goods and services to a minimum, some users will use the platform to search for customers and then try to establish cooperation directly without your participation. To this need to prepare.

There are several ways. The easiest is to complicate the exchange of personal data. This way went freelance platform Fiverr, which uses special scanners to view messages by keyword (e-mail, phone, payment, and others). If something is found, the words or message as a whole are deleted, and a warning is issued to the user. In case of a repeat offender.

The aforementioned platform to search for housing. Airbnb uses a similar system, deleting users' personal and contact details so that they cannot find and communicate with each other off-site.

This approach is really easy to implement, but it’s also easy to get around. Write a phone number with letters between the numbers or something like “find me in a book with attractive faces” instead of “on Facebook”. And you "hack" the system. Of course, you can generally prohibit personal communication by forcing people to communicate in public, as BlaBlaCar did. However, this approach is also bad, since it implies banning or punishing users, and this is a negative user experience.

Instead, it is better to encourage users to use your trading platform, and not to look for direct contacts. This can be done with the help of unique value. Here are some examples.

Safety

The state platform Care.com, instead of prohibitions and restrictions, decided to help people with checking the reliability of counterparties. Platform employees conduct extensive checks of questionnaires, personal data and social networks to screen out unreliable performers.

Trusted went even further. The service does online broadcasts of the work of nannies so that parents can see for themselves what is happening with their children. In addition, parents can track the location of the nanny and, if necessary, instruct her.

You can use these things by offering escrow, identity checks and more. However, it is also important to remember not only about the buyer, but also about suppliers. For example, Uber allows drivers to share their location with family and friends, and also offers an extensive insurance system. Airbnb also offers insurance to landlords.

Lowest fees

You, as a large trading platform, can organize your users into large groups and make bulk purchases. So you can get significant discounts from suppliers and reduce fees for financial calculations. This is an easy way to get the lowest prices on the market, but for some reason very few people use it.

Automation

You can also create tools that make it easier for providers to work with customers. For example, if you work with nannies, builders, and fitness trainers, create a journal of their employment and workflow management tools. This will help clients understand when a performer is available, and automated organizer will give service providers.

If you work with the purchase and sale of goods, help the sellers with stocks, and buyers with checking the shelf life of the goods (easy to automate, if you know the production date and shelf life). For taxi services like Uber, you can automate the payment of insurance premiums and loans.

If the target audience is freelancers and their customers, look to the work diary at the Upwork site. The service controls the time that the contractor spent on the project, taking six pictures of the desktop per hour. A great way to attract customers and performers thanks to the Network Effect.