How Decentralized Applications can Improve Online Marketplaces
By: Dapp Builder Team
Tags: Marketplaces, Development, Dapps, Technology, Blockchain

The internet invention is a groundbreaking concept that has transformed the way we buy and sell; from physical deliveries, to global e-marketplaces like Amazon. Giant organizations in e-marketplaces are seeing a massive increase in sales while the local commerce continues to stagnate. Technology so far has seemed to be in favor of the giants in e-commerce.

To put this into perspective, numbers from a report by Internet Retailer titled- “Online Marketplaces: A Global Phenomenon,” indicate that Alibaba enjoyed an incredible 50% annualized growth rate between 2014 and 2016, while Amazon experienced a 55.8% growth rate during the same period. On the same note, another study by eMarketer projects that global e-commerce retail sales will increase to $4 trillion by 2020, making up 14.6% of total retail spending that year. And it’s not just the retail sector, “the gig economy”/the freelance trend which is also powered by online marketplaces like Uber, Upwork, Fiverr has grown exponentially over the past years.

The internet is currently undergoing a transformation; from a centralized to a decentralized model. A research by Deloitte of more than 1000 blockchain-savvy leading executives reveals that blockchain and decentralized apps are drawing closer and closer to the breakout moment with each passing day. There is a shift from theoretical applications to practical real business applications. This move is likely to see a massive transformation of the way we do our online business.

Decentralized apps

You already could be familiar with the term ‘applications’ as used in reference to software; a software that defines a particular purpose. Majority of the apps in the market follow a centralized server-client type of model — they directly control information shared from a single point; all units are dependent on the central point for their functionality. Examples of apps using this model include Facebook, Amazon, Uber, and Google among others. There are a few systems that use the distributed model; control is spread across a number of centres known as nodes. Google among other companies has adopted both the distributed and centralized models to help speed up computational power as well as data latency.

Decentralized apps, on the other hand, operate with no node instructing the other. The decentralized nature of decentralized apps avails a number of critical benefits to the online marketplace system:

Dapps- improving online marketplaces

❖ Dapps can empower small businesses

Dapps make use of smart contracts to help anyone on the network to enter into a bidding transaction with any other person on the network. Small businesses are limited to online marketplaces like eBay with regards to the nature of their products, their geographical locations, payment restrictions and licensing among others. Millions of small businesses that are particularly in developing and less established markets are particularly disadvantaged.

Blockchain and smart contracts, on the other hand, eliminate differences in sizes of businesses, geographical area, type of payments methods and language type among others. With platforms such as dApp Builder which make it easy for businesses to deploy smart contracts, businesses only need to lay down a set of requirements that need to be met before payments are automatically executed. This in itself speeds up payment processes in a secure way. With proof of work and validation across the nodes done, payment for services and digital assets is automatically released.

❖ No marketplace shutdowns

Decentralized networks are advantaged due to the high availability of network services. Due to their decentralized nature, they cannot be affected by data center failures. It is true that data centres are engineered for high reliability but more often than not, they fail due to human errors among others. The loss in data and money for clients and customers is often huge and painful. Particularly for C2C marketplaces that rely on centralized servers or IT departments for their back-end services, a data centre failure could mean a complete shutdown. But with Dapps, there is sharing of computational powers among peers which are more affordable, scalable and secure.

Consider for instance, in 2017, a third of the internet shut down for around five hours because of a glitch in Amazon’s web service. Major sites like Disney, Slack, Nike, Nest and Twitch were slowed down or rendered completely out of reach. The internet is controlled centrally by just a few players-Amazon, Google, Facebook, Microsoft and Alibaba among others-which makes the internet susceptible to exploitation and unexpected failures.

❖ A more secure e-marketplace founded on trust

Consensus on the decentralized app is through peer to peer. This boosts transparency and accuracy of data in the system. Additionally, this aspect leads to the immutability of the transactions done on these decentralized apps. The Equifax data breach is a recent reminder of the need for Dapps and blockchain, transactions on the blockchain are practically untraceable. Transactions on the blockchain and Dapps are recorded cryptographically on the ledger and are immutable and irreversible. This aspect detected fraudulent activities earlier and eliminates their occurrence.

It ultimately boosts trust among online engaging parties so that there is no need for such intermediaries like lawyers, and banks among others. This fact has a far-reaching influence particularly on the online business transactions in as far as eliminating costs in fees and thus reducing the cost passed on to the end user is concerned. Traders online transact with each other directly and securely and the decentralized nodes are able to validate, record and store each of the transactions

❖ The incentive structure for everyone in the community

The centralized marketplaces believe that there needs to be a centralized authority that will verify transactions as well as act as middlemen. This creates a need to reward the central authority this service. Unfortunately, it is the central authority that determines the incentive/reward system. Blockchain distributes the central authority across the network. Members of the network participate in verifying transactions and hence get incentives/rewards for being active in the network. Members are encouraged to work for the benefit of the whole network.

❖ Better Identity recognition (Know Your Customer)

With the elimination of intermediaries, Dapps improves identity recognition and critically reduces fraudulent activities and impersonation. Centralized marketplaces verify identification through credit cards, passports and driving licenses among others. But since these are centralized systems, they are disadvantaged because they have an inherent central point of failure that could be manipulated like in the Equifax data breach case. The cryptographic nature of storing and verifying data on the blockchain makes user identities unique, immutable, irreversible and permanent.

Additionally, there is near real-time data exchange between users and providers so that the quality of identity verification becomes real time. Unlike in centralized e-marketplaces where real-time data is used for marketing and thus becomes expensive, real-time data on the blockchain and Dapps is used for the benefit of the network to boost credibility. This method is simpler and less costly. The peer-to-peer interactions bring back a sense of community with everyone’s voice being heard and additionally rewarded for being productive and active.

The Deloitte study revealed the following key advantages of the blockchain technology.

➢ Greater speeds when compared to existing centralized systems. What could be done with thousands of man-hours can now be accomplished in minutes. Additionally, blockchain and Dapps help eliminate human errors that often cost businesses dearly.

➢ More business opportunities in new business models and new revenue sources

➢ There is greater security with decentralized apps and systems that lower risks; 84% of respondents said that decentralized systems on the blockchain were more secure than traditional apps.

➢ Decentralized systems lead to lower costs in operations

➢ The backbone technology behind decentralized apps-the blockchain-ensures the following advantages in the electronic marketplace:

1. Distributed storage and listing

2. Validity and credibility of all transactions

3. Transaction anonymity and privacy

4. Transaction traceability

5. Transaction immediacy

Conclusion