We continue the discussion about use online blockchain marketplace. In the previous article, we evaluated that one of the main aspects powering the online blockchain marketplace is the use of smart contracts. Let us delve into the analysis of how smart contracts are set to power and revolutionize the online marketplace.
What are smart contracts?
Smart contracts are digital contracts that designed to help people exchange money, shares, property or basically anything of value over the internet in a transparent and conflict-free way without the need of middlemen. Smart contracts serve the current role of normal contracts between two parties and facilitated by a lawyer. However, this model of traditional contracts is expensive if scaled over wide and far-reaching geographical locations. It would require lawyers meeting and a lot of paperwork over the different countries. Therefore in order to make smart contracts effective, they are designed to define the rules and penalties around an agreement, similar to the traditional agreement, but automatically enforced when obligations are met.
Since these types of contracts are not limited by geographical differences, they can be applied to a wide range of industries such as financial services, healthcare, insurance and now online marketplaces.
Smart contracts in online blockchain marketplaces
With smart contracts, it is possible to establish decentralized auction sites such as eBay. One of the main aspects is having the ‘buy now’ option for buyers. Since the auction is based on the blockchain, it can be accessed by anyone across the globe. Therefore no one is locked out from the auction like in the current ones that are mainly favorable to people within one country.
Furthermore, online blockchain auction sites have other services such as the ability to boost services by showcasing it to all people in the platform.
With smart contracts, the auction sites do not get any commission after every sale. In the current ecosystem such as on eBay, sellers need to pay a certain amount for listing a product on the site. Furthermore, for each sale, the site takes a proportion of amount in order to facilitate the sale. However, with smart contracts, the seller gets all the value of the goods sold. There is no cost of sale but only cost of listing, which can be negligible. There is no cost of sale because there is no central authority that is needed to execute a transaction. In the current ecosystem, there needs to be a central authority that verifies and executes transactions in order to facilitate a seamless exchange between buyer and seller. However, with smart contracts, they are verified by people within the network. The incentive for them to verify these smart contracts comes in form of transaction that they charge and earn in terms of tokens. However, these transaction fees are negligible as compared to existing transaction fees in a centralized exchange.
Since all the terms of sale are spelled out on the smart contract there is a little level of negotiation and auguring over prices which takes places in the current online auction sites. Smart contracts also allow for seamless payment integration. In the current system, when someone buys a product in an online marketplace, they have to be redirected to third party aggregators in order to process payments.
What makes smart contracts useful in online marketplaces?
As explained in the previous article, one of the major challenges that has prohibited decentralization of online marketplaces on the blockchain is how to deal with between two people who do not know each other. Now with smart contracts, information is encrypted on a shared ledger. Therefore there is no way one party can say that they did not see it. Furthermore, the smart contract is expected through distributed nodes and there is no one point of failure, therefore, making them effective in that they cannot be lost or tampered with.
Autonomy with smart contracts, there is no need to rely on brokers, lawyers as well as other intermediaries in order to enter into a sale agreement. Furthermore, execution is managed in the network through a decentralized system and there are very low incidences of error.
Security on the blockchain, everything is stored in a distributed network. Therefore as explained earlier, there is no one point of failure. Cryptography ensures that the documents are safe and incidences are hard because hackers will need to hack different computers which are different geographical locations.
Smart contracts are faster to implement than traditional contracts. The paperwork required in order to enter into a sale agreement in a traditional marketplace is not used in the blockchain marketplace. Through the use of software, smart contracts are able to use software code in order to automate tasks.
With smart contracts sale of fake goods is eliminated. Through cryptographic code, it is possible to track and verifies products easily than on a centralized platform. Furthermore, the execution of the smart contract is based on the agreement of parties. It is not easy to collude with various parties distributed around the world.
No Chargeback related Fraud
One of the main challenges for sellers on the online marketplaces is that a buyer can buy a product, pay via services such as PayPal and then call the company to reverse the payment afterward. There are many businesses that have been affected negatively by this method. The buyer can make claims that the product was never delivered or was delivered in the form of quality that they did not want. However, with smart contracts, it is difficult to alter the transactions after they have been agreed upon. Both buyer and seller will have an option of agreeing on the terms of sale and when executed cannot be reversed. This results to a higher degree of certainty of sale.
Finally, it is evident that smart contracts are set to revolutionize the way online marketplaces are conducted over the blockchain because of increased efficiency, low cost, more variety and more increased certainty of sale.
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