What are advantages and challenges of Blockchain Online Marketplaces

So far we extensively reviewed that online marketplaces are set to be changed by the blockchain technology. In this article, we delve deeper on to the specific advantages as well as some of the challenges of these blockchain based marketplaces. 

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Blockchain operational throughout

​Blockchain decentralized marketplaces do not shut down. With decentralized marketplaces, there is no central server or one point of failure. There are no employees that are tasked with working on the platform and so they do not go off at certain times. Decentralized marketplaces work through incentives which we analyzed in the previous article on decentralized applications. Centralized servers can cause immense market failure in case of any breach. In recent years, many online marketplaces have faced data breaches through hacking. On the blockchain, the probability of hacking and revealing customer data is highly minimised. With high blockchain power, decentralized marketplaces work every day and have people in different countries working together anonymously. 

A marketplace based on trust and security

​On the blockchain, transactions can be seen and verified by members of a network and not only a few members. This open source operation brings in more transparency than when operating in centralized marketplaces. Furthermore, in order to ensure trust and security, transactions cannot be reversed since they are immutable. Immutability is an advantage for blockchain marketplaces because it reduces the instance of buyers claiming bad products and returning to the sellers. Immutability also means that one member of the network cannot change the data without other members of the network detecting. On the contrary, when using credit and bank transfers in the case of centralized online marketplaces, it is easy to reverse a transactions and change details which results in many incidences of fraud. The nature of blockchain cryptographic entries reduces and discourages fraudulence.  

Community-based marketplace

​blockchain marketplace is built with community in mind. The essence of any blockchain based product is entrenching a sense of community. There is little interaction in the current marketplaces which are controlled by players such as Walmart, Amazon or even marketplaces such as eBay. Customers do not have the liberty to interact and explore different options in any way they deem fit. Furthermore, there is a lot of restrictions on how buyers and sellers can interact. Methods of payment are also limited because of the need for centralized verification and confirmation procedures. However, on the blockchain, the true essence of community is entrenched. Buyers and sellers are able to dictate the terms of engagement by themselves without the need for a third party. In essence, blockchain marketplaces create productive and active participation of all members without discrimination based on geographical location, level of income or any other methods of categorization. In case of conflicts, community-based conflict resolution mechanism are entrenched. 

​Another aspect is community management which means that all members of the blockchain marketplace have equal rights to participate in the affairs of the community. Most of these communities are run by consensus. There is a voting mechanism for allowing suggestions and those that have most suggestions are implemented. This is not possible in the current marketplaces whereby decisions are made by heads of corporations. Even if current marketplaces also implement changes and improvements blockchain based marketplaces are more community based and are not necessarily driven by profitability which is the case for current online marketplaces. 

Cost advantage Blockchain Marketplace

​blockchain based marketplaces have lower costs both for buyers and sellers. Existing online marketplaces leverage on payment gateways in order to facilitate payment process. Furthermore, there is a need for a protocol layer for the exchange of data such as TCP. Another requirement is a hosting platform such as AWS or any other cloud services. All these requirements add up to the cost of having an online marketplace based on software. However, on the blockchain, these processes are all compressed into one open ledger- the blockchain. Through a distributed ledger, it is possible for it to act both as a payment infrastructure, a protocol for exchange of value and a hosting platform. Therefore the costs of executing and running transactions on the platform are lower than the existing marketplaces. 

Building a more connected network

The main rationale of a marketplace is to connect buyers and sellers. Therefore a marketplace operator should aim to reduce friction and thereby facilitating a smooth way to make transactions. This is archived through blockchain marketplace in various ways. One of them is by increasing the level of trust. Traditional marketplaces do this through reviews and having a trusted third party. However, blockchain marketplace is even better because there is no intermediary and the user reviews still remain. Furthermore, matching buyer and seller needs is better managed on the blockchain. This is achieved through building networks that are based on wants and needs. 

Are there any challenges to blockchain based marketplaces? 

​It is in the early days of rolling out blockchain based marketplaces. There are no clear winners yet and we are yet to see what works the best. However, there are already companies that are making attempts on rolling out blockchain based marketplaces. Existing marketplaces such as Amazon, Alibaba and eBay have strong network effects that have helped matching needs of millions of sellers and buyers. Blockchain marketplaces will not automatically replace them but will need to work on attracting customers to the platform. Users will not simply move on the platform if they are comfortable with the existing marketplaces. There is, therefore, the possibility of having both blockchain marketplaces and non-blockchain based marketplaces exist in the same environment. Another challenge that blockchain based marketplaces will need to solve is last-mile delivery services. The reasons companies such as Amazon have been able to dominate is because they do not only provide the marketplace but also additional services to customers. They are therefore able to give the customer more experience such as on-time delivery, packaging, and other support services. It is not clear how blockchain based marketplaces will be able to offer these services. However, overall, it is clear that blockchain based marketplaces offer far more advantages than the currently centralized marketplaces. 

Other related articles on Blockchain:​​​​

• How Decentralized Apps are changing Online Marketplaces
• Use of smart contracts in the blockchain online marketplace
• What's the Blockchain impact on Online Marketplaces
• Blockchain Skill Shortages Leading to High Demands​​
• How Online marketplaces using Blockchain Technology