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Tag: marketplaces

With Decentralization, Where is the Money?

1478-14842-1-PBIf we are to strictly follow Bitcoin’s first principles of decentralization, then very little to no money should be made by the centers.

Bitcoin- the system, is itself the quintessential decentralized and autonomous ecosystem today. And its center is poor, because it is non-existent as an entity. All of the revenues/profits are being made at the edges of the Bitcoin network.

So, if we are to mirror Bitcoin, we need to stay true to its decentralized characteristics & properties; not just as a matter of principle, but as a matter of operational integrity.

As it evolves, decentralization is not something that is categorically there or not there. It’s not a black or white situation yet. There are different flavors, shades and degrees of decentralization. It is becoming something we aim for and reach over time, not overnight. I’ve already described the “ideal” framework for distributed autonomous organizations, and it’s not that easy getting there.

The Nature of Centers

It used to be that nothing happened without central authorities, or central powers, or central regulations, or central approvals. With decentralization, it’s the opposite. Everything happens at the edges, and at the nodes near the peripheries of the overall network.

With decentralization, you don’t install a center first. You install a platform that enables the network to flourish where the “center” of attention (used figuratively) and activity are the nodes and the peripheral users.

We should not bastardize or compromise on the decentralization concept by picking and choosing which of its characteristics we want to adopt and which ones we reject.

The vision brought by Bitcoin includes:

  • Speed of money / transactions transfers
  • No intermediaries between transactions
  • Flat organizational structures
  • Trust inside the network
  • Resiliency of the network against attacks or censorship, with no central point of failure
  • Decisions and changes based on reasonable consensus processes
  • Fluidity from peer to peer
And “peer to peer” means “peer to peer”, i.e. without anyone in the middle to buffer, delay, or try to simulate P2P.

What Will Bitcoin Enable Us to Do?

Compare Bitcoin to the Internet, in terms what we are being empowered with. Arguably, it was the ability for anyone to become a publisher of content. Whether you are sharing a photo, a comment or a blog post, you are publishing something and expressing yourself freely on the Internet.

What is that equivalent (big) thing that Bitcoin will allow us to do really well? Is it to be our own bank? Is it to run legal contracts between each other without third party clearinghouses? Is it to earn value and cryptocurrency on our own, as a new type of work?

For Decentralization to take full effect, we would need to see:

  1. Decentralized Content Distribution and Exchange Networks (maybe for digital goods initially), without central authorities that tax it or control it.
  2. Decentralized Transportation Services, based on peer to peer services, without companies like UBER taking excessive fees at the center.
  3. Decentralized Storage, where we earn money by sharing unused capacities, without companies like Dropbox in the middle.
  4. Decentralized Computing, without companies like Amazon Web Services serving it.
  5. Decentralized Banking, where we control our money ourselves & wrap rules around how we spend it, without central banks.
  6. Decentralized Gambling where trust is baked in, and without a house that’s not always so trusted.
  7. Decentralized Exchanges for trading financial instruments or products, without central exchanges.
  8. Decentralized Titles Transfers or Real Estate Transactions without central authorities that control the issuance of deeds.
  9. Decentralized Public Registries for documents such as marriages, without going through government registrars
[For more Blockchain-based decentralized applications, I suggest checking the book “Blockchain: Blueprint for a New Economy”, and here’s my review on it.]

It’s Not Easy Being Decentralized

Apple’s iTunes is the typical centralized marketplace. If it were decentralized, first of all, Apple wouldn’t take a 30% cut on revenues. Second, whatever value is derived from app sales or via other monetization would be spread across users who use or promote an App by sharing their own stats for example, and Apple wouldn’t deserve that 30%. Of course, this is a hypothetical scenario, that is barely half-baked; but the nugget behind it is that the value is at the edges of the network, not at its center. Nothing happens without users that add value, so why not re-circulate a (large) part of that value back into the network to make it stronger?

It’s not easy to become decentralized. But it’s easier if it’s in your genesis, or if you are influenced to believe that way, or when you start a new organization from the ground-up as a decentralized network, platform, service, currency, or marketplace.

The challenge becomes: where is the monetization behind decentralized models? Often, a decentralized construct is based on two foundational components: a protocol and a marketplace. The (technical) protocol is like the operating system, and monetization is hard there, but the marketplace is where the network lives, and you need to search for innovative monetization models inside the marketplace, especially with user features and services that overlay themselves on that network.

And we must also ask for whom is the value transferred- the instigators or the participants? It’s very possible that value starts with the users who are the key actors in the decentralization organism. If the users benefit personally, then the network benefits collectively, and that spills over to whoever started the network.

The concept of “central operations” is shattered, because maybe it shouldn’t exist. The underlying protocol enables decentralized operations, and that is where the activity and value should reside.

My conclusion is that we are still learning and experimenting with business, revenue and value appreciation models behind decentralized networks, markets and organizations. One thing is for sure: the centers and operators should make less, and the collective of users/stakeholders/participants will make more.


Decentralized Peer-to-Peer Marketplaces

via shutterstock via shutterstock[/caption]

We’re at the cusp of seeing a lot of new peer to peer (P2P) marketplaces with decentralized operations.

Recent advances in blockchain technology based on decentralized consensus are making it possible to create totally decentralized marketplaces whose usage will be easily met by the critical mass of Internet users.

Existing P2P marketplaces have some characteristics of traditional marketplaces, but there is more to it.

Among the existing factors for marketplaces success, liquidity is important. Onboarding difficulty is also a factor. Other barriers could be psychological, legal, technological, or business model related. We need to preserve these characteristics, but go beyond them.

A decentralized P2P marketplace has a lot less friction at the center than traditional marketplaces. There is a lot more power and benefits at the edges than there are at the center.

In a previous blog post, The Race to Decentralize Everything and Give Power to the Edge of the Networks, I mentioned that marketplaces are one of the areas being affected.

Let’s review the progression of the various types of marketplaces:

1) Vertical marketplaces: Top-down controls. That’s where most e-commerce sites are. They sell, you buy. Examples: Bonobos, Birchbox, Frank & Oak, etc.

2) Semi-central marketplaces: They facilitate selling and buying laterally, and outside of a top-down model. Amazon, eBay, Etsy are the grand daddies. A few sell, many buy.

3) Decentralized peer-to-peer marketplaces: Anyone sells. Everyone buys. As many sellers as buyers. The central controls less. Trust, rules, identity, payments are embedded at the peer level. Participants arrive already trusted, and decentrally acknowledged. Examples of marketplaces and services to support them are being concocted by startups, such as Lazooz for transportation, OpenBazaar for p2p trading, or Openname as the identity protocol.

I’m particularly excited that we are going to see increased innovation around the creation of decentralized peer-to-peer marketplaces. I think the required plumbing infrastructure & middleware services to enable their operations are becoming more and more available.

What do these P2P marketplaces typically do?

1) Sharing. This includes temporary renting, using or leasing from someone else on the network. E.g Sidecar.

2) Selling and buying. Peers selling and buying from each other. Eg VarageSale, Kiinzel.

3) Providing a service. Each peer can provide a service, or find a service. E.g. Vayable.

What are the requirements for participation into these marketplaces?

Users will arrive with these services already “baked in”, prior to their participation:

  • Identity
  • Rules
  • Trust
  • Payment method
  • Terms
  • (ps: others?)

And they will offer open and neutral access of specific functions, such as:

  • Arbitration
  • Match-making
  • Inventory management
  • Notifications
  • Bid/ask
  • Aggregation
  • Information organization
  • (ps: others?)

Maybe one day, launching a decentralized peer-to-peer marketplace will be as easy as running a website.

What do you think?


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