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What are Decentralized Marketplaces?

Hellen by Hellen
January 16, 2023
in Crypto 101

A decentralized marketplace is a network where trade and transactions take place independently and transparently. 

This ecosystem offers minimum transaction charges, independence from any intermediate governing body, and security. It has been constantly evolving and holds the potential to outgrow traditional business practices. 

Decentralized marketplaces are currently present and prevail in the digital world. They allow us to buy and sell virtual and physical entities ranging from houses and T-shirts to NFTs and patented ideas.

In today’s interconnected world, the desire to deal independently with people is increasing. Capitalism and growing famish have urged people to shun the traditional centralized economy and look for alternative decentralized and self-reliant markets, free from the pressure of governments and financial giants. 

As technology continues to grow exponentially, this urge has taken the shape of a digital decentralized marketplace, with blockchain technology as its bedrock. 

In this article, we will learn how the decentralized digital market operates and how it is different from the traditional setting.

What is Blockchain Technology?

Blockchain is an advanced database that stores information digitally and records it in a distributed network. 

Traditional databases store information in a single supercomputer called a server. This data can be altered, stolen, or used without permission. Also, it is not accessible to a common user.

Blockchain erases all these concerns and provides a shared, transparent, and immutable framework. Every activity happening on it is assigned a specific number called the public key and placed in a box named block. 

Every block carries a code called Hash which holds information about this block and the previous one. Once a block is filled, it is linked to the previous block. Thus a chain of blocks forms, and thereby this framework gets its name, blockchain. 

These blocks are stored in series chronologically. The data is accessible to every part of the network. However, no one could rewrite or remove this data. If someone tries to temper with data on one node or computer, all the other computers will crosscheck their data and identify this tempering, eliminating the change. This renders it the most trusted, transparent, and reliable solution for businesses.

Why Blockchain?

Blockchain technology is the foundation of a decentralized marketplace because the data stored is shared but cannot be edited. This makes it ideal for an immutable ledger. It helps businesses to hold the record of transactions, payments accounts, production and inventory, and many more.

Since all the users share a single view of truth and they can see and track a transaction from the delivering end to the receiving end, this adds to its credibility and security. Also, it offers minimum transaction fees and secure and fast payments. 

Blockchain eliminates the need for intermedium authorities by establishing accountable peer-to-peer connections through a smart contract. A smart contract is a set of immutable rules mutually decided by both buyer and service provider. This smart contract tracks the order and releases payment on its completion only.

How a Decentralized Marketplace Works

In order to be a part of the ecosystem, the member of a marketplace must first agree on the set of rules and regulations.

These rules and infrastructure of a decentralized marketplace establish a framework that allows an automated agreement between buyer and seller. Every member can view the operation of any transaction. That brings the highest level of trust and precision. 

Moreover, all the operations are exclusively free of any influence, be they internal or external, making them highly transparent. And this is what a decentralized marketplace is all about.

The Structural Design of a Decentralized Marketplace

A Decentralized Marketplace is built on several key components that work together to provide a secure and transparent environment for trading. Understanding these components is essential to understanding how a decentralized marketplace operates.

Framework for trustworthy peer-to-peer connections

One of the most important components of a decentralized marketplace is the framework that enables trustworthy peer-to-peer connections, transparent and secure transactions, and distributed databases. Blockchain technology is the most widely used framework for this purpose. 

Platforms like Ethereum, IBM blockchain, Stellar, and Tezos use blockchain technology.

Digital currency wallet 

Digital currency wallets are used to store and transfer digital currencies within the marketplace. They enable users to perform transactions by sending and receiving digital currencies, such as buying and selling goods and services. 

The digital currency wallet is linked to the user’s account in the decentralized marketplace.

Front-end layer

The front-end layer of a decentralized marketplace is the user interface that provides access to the marketplace through a web application. This layer is designed for buyer and seller roles, allowing users to navigate the marketplace and perform transactions efficiently. 

The front-end layer is usually built with responsive design and easy-to-use interfaces.

Back-end layer

The back-end layer of a decentralized marketplace processes data stored outside the platform, such as inventory information. It handles the data flow between the front end and the blockchain network. 

This layer is usually built with robust and scalable technologies.

Web 3

Web 3 technology connects the front-end contracts and the blockchain network. It enables the communication between the smart contracts running on the blockchain and the front-end layer of the marketplace. 

External data storage with shared databases

A decentralized marketplace uses an external data storage system with shared databases. This allows for decentralization, meaning that the data is not stored in a single location but distributed among multiple network nodes. 

This provides a level of security and transparency that is impossible with centralized marketplaces.

The Advantages of a Decentralized Marketplace

No Middleman Needed

The biggest perk that a decentralized marketplace offers is that there is no need for a middleman to affect the trades. This means that buyers and sellers can deal directly with one another, without the potential biases or hidden charges that may be present in a centralized marketplace.

Reduced Need for Significant Amounts of Capital

Unlike centralized marketplaces, trading can be performed with minimal amounts, making it more accessible to a wider range of people. This can be particularly beneficial for individuals that may not have the same resources as larger players in the market.

Lower transaction rates and ease of transfer

Transaction fees can be as low as $1. However, they usually range from $1 to $50. This fee is settled in the smart contract at the time of the trade. 

In contrast to traditional marketplaces, trading fees don’t change with the volume increase. Furthermore, the transaction can be done around the clock, requiring a smartphone and an internet connection. This transaction can take between 15 minutes to an hour, depending upon the congestion and other factors.

Transparency and security

A blockchain-based decentralized marketplace offers transparency in dealings. Since each transaction and activity is being viewed and verified by thousands of computers, this lowers the chance of fraud and sets the bar higher for quality and credibility. 

All the activity in an open framework is censorship resistance. The immutable and shared network guarantees a secure transaction and keeps the valet account safe from theft. The security protocol of decentralized marketplaces is designed such that it is more profitable to be part of the platform than temper with it. 

Whereas in the case of the centralized and standard marketplace, once the server gets hacked or stops working abruptly, the whole financial system goes down the drain.

Future of decentralized marketplace

The adoption of decentralized marketplaces is gradually increasing. While progress may be slow at times, advancements in technology are making it easier and more accessible for people to participate. 

Despite facing competition from traditional marketplaces, the potential benefits of decentralized marketplaces for the global community make it a worthwhile endeavor to continue to support and develop.

Featured Image: academy.moralis.io

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Invest at your own risk notice : The information on this website and the links provided are for general information only and should not constitute any financial or investment advice. We strongly recommend you to conduct your own research or consult a qualified investment advisor before making any financial decisions. We are not responsible for any loss caused by any information provided directly or indirectly on this website.

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