Thanks to the buzz surrounding Bitcoin and blockchain, decentralization as an approach to services is now also being brought to mainstream discussions.
Bitcoin was built as a decentralized currency in the aftermath of the great recession. It was a reaction to the control centralized authorities such as banks have over people’s financial activities. When banks failed, so did the people who entrusted these institutions with their money. Today, Bitcoin continues to reach all-time highs in price. Its value is determined largely by the market and not by some central bank.
If bitcoin can disrupt the current model of currencies, then decentralization should also be applicable to other financial activities such as trade. In the context of trade, marketplaces and exchanges are also mainly controlled by centralized authorities. These companies act as intermediaries connecting buyers and sellers. Parties are allowed to exchange money and goods as long as they follow these companies’ terms and conditions. Critics of centralization point out that these companies aren’t essential to the process. These companies supposedly only assert relevance in order to profit from the fees they charge for facilitating transactions. Trade can simply happen among peers. There’s also the problem of security where a failure or breach of the centralized authority could mean the collapse of the whole system. Users could lose their properties and money.
Blockchain companies already seek to challenge centralized approaches and introduce decentralization to trading platforms and marketplaces. For example, Decentrex offers a fully decentralized crypto exchange for trading ether and ERC20 tokens. OpenBazaar takes a shot at the likes of eBay and Shopify by enabling merchants to create online stores and accept bitcoin for payments. Europe-based fintech group Naga is even envisioning a blockchain-based ecosystem that allows for decentralized means to trade financial products, virtual items, and cryptocurrencies. The emergence and growing acceptance of these decentralized services can truly change the way property and other items of value can be exchanged.
No More Middlemen
If one dissects what centralized services offer, they basically just serve functions such listing, escrowing, payments processing, or shipment booking. While these services provide convenience to users, these companies will often take a cut or a fee for each action they take. In payments, processors often require various fees to enable merchants to accept various payment methods. This stack of fees usually takes into consideration that the payments system relies on other intermediaries such as banks and clearing houses to work. Each of these intermediaries add to the fees. Trading platforms and exchanges also work similarly. Commissions and fees are charged for every transaction.
This continued involvement of various middlemen is an issue blockchain services seek to address. Merchant services like OpenBazaar allow merchants to accept bitcoin payments. Since crypto payments are transferred directly from the buyer’s wallet to the merchant’s, the process can be done without the need for other intermediaries. As an exchange, Decentrex uses Ethereum smart contracts to facilitate cryptocurrency trading. By letting the blockchain platform handle transactions, fees are often cheaper compared to those charged by centralized exchanges. Some transactions in decentralized exchanges even only get charged what the blockchain requires to process requests.
Convenience through Consolidation
A trend for many companies today is to consolidate related services within ecosystems. Facebook, for instance, has been investing heavily in its Messenger platform. Using chatbots, users are able to perform actions such as booking rides or ordering food within Messenger. The goal is for Facebook to become the definitive portal for both social interaction and transactions.
Decentralized services are also set to offer similar ecosystems that would help make transactions more convenient for customers. Naga aims to consolidate several of its own services by putting cryptocurrency at the core of its ecosystem. Naga’s existing services include SwipeStox – a trading app for stocks, foreign exchange, and indices – and Switex – a marketplace for trading virtual items.
To consolidate these services, Naga is set to have its token sale for its Naga Token. The Token will serve as the currency for the ecosystem and would allow users to make secure payments to any of Naga’s services. As an incentive, Naga provides discounts to those who will use the tokens for transactions over those who will use fiat currencies. Payment recipients would also be able to access funds quicker without having to wait for lengthy clearing periods common to traditional means.
Blockchain is Gaining Wider Acceptance
It may have taken a while but more organizations and users are finding value in blockchain’s capabilities. In business, it’s not only startups and ventures that are aggressively adopting the technology. Even traditional institutions have embraced blockchain for their own use. Bitcoin and cryptocurrencies have also drawn the attention of even the average investor to diversify into crypto assets.
This increasing exposure of the average consumer to blockchain is crucial for the successful adoption of decentralized services. Most people take time to become comfortable with innovation especially those that do not follow the popular models of established businesses. If consumers see that blockchain services and crypto activities aren’t as complicated, then they will find transitioning to truly peer-to-peer transactions e
Trust in Transactions
Blockchain is designed to be transparent, and immutable record-keeping system. As such, transactions done on blockchain can be reviewed, audited, and tracked by anyone in the chain.This can help ease the problem of disputes common in many trading and marketplace platforms since the blockchain records can show the true status of each transaction. This also helps thwart fraudsters who typically game centralized systems.
Chargebacks fraud is now a major problem for merchants where fraudsters use stolen credit cards to purchase goods. Card owners can perform chargebacks in order to recover the fraudulent charges made to their cards. Merchants, however, are often left shouldering cost of the goods if ever they successfully fulfill the order. Crypto payments do not allow chargebacks and mechanisms such as blockchain identity and smart contracts could help authenticate transacting parties.
Security breaches and cyber attacks have also become quite common these days. Many centralized services have been successfully targeted and victimized resulting in stolen customer data. Decentralized services run on distributed peer-to-peer infrastructure making it difficult for attackers to pick a single point of failure to exploit.
Fair Means to Trade
What decentralized services ultimately offer are means for people to trade in faster, fair, and less restrictive ways. By circumventing the need for intermediaries, buyers and sellers are free to price their items and conduct their transactions more flexibly. Users can also place trust on the mechanisms provided by the technology rather than be compelled to put faith in third-parties. As decentralized services also morph into ecosystems, users and consumers are bound to enjoy better usability and convenience.