Why Blockchain Is a Good Choice for Your Next Project by Dmitry Reshetchenko

Blockchain can drive technology change for a significant number of industries. Data consistency, transparency of the processes, and no means to make updates to the facts that have already happened are the key benefits that make this technology popular. In this article, we'll have a look at the marketplaces and e-commerce niche.

It is good for marketplaces

65% of all online retail purchases are made at four main sites: Amazon, eBay, Alibaba, Etsy. This situation has several reasons, and the main one is the approval of the concept of the "marketplace."

A marketplace is an online platform for the provision of goods and services, where producers and consumers of goods can use ready-made online services. For example, consumers search according to the preferred characteristics of goods among a large number of manufacturers, information on ratings and sales of manufacturers, non-cash payment and payment protection systems.

Benefits for manufacturers are ready-made technological solutions for creating an online store without the expenses for developing a site and mobile applications, and payment infrastructure for interactions with customers.

Thus, the concept of a "marketplace" represents a stage in e-commerce or even banking app development. The software technology and payment infrastructure are separated from sellers and buyers and supported by an independent body - the operator of the technology platform. And it's the bright moment where the blockchain can indeed guarantee full security compliance.

The tendencies towards monopolization in the market of new Internet technologies lead to the need for the trust of all platform participants to its operator. And they lead to the concentration of risks inside the infrastructure of such operators. These factors are especially relevant in the context of the globalization of economies for the development of cross-border online trading where there are no mechanisms to ensure adequate legal protection of the parties.

The use of distributed registry technologies (DLT, blockchain) helps in solving a number of these problems. It also helps to optimize the work of marketplaces, ensuring healthy competition in the e-commerce market, as well as providing services on the Internet that were previously hard to provide online.

How does it look in reality?

Thus, the immutability of transactions in the blockchain ensures the impossibility of modifying or losing data on user transactions by the platform operator. Regardless of the desire of the operator or the critical condition of the infrastructure, the users will always receive up-to-date data on their operations. It can be used to protect their rights and legitimate interests.

The presence of a validated and audited DLT network increases competition in the market of marketplaces, as it causes users a priori confidence in the infrastructure of new market participants.

According to a study conducted by Deloitte in May 2014, reviews and ratings of goods and services are the most popular information pieces for buyers (according to Deloitte, 81% of potential buyers study them). The use of blockchain technologies makes it impossible to remove this information from marketplaces providing users with objective and transparent information about products and manufacturers.

DLT technologies allow us the use of tokenization tools and smart contracts on marketplaces. Smart contracts can be used as a very cheap means of automating settlements in the online trading process.

This is especially true for cross-border operations: a smart contract provides settlements on predetermined milestones (for example, receipt of goods by a buyer, automatic calculation of penalties for late payments). It can also serve as a mechanism for resolving disputes and rating participants in operations.

What can tokens provide for you?

The tokenization mechanism can be used both for the ability to pay for goods with the help of cryptocurrencies and for reflecting the cost of mutual transactions. It's also used for the netting procedure to reduce transaction costs and the ability to make payments only within the balance of operations for a specific period.

At the same time, to ensure the security of settlements, both cryptocurrency and fiat currencies can be reserved (for example, on escrow accounts or other specialized accounts of a custodian bank). The latter is especially true since small and medium-sized businesses are not able to clean up the cost of the services of financial organizations to ensure cross-border payments (letters of credit, bank guarantees). 

A new type of payment, such as a "digital letter of credit", requires high costs for the technological connection of the transaction participant to payment infrastructure representing the services of financial institutions. In this sense, these costs can be incurred once by the platform operator when using the marketplace.

Summary

As already mentioned, DLT-technology is not only able to transfer online services that we were not previously familiar with but also give a start to new sectors of the economy.

For example, the Ukrainian startup (the Propy blockchain platform) offers users to rent and buy real estate online using smart contracts, and Singapore-based Power Group launched a marketplace for trading certificates for the use of renewable energy sources.

About the Author:

Dmitry Reshetchenko is an Outreach Specialist for Diceus, a technology partner for developing enterprise solutions. He is passionate in his belief that a partnership with IT blogs is of great importance. Dmitry works mostly with Tech blogs.