Decentralized Marketplaces and a look into the Future:

Written by Kunal Ahirwar for Earnvestt Technologies Pvt. Ltd.

Decentralized marketplaces have become a buzz word with the recent developments of Blockchain. The idea of a globally connected, permission-less, self-executing ecosystem for transactions does open up exciting avenues for the financial markets and trade in general. It allows the possibility of eliminating all middlemen involved in transactions and potentially bring down costs across the supply chain. We come across multiple decentralized marketplaces in our day to day life. The street food market, the shopping complex, the vegetable market we see on the street are different levels of decentralized marketplaces in the physical world where buyers and sellers negotiate for individual transactions. But similar models in the end to end digital space have not been very successful because of the underlying lack of trust.

Instead, we have models like Amazon or NSE/BSE, etc. where all transactions are guaranteed and settled by a central authority. These centralized marketplaces can only function effectively if both buyers and sellers relinquish control and allow the central authority to conduct all transactions. Over the years this has led to the exploitation of buyers and sellers and allowed for price manipulation on marketplaces like Amazon. It has also allowed the market to be heavily influenced by individual buyers and sellers as seen in the 1992 Scam.

Having said that, the advantages of centralized marketplaces have constantly outweighed these drawbacks. They provide excellent price determination, manage the trust, and can provide excellent quality service to the users. When someone buys a stock on NSE, they do not have to worry about the intention of the seller to deliver the stock. When a brand sells a pair of shoes online, it does not have to worry about the buyer defaulting on the payment. Decentralized markets so far have struggled to create this kind of trust.

For a long time, Decentralized marketplaces have been associated with issues like fraud, black marketing, and lack of accountability but with the advent of permissioned blockchains coupled with modern AI and Analytics, multiple marketplaces claim to have developed solutions addressing these concerns. Blockchain technology allows the users to generate consensus in the marketplace and generate ecosystems where buyers and sellers can operate efficiently without trusting each other because of the underlying logic disincentive frauds.

The earliest attempts at this were introduced by Bitcoin with the Proof of Work Consensus which was extremely expensive computationally. There have been newer mechanisms like DPoS which have been able to significantly reduce this cost for public blockchains. Permissioned blockchains can do this job even better by synthetically controlling who can enter the marketplace. To understand this further, we can draw an extremely crude but effective analogy with shopping malls. Although the mall owner controls who can open a shop in the mall, it’s the approved seller and the buyer who engages in transactions independently without any interference from the mall owner.

Decentralized marketplaces today are starting to reach similar levels of efficiency as their centralized counterparts and also matching the same level of customer service addresses like Amazon or eBay or NSE/BSE etc. without inserting a central authority. We at Earnvestt Technologies Pvt. Ltd. are building a decentralized marketplace that allows MSMEs to raise working capital through invoice discounting. We are using a multi-layered architecture on top of Hyperledger Fabric blockchain which is backed by clustering and AI algorithms for the selection of participants at each level. Our marketplace is designed to bridge the challenges faced by MSMEs in India and democratize the working capital markets. Looking at the trajectory of technological developments, it would not be too long before markets become more and more decentralized and develop customer grievance redressal services like their centralized counterparts.

{We at Earnvestt Technologies Pvt. Ltd. are an early stage startup building India’s first Decentralized, Peer to Peer validation based working capital management platform. We are currently incubated at Afthonia Lab}

Decentralized, peer to peer validation backed working capital management platform powering MSMEs by ensuring simple, fast and easy access to capital.