Platform-based Economy Problems

Marketplaces or platforms are centralized business model, in which all user data and transactions are stored, processed and owned by the platform owners or builders. Centralization is monarchical in nature, therefore it is in the position to set its own rules and leave its customers both partners and users in passive situations. Unlike decentralized business model with more democracy, customers both sellers and buyers in centralized marketplaces have a little voice to drive the platform development, even they play a very significant role to decide the success of a platform. For example, every time Google changes their ranking algorithm, or Facebook updates their strategy of newsfeed display, that in fact would harm their partners and users a lot. Users and partners have no control on that decision which is critical to them. Moreover, centralization means that there exists single point of failure. If the centralized entity fails any service dependency that customers have also fails. And if the marketplace owners corrupt, then your whole business relied on it would be totally impacted.
In centralized marketplaces, user or customer data is vital to their business. The collected data owned by those marketplaces is, in many cases to make money out of it. Google and Facebook to name a few may offer you their services free of charge, but it comes with its own price. The personal data of their customers will be used to generate business revenue by selling ads which are displayed back to their users for example. Facebook–Cambridge Analytica data scandal is an inevitable consequence in the centralized world, where data privacy is abuse [12]. Furthermore, centralization comes with censorship. Governments like to control and regulate particular types of marketplaces or platforms for political or secure purposes. On the other side, centralized marketplaces or platforms themselves want to choose who is welcome to use their platforms. Regulation and user data usage, generally are not transparent to users and out of their control.
Payment methods in centralized marketplaces or platforms nowadays are still mainly via fiat currencies. Those methods still need a trusted authority which will increase the transaction fees as analyzed well in the Bitcoin whitepaper [1]. The centralized marketplaces are trust based business model, which allows the possibility of transaction reversal. By using physical currency otherwise can avoid the costs of dispute mediation and transaction fraud, and yet that cannot be done over a communications channel without a trusted party. More importantly, cross-border fiat currency transactions can be slow, inefficient, and expensive. In addition, dispute resolution mechanism in centralized marketplaces depends on trust and reputation. Trust based business model may impact badly the buyer psychology and seller behavior as disputes happen. Unlike centralization, decentralization is designed and built for adversary business environment, thus, it can provide a better and more advanced dispute resolution mechanism based on its trustless transaction model and smart contracts.
Security is one of the most challenges for online marketplaces, especially centralized ones with the single point of failure problem. Security breach would lead to data leakage which may severely damage marketplaces, including both owners and customers. The top list of data breaches of the 21st century would help have a closer look at the cost and severity of a data leakage to a marketplace [13]. One of the main reasons for attackers to compromise those systems is out-of-dated security method by using traditional user ID and password. For some systems, even password is still encrypted with a simple SHA-1 (Secure Hash Algorithm 1), which would be easy to break with the current computing power [14]. With its extreme importance, marketplaces should be deserved a safer and better security mechanism with the significant advances in cryptography technology.
Tracking origin of goods and fighting against fake products are not being put enough efforts not just in reality but also on online marketplaces. On the one hand, it is about the limitation of technology used in those kinds of platforms. There doesn’t exist a mechanism for the current online marketplaces to verify the origin of a listing with multi-laterals. The information of commodity should be confirmed and agreed transparently among multiple parties. On the other hand, it is also about the nature of centralization. Online marketplaces haven’t been investing adequately to solve completely the problem of listing quality. One reason is that they may have to sacrifice the significant number of their merchants because online marketplaces are two-sided business model. That, in turn, would hurt their revenue. Another one is that centralized systems are trust based model. Pushing trust and reputation responsibility to their customers including sellers and buyers could reduce remarkably the operation cost. Unlike their centralized counterparts, decentralized marketplaces would leverage blockchain technology in tracking origin of lisings and preventing mediocre ones, in order to bring more values to their users.

