Why Is Decentralization Important?

Why Is Decentralization Important?

 

In a recent post we talked about how “decentralization is guiding the ship.” While the definition of the word can be guessed easily enough, the concept is nuanced and takes some time to understand the costs and benefits of decentralization.

Decentralization is a concept in politics, business, technology, and other fields. In a nutshell, it means a central authority doesn’t have control over a system, but control is distributed among the participants in the system. For example:

  • A centralized political system has a central authority with most (or all) of the power. In a decentralized political system the power rests closer to the individual or their representatives.
  • A centralized business structure has a central authority with most (or all) the power. In a decentralized business structure the power to make decisions is distributed between individuals and teams.

There are costs and benefits to these approaches in political and business settings.

The centralized approach allows for more rapid and decisive decision-making, as well as giving participants in the system a sense of clarity about the rules and their own role within it. It also sets up a structure to enforce those rules.

Unfortunately, this also highlights one of the primary drawbacks of centralized systems: what if the central authority acts in ways that are harmful to the participants in the system? There are innumerable examples of tyrannical governments abusing their power. There are also many examples of the leadership teams of companies making poor decisions and refusing to delegate power such that their decisions destroyed the company.

Decentralization avoids the abuse of power from central authorities. However, this comes at the cost of every participant taking on some responsibility themselves.

When we speak about OpenBazaar being decentralized, we are specifically referring to the architecture of the network itself. There is no central point of control in OpenBazaar, unlike Amazon or eBay. All participants in the network have equal power and can’t be forced by anyone else to do anything. This is radically different from the standard centralized model of ecommerce, and it has both costs and benefits.

Making trade free is the purpose of OpenBazaar. Decentralization is the method OpenBazaar uses to make trade free.

Beyond just being able to use cryptocurrencies easily, decentralization is what allows for all of the other benefits of the marketplace, such as:

  • There are no fees to use the platform
  • There is no central authority collecting data
  • There is no central authority able to take down a store or force a user to follow their terms and conditions
  • Users have total control of all of their trade

Centralized marketplaces can’t offer these guarantees because their revenue models require that they do things to impose on users in one or all of these areas.

  • If they didn’t charge fees, they’d need to monetize with user data
  • If they didn’t want to monetize user data, they’d need to charge fees
  • If they didn’t censor transactions and take down stores, they’d be forced to do so by governments (or be shut down themselves)

There’s really no possible way to run a permissionless marketplace unless it’s based on decentralized architecture.

On the internet, everything you see is based on files that “live” on a server somewhere. A server is just a name for another computer. Most servers are owned (or rented) by the central authority than runs the website you’re visiting, usually a company. When you use Amazon for shopping, you are connecting to Amazon’s servers, just like everyone else using Amazon. This is a centralized system.

Centralized computer to server diagram

Centralized computer to server network diagram

 

The decentralized system – like OpenBazaar – means computers aren’t connecting to a central location. They connect directly to each other. Basically, each user becomes their own server.

 

Decentralized computer to computer, or peer-to-peer, diagram

Decentralized computer to computer, or peer-to-peer, network diagram

 

This is one of the costs of using a decentralized system. Each participant in a decentralized system takes on some of the power that the centralized authority would normally have, which leads to the benefits mentioned above. It also means that they will have to take extra steps they wouldn’t need to take in a centralized system. In a decentralized political or business structure, this might mean people are forced to direct themselves instead of just taking orders. Their success or failure is then dependent on their own actions instead of the decisions of the central authority.

In a decentralized network, it means the participants need to be running the program themselves on their computer instead of relying on the central authority to do that for them. In OpenBazaar version 1.0, this meant users would need to run the software 24/7 in order to engage in trade with other people on the network. In the upcoming version 2.0, we have built on IPFS, allowing stores to go offline and still be available to other users if their store has been seeded. Even though this reduces the costs for users to access OpenBazaar, it’s still not as convenient as using the centralized ecommerce options.

Every user must weigh the costs and benefits of the different systems and determine which they prefer.

Centralized systems are abundant and widely used for ecommerce today. A usable decentralized ecommerce system didn’t exist until OpenBazaar, and for those that prefer it, we welcome them.

 


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Why OpenBazaar Token Doesn’t Exist

Why OpenBazaar Token Doesn't Exist

 

If you’re even remotely interested in the world of cryptocurrencies, then you’re aware of a relatively recent phenomenon called ICOs (also called token sales). These ICOs happen when developers of a project announce their intention to create a new coin / token and then allow the public to purchase it. Recent ICOs have been making headlines for raising tens of millions of dollars in only hours or even minutes.

Many projects that focus on building the infrastructure for a decentralized internet have launched, or are launching, their own tokens. IPFS will use Filecoin. Blockstack announced they will use a token. Storj recently had an ICO. All these projects claim to need a new token in order for their products to function properly.

OpenBazaar is also focused on building a decentralized application, so why is there no OpenBazaar Token?

There are multiple reasons why we haven’t issued a token and this post is meant to explain them. These reasons aren’t necessarily set in stone; we are continually re-evaluating whether or not a token makes sense given the rapidly changing cryptocurrency landscape.

1. OpenBazaar Doesn’t Need a Token to Work

The first reason is the most compelling: We don’t need a token in order for OpenBazaar to work as intended in its current design.

OpenBazaar is a protocol and network for decentralized trade. People download software to their own computer or mobile phone and directly connect with other people running the same software, and they then engage in trade without any middleman involved. The OpenBazaar network has existed since April 2016 with hundreds of thousands of downloads and users in countries all over the world engaging in trade with each other using Bitcoin.

It’s not immediately clear how an OpenBazaar Token improves on this process.

It’s true that Bitcoin fees are very high right now, which causes problems for a marketplace built on Bitcoin. We hope that fees will return to a reasonable level in the near future, but if not then the solution is to allow users to pay in other widely-used cryptocurrencies, not create a new one.

It’s possible that there might be a unique way a token could provide utility to OpenBazaar users even though it’s not necessary for the core functionality of the application. We welcome such ideas, but haven’t yet heard any compelling ones.

2. Tokens are a New and Unproven Model

With ICOs and token sales quickly garnering huge attention – and investment – it’s easy to forget that they are a relatively new phenomenon. This is particularly true for token sales on Ethereum.

It’s clear that they are able to gain interest from investors, but that’s where the clarity ends. There are many areas of uncertainty about how these projects will manage and utilize these tokens moving forward, and how the token holders will behave as well.

I’m sure that some – perhaps many – investors in these tokens are true believers in the underlying projects themselves. However, it’s obvious that a substantial proportion of investors are speculating on the tokens. During a period of “good times” the speculation on the tokens benefits the token creators, and right now it seems hard to argue against the massive raises these projects have accumulated.

Anyone who has been involved in the cryptocurrency market – or any financial market – knows that the “good times” don’t last forever.

When speculators choose to take their gains from a token and cash out, there needs to be a buyer available. If there is genuine demand for the underlying project and people want the token in order to use the network, then there’s no problem. However, if most of the demand has come from speculators instead, then at some point there will be no further speculators available, and there is the risk of token holders attempting to exit en masse, rapidly driving the price of the token down.

The ever-present threat of people selling their tokens could be considered a positive pressure on the project developers to deliver on their promises. Unfortunately it’s not always clear that the incentives of the project leaders and those of the token speculators are always aligned. Speculators may act similarly to public shareholders in companies, pressuring the executives in the company to make decisions based on short-term profits instead of what is best for the company long-term.

Since OpenBazaar started in 2014, we’ve had an engaged community of people all over the world who believe in decentralization and free trade. We’re certain that issuing an OpenBazaar Token would increase the size of those interested in the project, but we fear that it would also change the composition of the community from people who agree with our core ideals to a group of people who want to see a return on their investment. We don’t want to make decisions based on what would be best for the price of our token, but instead focus on how we can make trade free for the world.

3. A Token could Increase the Barriers to Entry

OpenBazaar is all about lowering the barriers to trade for everyone. All you need is an internet connection, a computer, and Bitcoin to engage in trade with anyone else in the world, at no cost.

Introducing a token could increase the barriers to entry into the OpenBazaar ecosystem.

We want permissionless, frictionless trade to always be possible on our network. OpenBazaar currently relies on the most widely used cryptocurrency in existence – Bitcoin – and we are building the 2.0 version of the software so users can choose to use other popular cryptocurrencies as well.

The on-ramps into Bitcoin are well-established, as are the wallets to store and spend them. This isn’t true for new coins and tokens. Only knowledgeable cryptocurrency users are able to purchase these tokens and use them. Forcing users into a new token ecosystem reduces the possible number of people the platform can reach.

As mentioned in #1, it’s possible to issue a token that isn’t necessary to use the network, but thus far we haven’t heard any compelling ideas.

4. Tokens Sales are a Regulatory Unknown

There is still significant uncertainty how governments will regulate ICOs / token sales.

If they choose to take a lax approach, the token creators may have little to fear. But if they choose to apply strict regulations instead, the regulatory compliance costs could soon become unbearable, especially if the technology itself needed to change in order to fully comply.

Also, scrutiny from agencies doesn’t only apply to token sales moving forward, but can apply to sales that have already occurred. This creates a situation where there is a “Sword of Damocles” hanging over these projects until regulatory guidance is issued.

Not all token creators are just crossing their fingers and hoping for the best. The Protocol Labs team joined with AngelList to launch CoinList, a platform to launch tokens which attempts to comply with know-your-customer (KYC) regulations and generally assure the tokens are issued in a manner compliant with relevant rules. This may work well for some tokens, but compliance comes at the cost of exclusivity. Only accredited investors have access to the initial sale, creating huge barriers to entry. Accredited investors are more likely to be interested in speculation than using the tokens, emphasizing the potential problems raised in #2 above.

Conditions for Token Issuance

It’s possible that an OpenBazaar Token may be issued at some point, but it would only happen if the following conditions were met:

  1. A new token is needed to provide utility to OpenBazaar users that cannot be provided by Bitcoin or any existing token.
  2. The token sale would be an opportunity to distribute tokens to users of OpenBazaar who believe in decentralization and free trade and are not solely focused on speculation.
  3. The token would not increase the barriers to entry into the OpenBazaar network.
  4. If government agencies issued strict regulatory guidelines it wouldn’t significantly disrupt the OpenBazaar ecosystem due to a reliance on the token.

These conditions may or may not be able to ever be satisfied but OpenBazaar is open-source and we love to hear feedback on our ideas. If you believe an OpenBazaar Token is good idea (or not), please let us know why. Join our Slack or message us on Twitter.

 


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10 Great Father’s Day Gifts on OpenBazaar

10 Great Father's Day Gifts You Can Buy with Bitcoin on OpenBazaar

 

OpenBazaar has what you need for the crypto-loving dad in your life–AND/OR to put your favorite coin into action as the crypto-evangelist that you are!

Check out these items & note a quick pro tip: before you make a purchase make sure you choose a good moderator and if shipping is needed, read the shipping details to see if you can get your items shipped in time from the seller’s location.

10 Great Father’s Day Gifts on OpenBazaar

 

Wooden Fidget Spinner on OpenBazaarFor the fidgeter
Wooden fidget spinner: View // Buy on OpenBazaar
0.002 BTC

 

 

 

Swiss Army Knife on OpenBazaarFor the multitasker
Swiss army knife: View // Buy on OpenBazaar
0.017 BTC

 

 

 

Apartment for Rent BnB in Barcelona Spain on OpenBazaarFor the world traveler
Apartment for rent in Barcelona, Spain: View // Buy on OpenBazaar
0.040 BTC

 

 

 

All natural handmade beard oil on OpenBazaarFor the beardly man
All-natural, handmade beard oil: View // Buy on OpenBazaar
0.010 BTC

 

 

 

Orange Bitcoin Tee on OpenBazaarFor the Bitcoin enthusiast
Orange Bitcoin tee: View // Buy on OpenBazaar
0.024 BTC

 

 

 

Deadpool Merc with a Mouth 12 Marvel Comics on OpenBazaarFor the comic collector
Pretty much anything from CryptoCollectibles: View // Buy on OpenBazaar
BTC varies

 

 

 

The Internet of Money by Andreas M. Antonopoulos on OpenBazaarFor the crypto-newbie
The Internet of Money book: View // Buy on OpenBazaar
0.006 BTC

 

 

 

Hand Crafted Wooden Ring - with Lepidolite Inlay on OpenBazaarFor the artful accessorizer
Hand Crafted Wooden Ring:  View // Buy on OpenBazaar
0.041 BTC

 

 

 

Handcrafted leather money clip with two pockets for cards on OpenBazaarFor the tasteful organizer
Handmade leather wallet: View // Buy on OpenBazaar
0.034 BTC

 

 

 

5.5mm 6 LED Endoscope Waterproof Borescope Inspection Camera For Android Phone and Tablets on OpenBazaarFor the guy who has it all:
LED Endoscope Waterproof Borescope Inspection Camera: View // Buy on OpenBazaar
0.005 BTC

 

 

 


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OpenBazaar’s Bigger Picture in The Bitcoin Debates

OpenBazaar's Bigger Picture in the Bitcoin Debates

 

You could get whiplash trying to track the what’s-what and the who’s-who of Bitcoin. Just as the value is regularly breaking records now the debates are hotter than ever over the future of this blockchain that spawned a thousand blockchains.

No doubt Bitcoin is an important development in technology–some would say as important as the internet itself. Many also liken the energy around it to the time when the internet was developing for users and forward-thinkers knew it would be big, but not yet what all it could actually do. Now we can see the tools it birthed such as email and mobile and today we can see the impact those things have had.

We know enough about it now to know that it’s a pretty big deal but the questions of why, how and for whom still hang in our digital air.

How is a company who wants to build applications that use Bitcoin supposed to keep up?

Bitcoin is still king in this space but it is just the beginning of a huge new way of connecting, creating and sharing value online. It represents, we believe, the advent of a new internet. And that vision sparks technology which, in turn, sparks more vision.

Or as, allegedly, Marshall McLuhan stated in 1967:

“We shape our tools and thereafter our tools shape us.”

The initial vision for Bitcoin was simply a peer-to-peer digital currency that would allow people to exchange payments without middlemen. Now it’s spawned many offshoots that are basically ideological playgrounds for what this sort of public ledger technology can really do. Each of these now are like puzzle pieces, microorganisms that are co-evolving in technology much like they do in nature.

We have experienced this personally with OpenBazaar where a new file storage protocol that didn’t materially exist just 3 years ago emerged with incredible implications for the protocol that we had built around that time. The choice to build version 2.0 on IPFS was pretty easy as it was an exact piece that was missing from our own puzzle. But it wasn’t shoved in the couch cushions, it simply didn’t exist yet. And that is awesome. It resulted in a lot of new work but we didn’t begrudge it. We transitioned with excitement and anticipation because we know why we’re doing what we’re doing.

We keep up by focusing on the bigger picture.

OpenBazaar is a marketplace that makes it easy for users to exchange goods and services for a cryptocurrency. And as the name itself implies, we believe in cryptocurrencies that can be used as a currency, a medium of everyday types of purchases.

We believe this because we want to live in a world with fewer barriers. We want to see a world where people can build what they want and where beautiful things happen when their work and tools overlap and complement one another. We believe in people making choices for themselves and taking ownership and control of what they do.

From code to lifestyle, we want to create tools that provide access, tools that allow everyone to figure out the kind of life they’d like to build, from wherever they are in the world.

Right now the path we need is paved with Bitcoin, which we love continue to champion, but it’s really about the vision of what Bitcoin represents–not the specific technology. Bitcoin may fail, but decentralization is guiding the ship for us.

We believe in faster, cheaper, better technology that connects more people with fewer barriers.

The only way through is through. That means boots-on-the-ground, roll-up-the-sleeves through. If you’re curious what the future looks like, then build it with us.

 


A free marketplace. No fees. No restrictions. Earn bitcoin.
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Consensus 2017 — The Immediate Future of Bitcoin & ICO Madness

Times Square

 

Wow, what a wild week it has been! Between attending the blockchain industry’s biggest event and the skyrocketing prices of just about every cryptocurrency — especially Bitcoin — capped with a holiday weekend, we are still reeling. We are all back at our desks though and finally had a chance to unpack some of our thoughts about CoinDesk’s annual event, Consensus, in beautiful New York City!

 

10,000 Foot View

First, the event was huge. Tickets were sold out and almost 3,000 people were in attendance across 4-5 floors. Speakers & panels were often down to standing room only and some great topics were covered like Can Bitcoin Scale? and Chasing Privacy in Blockchains among many other discussions & presentations on the business & technical applications of blockchain.

Second, you couldn’t help but realize that cryptocurrencies besides Bitcoin are gaining fast in their validity and tokens/Initial Coin Offerings (ICOs) may still be controversial, but they are big business at the moment with a lot of money to show for it. Everyone was interested in learning about ICO case studies and their future as a serious business model beneath the looming cloud of regulation.

Third, it seems that Bitcoin still has some battles ahead of it still as miners, developers and users continue to wrestle with the best way to scale it. Fundamentally it will come down to the question of defining what BTC really is—a currency or a security — either by declaration or action.
We have our own thoughts about this and were also excited to soft launch a new campaign we are working on as the OB1 team to share them. Check out Crypto Is Currency Day coming up this September and join us if you believe in the mission of digital currencies we can actually acquire & spend easily & efficiently.

Getting Personal

To conclude, we also wanted to share few other exciting thing that were shared by some of our excellent partners at the event!

Shapeshift

Prism is a new service from Shapeshift that uses Ethereum to allow users to invest in a basket of cryptocurrencies of their choosing. In their words, “Prism is a platform upon which humans and machines can acquire exposure to portfolios of digital assets without trusting a counterparty.” We think non-custodian exchanges like this is a big step in the right direction to protect users and provide more privacy and security to traders. More details here

Protocol Labs

Protocol Labs, the company behind IPFS, teamed up with AngelList to create a new platform for token sales, called CoinList. We’re interested to see more of their work here which is aiming to legitimize crowdfunding crypto projects through ICOs within the United States and providing opportunities for them to stay here instead of moving offshore. More details here

Next, we are proud to announce our newest partnership with Digital Currency Group (DCG) as a strategic investor! This is very exciting for us as DCG is the most active investor and business incubator in the bitcoin and blockchain industry and they share a vision for the future of commerce where digital currencies are more accessible and usable for everyone. See our press release for more information.

Finally, for more of our thoughts on the event, check out this brief YouTube Live video we recorded this week with another partner of ours, Jeremy, CEO of Never Stop Marketing.

We are really energized by the members of our community who are working hard to build the financial future they want to see and we are privileged to be working with them. It’s really a gift to be surrounded by smart, driven people who are building excellent products and companies and we can’t wait to tell you more about the irons we have in the fire with them soon!


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