In a previous blog post, we explored how Distributed Ledger Technology (DLT) can help solve many of the issues experienced by participants of the sharing economy. To recap; currently, we are in the middle of a global digital transformation; new advances in technology have been able to increase the speed and flow of data.
This has resulted in a shift away from the top-down, centralized economic models of the industrial age, and instead, we are exploring new decentralized models. P2P marketplaces have become very popular for both buyers/sellers of products and services; and while they have created a ‘micromarket’ which fosters a stable, healthy, and competitive ecosystem.
There are still many problems and issues faced by participants of current peer-to-peer models. We briefly mentioned these in the previous blog but thought it would be helpful to unpack some of these problems in more detail.
High Transaction fees
Both the buyer and seller lose significant value during the transaction process because of high payment processing fees. Companies like Visa and PayPal all take a huge fee during the purchasing process, often ranging from 3–5% for domestic transactions, but can rise as high as 8% for international. Such a premium is then priced into the platforms ‘micromarket’ resulting in inflated prices of goods. This directly affects the sellers’ bottom line and forces buyers to pay the relative markup prices. Recently in January 2019, Mastercard was fined $650 million by the European Commission for breaching antitrust rules by raising payment-processing fees artificially.
Adequate security for both buyers and sellers is a significant concern within the industry. Even though the new collaborative, sharing economy P2P marketplace models provide increased levels of network decentralization for platforms, they are still centralized overall. This means that there is one point of attack for malicious actors, making the centralized system an easy target to hack users’ private data, steal funds, and/or negatively influence the market. For example, in 2014, cybercriminals stole the data of 145 million eBay customers. Similarly, critical infrastructure shortcomings can leave centralized systems vulnerable and to malicious actors and hackers.
One of the key themes in the technology sector in 2018 was privacy and the protection of personal data, and it has continued during 2019. The economist argues that currently, data is the most valuable commodity in the world; even more valuable than oil. Today companies have little respect for their users/customers’ personal data; companies often harvest and sell users’ data without their knowledge or consent. This means that even within the P2P marketplace model, users are at risk of becoming the product, much like the infamous ‘data mining’ companies like Facebook and Google. In fact, mining data from users is also one of the main ways the popular ride-sharing app Uber makes money too. Data privacy issues became so controversial that in Europe a new law was implemented in May 2018 called General Data Protection Regulation (GDPR), which aims to give back more control to consumers and protect individuals’ data. It also includes strict guidelines for businesses and companies to adhere to regarding how they use their customer’s data. While this is a step in the right direction, there are still significant concerns over data control for individuals.
Trust and Fraud
In many marketplaces, there is a set of procedures and quality assurance steps such as rating systems in place to minimize fraud and increase trust amongst users. However, this does not stop all of the nefarious actions of individuals who wish to conduct illicit activities on these platforms. Fake postings and spammers are two of the most prevalent examples. Recently in March 2019 in Spain, a gang targeted a P2P marketplace platform called Wallapop. The criminals made off with 125,000 EUR by asking for buyers to send them their ID; which would give a sense of trust and security to the buyer. After this, the buyer would pay upfront and never hear from the seller again.
At Cartam, we believe that Distributed Ledger Technology (DLT) can be a facilitator for optimizing existing benefits of Peer-to-peer marketplace platforms, as well as a solution to many of the problems mentioned above. To learn more about how DLT can solve these problems read our blog post here!
Written by: Hugh Flood