Closing the Loop
Sunday July 3, 2016
Peer to peer markets have quickly dried up as Bitcoin has grown in value and market cap. It’s difficult to make OTC trades with bitcoin directly between peers to receive goods and services. Proponents of a block size limit increase always fail to propose a solution to establishing peer to peer trade routes. The consumer has come to expect Amazon.com as the standard user experience for online shopping, thus this same consumer wants an identical experience while substituting credit cards for Bitcoin.
The irony behind this consumer’s mass adoption mentality is the frequent citation of the Bitcoin whitepaper’s abstract: “A purely peer-to-peer version of electronic cash would allow online payments to be sent directly from one party to another without going through a financial institution.” Mass adoption consumers tend to overly rely on centralized solutions such as Amazon, instead of directly trading with peers. They focus on strictly the idea of electronic cash, while ignoring the idea of peer to peer trading completely. Luckily due to consumers revolting, the anonymous enterprising entrepreneur has more opportunity than ever to establish profitable trade routes that have been completely untapped in the peer to peer network.
The Open Bazaar project aims to give users the tools to establish peer to peer trade routes using Bitcoin as the currency. The spirit of the project seems sound, although its embodiment may be a bit too influenced by the social media craze. Open Bazaar is a network constructed similar to BitTorrent, where nodes directly talk to one another to send and retrieve information. Everything is done in a Facebook-like manner, where people create profiles which they can create store pages under. OpenBazaar’s saving grace is that one can link a GPG key to their profile, allowing for peers to retain some kind of non-repudiation, and opt-into a GPG-based web of trust.
Open Bazaar primarily acts as a store listing broadcaster. Although peers’ stores may not stay online 24/7, search indexers archive listings historical and current. Even though one may not be able to contact a store directly through OpenBazaar, if enough contact information is provided by the store (preferably a GPG key), a relationship can be established. The door is open for creating a truly decentralized trade route directly between two peers.
As previously mentioned, trust is everything in an unregulated market where peers transact freely. Cryptography provides the tools for peers to rationally underwrite trust based on the relationships between these peer to peer trade routes. Merchants survive on their loyal customers – a frequently returning customer generates predictable revenue for the merchant, making their mutual relationship one of great value.
The decentralized trade routes Bitcoin and a strong WoT can facilitate, are much like the merchants of Venice establishing trade routes with various parts of Asia. With the proper network, a P2P trade route using Bitcoin as the reserve currency can close the loop on its economy – circulating only Bitcoin. Businesses that directly trade with customers, well eventually find it trivial to restock on supplies without ever needing to utilize a fiat-bitcoin interface.
For instance a local farm begins selling produce, eggs, butter and other fresh groceries directly for Bitcoin. One day a micro-bakery which only sells its baked goods for Bitcoin discovers this farm through a store listing of some kind, along with GPG contact information. All of the supplies the bakery would ever need can be realistically purchased directly from this farm, thus a relationship is born. The micro-bakery begins procuring everything, from eggs to flour, directly from this farm, instead of having to go through a grocery store of some kind. The bakery receives all revenue in Bitcoin, and pays all expenses to the farm in Bitcoin. Establishing these peer to peer trade routes closes the economic loop in Bitcoin – one of the goals mass adoption consumers tend to also cite.
The mainstream view of Bitcoin focuses on the idea of “electronic cash” rather than the importance of relationships between peers. The fiat-driven consumerist mentality tricks users into blindly trusting regulated central entities. Consumers congregate to centralized locations to procure their goods, and despite Bitcoin existing, they find it incredibly difficult to transaction directly with their fellow peers. Scammers may hide in the shadows waiting to con honest citizens, but this makes direct relationships between peers that much more important. These relationships are the core of a decentralized peer to peer network, and without them Bitcoin is doomed to centralization.