In my previous article, I went on about the value proposition of Particl, an upcoming cryptocurrency platform that will soon be host to a fully decentralized and anonymous marketplace. In an example I used to illustrate the profits stakers, those actively securing the network, could make simply from earning market fees that are in place to fight spam, I used 25,000$ USD as an average daily sales volume. To know whether this is realistic or not, we must try to figure out who exactly is going to use such a market, and why they would. This article is mainly going to talk about these points:
- Controversial & Potentially Illegal Goods & Services
- Perceived Gray Area
- Unfairly Blocked Businesses
- Protection of Personal/Corporate Data & Documents
- Taxation Resistance & Revolts
- Much Lower Fees Than Centralized Counterparts
- Cryptocurrency-Agnosticism & Symbiosis With The Rest Of The Crypto Scene
Decentralization of a Marketplace: Only For Illegal Goods & Services?
Short answer: NO! While most of the times criminals are the first to adopt new breakthrough technologies (such as was mostly the case with Bitcoin), general public use almost always follows not too long after. It is true a fully decentralized and anonymous marketplace presents a great opportunity for criminals to sell illegal goods and services, but stating this would constitute the largest share of sold items is a popular misconception.
The first thing to consider in regards to Particl is that it is going to be a self-governed platform, meaning no central authorities can decide what can and cannot be listed on it. This task is instead relayed to stakers who will have the possibility to “moderate” the content hosted on the marketplace if they wish to do so. While it certainly could be argued that some kinds of drugs may not offend most people, things like pedophilia, dangerous chemicals, and other morally wrong offers would instantly be downvoted by the community, effectively keeping them out of sight. Note that as of now, the self-governance of the Particl platform is still under research and development by the team. It is unclear at this point what model of self-governance will be adopted and how exactly it will deal with “undesirable content”.
It is important to understand, as was mentioned above, that no central authority will act as content curator and that this moderation will be done in a totally decentralized way. Like I mentioned in my previous article, the proof-of-stake algorithm used by the platform financially incentivizes people who secure the network. It could be reasonably expected that as the network grows and the platform gets more adoption, stakers will make more money thus encouraging merchants to stake a portion of their sales revenue thus furthering the platform’s decentralization. The more decentralized it gets, so those the market’s self-governance, leading to a truly homogeneous curating of content.
With that being said, this may, however, drive an entire industry off of the market (those who sell stuff that would be deemed too controversial to the community). A lot of people had invested in Shadowcash with the thought that it would become an ultimate and decentralized version of the infamous Silk Road. With a self-governance system in place and with the developer team clearly distancing themselves from this industry, who exactly would use such a platform that, at first glance, may seem more complicated to use than eBay, Amazon, Alibaba or Craigslist, only to name a few? Why go through all the crypto hassle when you can just sign into an established centralized platform and start selling right away? What follows are concepts and examples that I believe will help you understand the true potential of the Particl marketplace.
Perceived Gray Areas
We could define a gray area as “an undefined situation or subject that does not seem to conform to known categories or rules; an intermediate area or topic that is not clearly defined” (http://www.dictionary.com/browse/gray-area). In other words, and more precisely in the context of eCommerce, they are businesses whose practices may be either morally, legally or regulatory uncertain. Usually, legitimate firms and payment processors like Paypal won’t take any chance and associate with such “gray” entities, thus creating a problem where even though a business isn’t doing anything illegal, it may not be able to smoothly operate. In a way, this is exactly what was happening with Shadowcash. No PR or legal firm wanted to associate with the team as the project had unclear intentions (ultimate version of Silkroad or not?) and its name had a pejorative connotation (Shadowcash did sound sketchy, after all). There are much more direct examples though, some that precisely relate to eCommerce.
One of the best I can think of, and one that properly illustrates the struggles of a legal but gray area business, is the entire industry of nootropics. For those unfamiliar with it, “nootropics” is “an umbrella term for a class of drugs that give cognitive benefits to the human brain” (http://smartdrugsmarts.com/faq/nootropics/). A nootropics substance should:
- Enhance memory and ability to learn.
- Help the brain function under disruptive conditions, such as hypoxia (low oxygen) and electroconvulsive shock.
- Protect the brain from chemical and physical assaults, such as anti-cholinergic drugs and barbiturates.
- Increase the efficacy of neuronal firing control mechanisms in cortical and sub-cortical regions of the brain.
- Possess few or no side effects and be virtually non-toxic
The problem, however, is that most of these chemicals are very novel and some of them lack rigorous clinical testing or government health agencies approval (in part because some of the governmental entities can take years before approving new chemicals, especially if they are entirely new families of compounds). Even though most of them hold absolutely no recreational value and are not illegal per se, the companies selling them are finding themselves in a position where they are having an increasingly hard time accepting payments as payment processors are starting to refuse to do business with them due to an unclear regulatory environment.
It could certainly be argued that, as human beings, we should be allowed to control what we want to feed our body. This is the same argument used a lot by recreational drugs proponents, except for the fact that in this case, most of these nootropics are not actually illegal and possess incredibly positive effects on the body. Regardless of that, most of these businesses are going out of business because of how hard accepting payments is.
One of the best demonstration of the situation is what happened to one of the largest (if not THE largest) company operating in this industry, Ceretropic. They are a business that used to generate a couple of million in sales a year and with several thousand customers. This company used to do business with payment providers such as Paypal and Google Payments but is now confined to use e-checks (which only work with USA banks) and Bitcoin only. What’s worse, Paypal even froze their business account, with no prior warning, and held a total of 50,000$ USD hostage. Here are two Reddit quotes from MisterYouAreSoDumb, the owner of Ceretropic:
“We had to drop PayPal. They suddenly decided to take issue with some of the products we were selling. They froze our account, and held $50,000 of ours hostage. I would love to continue using them, but we would have to get rid of a bunch of our products.” (https://www.reddit.com/r/Ceretropic/comments/2qp1vw/paypal/)
“Nobody wants us to be back to normal more than I do. I would love to accept Paypal, Google Payments, and use a regular credit card processor. We have been dropped by all of them, though. When one of our competitors keeps reporting us to everyone we do business with, and claiming we are selling illegal substances, it really makes it hard to run a business. Paypal, Amazon Payments, Google Wallet, Square, and every other mainstream payment processor you can think of have declined to continue business with us. Our Ecommerce processor almost dropped us, after someone pretending to be law enforcement started emailing them, and saying we were selling illegal compounds. I had to press them for the name and government division they were claiming to be from. Then they realized it was fake, and dropped it. All our Adwords ads were reported to Google, which got both Ceretropic and Nootropics Depot banned from Adwords. So that’s nice. Trust me, this is not what I want to deal with. I want nothing more than to get back to the smooth and hassle-free vendor people came to know us for. A couple of our competitors are trying to make sure that never happen, though.”
(https://www.reddit.com/r/Nootropics/comments/440qo4/ceretropic_payment_options_problems/)
So as you can see, doing business in the gray area can be something that is very tricky. Though it is hard to get a precise estimate of the size of this whole industry, it is generally believed that it comprises of 250,000 to 500,000 unique customers and generates approximately 25 to 50 million dollars a year. The nootropics industry is indeed pretty large and most companies are experiencing tough times as what happened to Ceretropic is actually spread across the entire industry and even worse now than when MisterYouAreSoDumb was quoted. In other words, most businesses in this domain are dying to find a way to easily accept payments and showcase their products without having to deal with centralized platforms that can shut them down at any moment.
This is where decentralized marketplaces come into play and help these legal but gray area companies in need of payments. Not only does Particl provides an environment where people and businesses alike can safely accept payments, but it also provides them with an eCommerce framework where they can simply open up a shop and readily start transacting with their target customers without having to go through all the hassle centralized offers come with.
Unfairly Blocked Businesses
In a similar fashion, there may be some totally legal, “non-grey-area” and established types of businesses that may get themselves blocked by centralized payment processors. When these kinds of freeze happen, they are generally very contextual and according to the processor’s policy or will. We have to remember that payment processors are centralized gateways and they the power to act as they please, as long as it follows the jurisdiction’s law. They can also be pressured by outside forces (generally governments) to act in a certain way only so they can keep doing business in that specific country.
One clear example of a perfectly legitimate business that was targeted by the world’s most popular payment processor (Paypal) is that of cryptocurrency mining equipment. Back when Bitcoin was booming, people rushed to either buy or sell mining equipment. It all went well until a good number of people saw their account locked with this simple explanation being offered:
“PayPal may not be used to sell e-currency, such as bitcoins, bitcoin mining units, and other related bitcoin products.”
Now it is totally understandable that Paypal would not want cryptocurrencies being traded through their system due to the aforementioned regulatory gray area that Bitcoin was residing in at the time (and probably still resides today). I am not going to delve into anti-competition conspiracy theories, but it is hard to understand why Paypal would not allow mining rigs, which mostly compose of graphics cards and ASICs chips, to be sold or bought through their system. They went forward and froze accounts of both equipment vendors and buyers. There have been people that have come to me and personally confirm that, as simple buyers, they had their account frozen by Paypal. This is unacceptable and yet another problem of centralized payment processors.
Another good example of Paypal blocking entirely legal businesses is that of VPN providers. One quite recent occurrence of that happening is with Canadian provider UnoTelly about a year ago. They were using Paypal’s services until they suddenly received a notice they were being cut off for facilitating copyright infringements. In an official update posted by UnoTelly, it was stated that “Paypal indicated that UnoTelly is not allowed to provide services that enable open and unrestricted Internet access”. While a VPN CAN be used to infringe on copyrights, it also crucial to maintain an acceptable level of data security in a world where there are so many hackers trying to steal them. It is also weird that UnoTelly was specifically targeted by Paypal while other Canadian VPN providers were left unscathed. That, for example, could very well be Paypal crumbling under government pressure though this is just speculation. On Particl, VPN companies could very easily deliver VPN access keys/accounts to customers through the market’s messaging system and what’s even better is that people wouldn’t even need to go through rigorous OpSec to stay anonymous while buying a new subscription or creating a fake email account since everything is already being taken care of by the platform.
These are just two very simple examples of businesses that can be messed up by centralized payment processors even if they deliver products and services that are perfectly legal and not even in the gray zone.
Protection of Personal/Corporate Data & Revolts/Taxation Resistance
I’m going to be as clear as possible before getting into this: in no way am I arguing for avoiding paying your fair share of taxes and disobeying your jurisdiction laws! However, since Particl’s market is decentralized and anonymous in nature, it would be naive not to think a portion of its users would use the platform merely for tax evasion. As a matter of fact, major eCommerce platforms have started scanning all their customer transactions and automatically reporting them to their respective government so they are properly taxed with no or little possibility to trick the system anymore. Selling on these centralized platforms also comes with the considerable hassle of providing a ton of personal and corporate documents which could, in turn, be hacked and used against you.
Some people may not feel at ease knowing such critical information is in the hands of centralized organizations and that their personal and corporate information may be sold to various third-parties, as this is indeed something you are forced to agree with when opening an account with them. Particl doesn’t require you to upload various sensitive documents when listing an item, and allows you to do it in seconds with the confidence that you can remain as anonymous as possible.
While it may seem ill-intentioned to deliberately avoiding paying taxes on sales (and certainly illegal), there are a lot of moments in history where it happened on a large scale and for other reasons than personal gains. According to Wikipedia, tax resistance is referred to “the refusal to pay tax because of opposition to the government that is imposing the tax, or to government policy, or as opposition to taxation in itself. Tax resistance is a form of direct action and, if in violation of the tax regulations, also a form of civil disobedience.” (https://en.wikipedia.org/wiki/Tax_resistance). Some popular tax avoidance movements were Gandhi’s Salt March, war tax resistance (the refusal to fund a war) or the Women’s Tax Resistance League dating back to the early 1900’s. As you can see, tax resistance doesn’t always mean you are doing it with bad intentions as it was used in peace movements and as a kind of civil disobedience by activists. Note that, regardless of the intention behind such a resistance, it can certainly get you in troubles as the taxman doesn’t care about your convictions.
That being said, and with the current trend the world is in and chaos unfurling in some parts of the world, some governments could start imposing controversial taxes on some industries with the people operating in them having little to no say on it. One good speculative example we can take is that of Venezuela’s “Bread War”.
With the country going through one of its toughest economic crisis ever, the government has started taking harder stances on certain industries like the bakeries. With the bread production clearly not meeting the demand, bakeries have been attacked by the authorities for producing pastries instead of bread. In other words, if you are not producing what the government tells you, they are threatening to seize control of your business and potentially making you go through legal consequences, which is something that could be argued as extremely anti-free market. One softer way they could have chosen to tackle the problem would have been to impose an extreme tax on pastries, forcing bakeries to produce bread sticks instead pastries since it would not be economically sound anymore to pursue their pastry business.
This hypothetical situation could eventually lead to a taxation revolt where bakeries would still want to sell pastries but would do so on an anonymous and decentralized market to avoid paying these arguably unfair taxes. There are countless of examples where a taxation revolt could happen. Other revolts, ones that are not necessarily related to taxation, could also happen and be fueled by decentralized marketplaces like Particl.
One that quickly comes to mind is the gold crackdown in India. Their government has started imposing strict and harsh regulations on gold, including some that aims at tracking gold acquisition. There even were “gold raids” (http://www.zerohedge.com/news/2016-12-07/india-confiscates-gold-even-jewelry-raids-hidden-money) in homes where agents of the government confiscated gold and gold jewelry. As Indians really do love their gold, and because it is so ingrained into their culture, it is fair to assume they would not want to let their freedom of owning gold go away. This very sudden and questionable stance would only drive people towards more anonymous solutions where both merchants and customers could still transact the precious metal without having to fear getting busted. Think of it like a Silkroad for gold where everything is shipped through the mail and completely anonymous.
Much Lower Fees Than Centralized Counterparts
For Particl to succeed, it doesn’t absolutely need special case scenarios like gray areas and revolts. Even the most common of businesses could find this marketplace to be a good deal for them simply because it allows them to sell their products and pay much fewer fees than on centralized platforms. Indeed, selling on websites such as Amazon or Alibaba is great because they have a lot of users, but they also charge you a huge premium just so you can leverage their user base. After all, it is generally Amazon/Alibaba/eBay that brings a company new customers, not the other way around, so that huge fee you are paying is in part due to them bringing you sales you wouldn’t have had otherwise.
Let’s take Alibaba, for example. It is one of the most valued eCommerce websites on the internet and has a huge user base of both buyers, merchants, service providers and suppliers. If you wanted to start selling products on it, you would probably want to get a gold membership so you don’t get absolutely buried in the thousands of listing and so that you would have at least a minimum of features you could use. Their gold membership is subscription based and according to Harry Peterson, a professional in China sourcing and B2B (business-to-business) marketing, businesses located in mainland China need to pay almost up to 5,000$ USD a year. Businesses outside China mainland have a subscription fee based on which jurisdiction they are doing business in, but it is estimated that an average subscription amounts to around 2,999$ USD a year (https://www.quora.com/How-much-does-it-cost-to-sell-on-Alibaba). On the Alibaba website itself, subscription fees seem to be even higher , now priced at 5,999$ USD a year for the full package (http://seller.alibaba.com/memberships/index.html).
Of course, there are various packages and these fees are somewhat flexible, but that gives you an idea what a gold membership costs if you want to use Alibaba as a platform and get the whole set of features that will allow you to exploit the full capacity of what the platform has to offer. Don’t forget that on top of these memberships, Alibaba charges a whopping 5% fee on any transactions done through its escrow system, as it is centralized and requires staff to manage. All these fees, in the end, end up being costly for both buyers and sellers. Remember that Particl’s MAD (mutually assisted destruction) escrow system is free of charge as it is entirely decentralized and managed by both the buyer and the vendor.
Amazon, on the other hand, chooses a different fee schedule to make its money (spoiler: it is not necessarily cheaper). This platform applies two types of fees. The first one is a generic “per-item” selling fees. You can choose two plans: the individual plan, which charges 0.99$ USD per items sold, or a professional plan, which is a subscription of 39,99$ USD per month (https://services.amazon.com/selling/pricing.htm).
On top of that, it also charges what is called a “referral fee” which is a percentage of your item’s value that Amazon keeps for itself. This fee ranges from 6% to an almost insulting 25% depending on the item’s category. Some Amazon-branded items can even go up to 45%. Please visit this detailed article to know the exact fee schedule Amazon uses: http://www.cpcstrategy.com/blog/2014/06/sell-on-amazon-pricing/. There is also another type of fee which Amazon can charge, but that only applies if you want Amazon to fulfill your order (meaning you send your inventory to Amazon and they do the processing, storage, and shipping). These fees can be looked at at the same link I just linked for the fee schedule.
Feeling like selling on eBay so you get a better deal? This certainly can be the case depending on the nature of your item, but again, this platform is greedy. While listing an item isn’t really that expensive, your first 50 listings of each month being free and the subsequent being 0.30$ USD, the website still charges you a non-negligible 10% “final value fee” (the final value is calculated AFTER shipping fees are applied) with a maximum of 750$ USD per transaction. You can visit this link which details all the listings (plus some advanced feature fees I haven’t gone into): http://pages.ebay.com/help/sell/fees.html
What about Etsy, the leading artisan eCommerce website? Well, it is admittedly much cheaper, but still considerable. They charge 0.20$ USD per listing posted and then apply a “transaction fee” of 3.5% (which isn’t applied to shipping cost as well if you are selling either from the USA or Canada, but is applied if otherwise). There are also various other fees if you wish to use more advanced features such as Etsy’s “Direct Checkout”. For their fee schedule, please visit this link here: https://www.etsy.com/legal/fees/.
As it is probably obvious by now, these platforms charge their users a HUGE premium, which is kind of understandable since they are critical to the success of their vendors. Don’t forget also that on top of all these fees, more fees apply for buyers depending on the payment processor used. Particl is going to be a much, much cheaper option for vendors, regardless if they are big or small. It will also greatly benefit buyers by basically charging them no fees at all except low cryptocurrency transaction fees (listing fees are paid for by vendors). While the exact fee schedule of Particl’s marketplace isn’t set in stone yet, they are going to be very small, only making sure the network doesn’t get spammed by malicious actors. From what I’ve gathered here and there, it could be possible that my previous estimate on my first article of 1% fees on total sales could be too high, as the team seems to have only listing fees in mind. That cannot be confirmed as of yet and could be wrong, but it shouldn’t be too long before we know for sure. What is sure, though, is that the aforementioned fees on centralized platforms are going to be absolutely undercut by the power of decentralization and cryptocurrency.
Cryptocurrency-Agnostic Platform & Symbiosis With The Rest Of The Crypto Scene
Another use case for this market, and one which is probably the most overlooked of them all is the fact that Particl is a currency-agnostic platform. What that means is that any crypto-currency (supported by Shapeshift) can be used to purchase any item. A vendor doesn’t even need to specifically indicate what currency it is looking to accept. This platform will indeed have a native, in-wallet integration of the popular Shapeshift coin exchange service.
How it works is that all vendors will be paid in PARTs, however, customers can pay with any cryptocurrency available for trading on Shapeshift. At the moment of checking out, it will be possible to choose what currency you want to use, and the Particl platform will generate for you an appropriate deposit address for the currency of your choice. The market will then automatically convert whatever currency you’ve sent into PARTs and send it over to the vendor’s address.
This is great because not only does that generate an ever-increasing demand for its native currency (PART), it also offers a real-world use case to a vast array of popular cryptocurrencies that, while great in and of themselves, may lack merchant adoption. Should Particl become slightly popular, this opens up a lot of opportunities for various crypto coins holders to actually spend their currencies anonymously rather than simply holding them for speculative purposes. In a way, Particl brings a lot of value to the crypto scene as a whole, which in turn will make it more valuable and appealing to the mainstream. This is a win-win for ALL parties involved!
Note that while Shapeshift is going to be Particl’s partner for coin exchanges, the developing team plans on integrating its own native cryptocurrency exchange system that wouldn’t rely on a third-party. This will increase both privacy and reduce fees, which are probably going to be sent to stakers just like the market fees are.
Conclusion:
In conclusion, I truly believe an easy-to-use decentralized and anonymous marketplace is the next logical step in the crypto world. While there are other projects trying to develop this, I see none being closer to the holy grail like Particl. It has all it needs to be very successful: ease of use, financial incentives for people to secure the network, ridiculously low fees, perfect anonymity and a fantastic symbiosis with the rest of the cryptocurrency scene. In my opinion, it is going to be the be all end all of decentralized eCommerce platforms and will be a project that is going to be massively successful. It is, after all, trying to go after the mainstream, not only the crypto bubble. And with the team focusing hard on making connections in China and the rest of Asia, it is probably still one of the crypto’s most underrated project.