The recent article from Sam Patterson, “What are Decentralized Markets” hypothesizes that the future will be brighter where:

“Decentralized markets allow people to engage in trade directly with each other. Instead of relying on the centrally-controlled servers of the companies, a decentralized market operates by employing its users’ own computers as the infrastructure”

In a discussion with New York Times journalist and author Nathaniel Popper (author of Digital Gold). We debated the merits and the future of decentralized markets vs human nature to gravitate towards centralized services.

The idea of decentralized services is not unique. In the early days of trading, people transacted directly without middlemen. Bakers bought wheat from farmers; cobblers bought leather from herders. As communities and distances between them grew, producers and manufacturers began to transact through middlemen and used centralized market places where producers and consumers were aggregated for efficiency. By doing so, producers could access more consumers, and consumers could access more producers.

In todays world new technology such as the Internet has made it easier for consumers to gain direct access the producers. Sam Patternson’s argument suggests that decentralised markets will become the norm. Will it?

A majority of the population is opportunistic in nature. This assumption leads me to the core of a centralization paradigm. Human nature craves efficiency and as a result, we tend to gravitate towards centralized services. Why? Centralized services offer simple and efficient ways of obtaining products and services in one place. These marketplaces end up providing high quality services due to specialization.

Here is a use case to think about. Planning a holiday abroad can be a complicated. Without using a holiday service provider, your plan of action is:

Purchase a flight

Book accommodation

Hire a car or organise transport

and if you do not speak the local language, these tasks can be even more difficult.

Expedia solves this use case exceptionally well. Its success is down to the very nature of ours; to find the most efficient way to organise our holiday. Aggregators such as Amazon, Ebay and even your local shopping center thrive because of this behaviour. They act as centralized marketplaces, providing consumers with a convenient place to get what they want. In addition, aggregators work on economies of scale and to increase their appeal, many provide value added services (such as free delivery or parking) and in many cases a lower cost. Everyone wins.

Proponents of Bitcoin suggest that some users will manage wallets on their own computer and effectively run their own bank. This is an idealistic view for some but will it become the norm for the rest of us?