OpenBazaar, a P2P online marketplace that uses Bitcoin for transactions, receives investment from tech giants

Recently, the decentralized e-commerce market OpenBazaar received $1 million in investment from two major venture capital firms in the technology industry, Andreessen Horowitz and Union Square Ventures. OpenBazaar has great ambitions and aims to build a decentralized, unregulated online network market where people can buy and sell any goods using Bitcoin.

OpenBazaar is trying to clarify that it is not trying to build a "Silk Road 3.0" website (Silk Road is a black market shopping website. The police have already taken down Silk Road and Silk Road 2.0 websites). In an interview, Brian Hoffman, the developer and manager of the OpenBazaar online market, did not say that their online platform has great development potential and can change the e-commerce market. Like the new version of Etsy (online store platform), no transaction fees are charged. Instead, he repeatedly emphasized in the interview that he must firmly oppose the "abuse" of this online platform. In the early days, some media focused on this online market because it might have potential criminal effects. Hoffman said in the interview that he is determined to change this situation and hopes that the investment of these two venture capital companies in OpenBazaar will help the legalization of this protocol (OpenBazaar as a protocol).

Since transactions in this type of decentralized network market can be uncensored, Hoffman has to admit that it may be used to smuggle illegal items and buy and sell unethical products, which poses certain risks to sellers. To sum up in OpenBazzar's own words, it is "a decentralized peer-to-peer technology network market that uses Bitcoin for transactions, does not charge any transaction fees, and transactions are not censored; in a word, OpenBazzar is a decentralized commodity trading market that combines the common features of eBay (online auction and shopping website) and BitTorrentt (bittorrent, a content distribution protocol)."

OpenBazaar, the product of Bitcoin transactions

To understand the operation and growth of OpenBazzar, you have to first understand digital Bitcoin. Unlike other currencies, digital Bitcoin has no central authority to control the remittance channel. It is completely decentralized. There is no transaction fee for buying and selling using Bitcoin. The public ledger of all transactions (required to avoid double spending) is shared online for users.

No central authority can shut down Bitcoin transactions, ensuring that users can buy anything with Bitcoin, provided you can find a seller. In the early stages, digital currencies were "popular" in certain transactions (mainly bad ones), and using digital currencies for online drug transactions was "unprecedented," and these transactions were mainly conducted through the Silk Road black market online market.

Although Bitcoin is decentralized and it is basically impossible to block Bitcoin transactions, Silk Road's black market transactions are not lawless. It operates various transactions anonymously through Tor software, and the police cannot accurately locate it, but the net of heaven is vast and nothing can escape it, and they were eventually caught. Silk Road's founder, 31-year-old Ross Ulbricht, was eventually sentenced to prison.

OpenBazaar believes that it is a logical conclusion that Bitcoin is decentralized because the market itself is decentralized. Bitcoin is a peer-to-peer network-based anonymous digital currency. There is no central authority to control the remittance channel of the currency. Each network node has a transfer task and is responsible for network maintenance.

There is a central authority on the online auction and shopping website eBay. Its mission is to stabilize the network system, monitor the sale of illegal items on the website, resolve disputes that arise during transactions, and temporarily manage the funds of both parties during the transaction as a third party. However, there is no such central authority in the OpenBazaar network market. Bitcoin transactions on OpenBazaar use multi-signatures, and require a third-party notary (who can be anyone, but must be approved by both parties to the transaction) to sign the transaction contract. This is done to prevent fraud. It has a rating system where users can evaluate the credibility of others. The credibility on this rating system is the best criterion for judging the notary.

How can illegal or illicit trading activities in online markets be eliminated? In fact, you don’t have to go to great lengths to solve this problem. Because they are impossible to eliminate. In short, decentralized online markets like OpenBazaar cannot be shut down, and their transactions cannot be censored.

Is OpenBazaar the next Silk Road or Etsy?

In 2014, Bitcoin developer Amir Taaki developed a project that he clearly stated was the successor to Silk Road. At first, the project was called DarkMarket. Taaki said in an interview with Wired magazine: "I am preparing for people to enter the new black market trading platform."

DarkMarket was later renamed OpenBazaar, and Taaki left to develop other projects, mainly a bitcoin wallet application Dark Wallet.

Later, Brian Hoffman, who was a consultant at Booz Allen Hamilton, took over OpenBazaar. "We are not the upgraded version of Silk Road in people's eyes," said Sam Patterson, business operations manager of OpenBazaar, in an interview with Wired magazine in September 2014. "We are trying to replace eBay in a better way. We have realized that people may be willing to use technology that we think is disgusting, unethical, or even conducive to rampant illegal transactions (peer-to-peer technology); but now we cannot give them the option to join human interaction (transactions directly without a third party)."

When the concept of OpenBazaar was finally formed, more than 100 developers devoted themselves to the project. Its core team consisted of 5 full-time employees and one contractor, all of whom received support and help from people in the Bitcoin community.

Currently, OpenBazaar is still in the testing phase. The project is open source (literally translated as open source code, which is a public collaboration in software writing). The project manager is also seeking help from the Bitcoin community in terms of funding and code resources. Hoffman said in the interview that we hope to see a better version in a few months.

OpenBazaar and Etty are really similar, Hoffman said by phone from his home in Fairfax, Virginia. After all, Etty is an online marketplace where anyone can list items for sale, with censorship but no cumbersome transaction fees.

“I personally use Etty because it is the best I know of for open source peer-to-peer marketplaces,” Hoffman told me in a follow-up email. “I think the removal of the conversion rate of a decentralized model (which would reduce the conversion rate of a marketplace) will force company executives to rethink their strategies for extracting profits from customers and find new ways to provide value-added services to earn more profits rather than just making a small amount of money from each transaction completed by a customer.”

The following is a screenshot of the OpenBaZaar store:

So far, OpenBazaar has not had any legal issues.

Although OpenBazaar is still in its early stages, people have long been able to buy and sell items on the online marketplace. Hoffman showed off his first purchases on the online marketplace: a bottle of honey and a pen.

He said in the interview that there has been no problem with illegal products being traded on the platform so far. But the 32-year-old computer science major must face the reality rationally that it is only a matter of time before illegal transactions appear on the platform.

Now, OpenBazaar is working to "overtly curb abuse of the online marketplace" by not directly supporting the use of the anonymity software Tor. Of course, this doesn't mean that users can't hide their identities when browsing the online platform.

Hoffman has been careful to define OpenBazaar as a protocol rather than a product. The essential difference between the two is that if the latter is the case, Hoffman has nothing to do with the illegal activities on OpenBazaar. Although the owner of a file-sharing protocol website is responsible for illegal content on the website, it is another matter if the protocol itself can be used to engage in illegal activities. The founders of the decentralized BitTorrent file-sharing protocol (who only engaged in code-related affairs) are not criminally responsible because they cannot control the various transactions that occur on the website. OpenBazaar (formerly DarkMarket) is such a protocol.

However, one might ask, what if the authorities do not recognize this distinction? Currently, various legal forces are closely watching the development of encryption products; although experts in security information and technology companies have pointed out that security information products can help reduce the crime rate of terrorists and pedophiles. Online markets are still likely to be used by drug dealers, criminals and even terrorists; their use of websites to evade arrest has attracted much attention from the police.

The entry of venture capital Andreessen Horowitz

Andreessen Horowitz and Union Square Ventures, two of the most persuasive venture capital firms in the tech industry, are now willing to become close partners in the OpenBazaar project, after the project's managers told them that the online marketplace could be used by criminals to commit illegal activities.

Hoffman said in an interview that, in fact, he did not actively seek investment from venture capital firms. It was purely accidental that he was favored by the two major investment companies. To be more precise, it was introduced by an "intermediary."

Chris Dixon, a well-known Silicon Valley investor, led the investment from Andreessen Horowitz, while Brad Burnham, managing partner of Union Square Ventures, led the investment. Both companies invested $500,000 each in the seed round, and later angel investor William Mougayar also invested $10,000. Neither Burnham nor Dixon joined the board of directors, which Hoffman believes is mainly because the project is controversial and prone to getting into trouble. However, Hoffman hopes that the investment from these two well-known venture capital companies will allow the agreement to be legally developed.

OpenBazaar is a non-profit project, and the investment will be used to establish OB1, a for-profit company that will build some high-value-added services that can generate actual returns, such as storefront services and escrow services, which are all on the upper protocol layer of OpenBazaar.

Burnham mentioned in an email to me that OB1 would certainly never provide value-added services to those who want to use the OpenBazaar protocol to conduct illegal and unethical activities.

However, he also mentioned in the email, "There is a problem here, that is, we don't know how to support the development of an open source protocol. Without support and encouragement, OB1 is not controlled, which may lead to the "abuse" of the protocol. A more complicated situation is that many people working on this open source project may be motivated to influence their work due to a misplaced trust in political or economic forces. We don't have a simple way to solve these problems. It would be untrue to say that the work of the OB1 team has no impact on this open source project. They have made their own contributions to the code, they have encouraged and supported the development of the protocol through their own hard work, and now they have even offered bonuses to make the OpenBazaar protocol unique. But they have not yet come up with a design principle worth practicing - it can eliminate the phenomenon of abuse of the network platform and will not destroy the internal mechanism of an open source fee market. So what we can do now is to actively advocate for the responsible use of the OpenBazaar protocol; and we must lead by example and use this protocol openly and transparently.

Chris Dixon did not respond to requests for comment.

What is the future of OpenBazaar?

If the OpenBazaar protocol is successful, it will undoubtedly become a strong competitor to Etsy and eBay. However, Hoffman believes that rather than saying that OPenBazaar will change the current business landscape, it is better to say that the company wants to make its own unique services through the OpenBazaar protocol. He said: "We hope that other companies will not see it as a competitor, but as a suitable one who wants to integrate into this technology platform. As for OB1, we will try to cooperate with those companies that are interested in it."

Another question that everyone is concerned about is, would a billion-dollar public company want to work with a technology platform like OpenBazaar? Similarly, would normal consumers use OpenBazaar as an online marketplace? We know that if more consumers use this online marketplace, it will give people who buy and sell illegal and unethical products an opportunity to take advantage. Hoffman also mentioned that there will always be things that customers find offensive, and we can't stop them if they deliberately look for these things. So will "out of sight, out of mind" make consumers support this online platform? We don't know yet.

Hoffman told Wired magazine in September 2014 that he would be willing to abandon the OpenBazaar marketplace if illegal and unethical activity became rampant, and in this interview, he insisted that he would do so if that ever happened.