Decentralized Market
In a decentralized market, technology enables investors to deal directly with each other instead of operating from within a centralized exchange. Decentralized markets can allow for transparency between parties, especially if they use technology that ensures all parties share mutually agreed-upon data and information. Many users of the decentralized virtual markets perceive their lack of regulatory oversight as a benefit — or, freedom from third-party handlers. Virtual markets that use decentralized currency, or cryptocurrencies, are examples of decentralized markets. Most centralized, and some decentralized, markets use fiat currency — or physical money issued by a central bank, like U.S. dollars. The growth of markets that use the decentralized currencies for financial transactions has led to discussions about ways to introduce potential regulation.
What Is a Decentralized Market?
In a decentralized market, technology enables investors to deal directly with each other instead of operating from within a centralized exchange. Virtual markets that use decentralized currency, or cryptocurrencies, are examples of decentralized markets.
How Do Decentralized Markets Work?
A decentralized market uses various digital devices to communicate and display bid/ask prices in real-time. In this way, buyers, sellers, and dealers do not need to be located in the same place to transact securities.
Examples of Decentralized Markets
Forex Market
The foreign exchange (forex) market is an example of a decentralized market because there is no one physical location where investors go to buy and sell currencies. Forex traders can use the internet to check the quotes of currencies from various dealers from the world.
Real Estate
Real estate is traditionally sold through a decentralized market, wherein buyers and sellers complete their transactions without first funneling the process through a clearinghouse.
Types of Securities
Some bonds and securitized products also may be procured via decentralized markets.
The Virtual Markets
The advent of blockchain technology and cryptocurrency have created more opportunities in which decentralized markets may operate. Typically, virtual markets are not regulated, which their proponents believe is a good thing. The technology and mediums — such as decentralized currency — of a virtual marketplace afford investors a sense of security and trust in their transactions.
The growth of markets that use the decentralized currencies for financial transactions has led to discussions about ways to introduce potential regulation. Were this to occur, fans of virtual markets may see this as diminishing their perceived current benefits of anonymity and direct control of their transactions.
What Is Decentralized Currency?
Decentralized currency, peer-to-peer money, and digital currency all refer to bank-free methods of transferring wealth or ownership of any other commodity without needing a third party. Most centralized, and some decentralized, markets use fiat currency — or physical money issued by a central bank, like U.S. dollars. Decentralized currency is used primarily in the virtual markets. Two examples of decentralized currency are bitcoin — the "coinage" used on the Bitcoin platform — and ether — used on Ethereum.
Advantages and Disadvantages of Decentralized Markets
Advantages
Disadvantages
Related terms:
Centralized Market
A centralized market is a financial market structure that consists of having all orders routed to one central exchange with no other competing market. read more
Cryptocurrency : What Is Cryptocurrency?
A cryptocurrency is a digital or virtual currency that uses cryptography and is difficult to counterfeit because of this security feature. read more
Digital Currency
Digital currency are digital formats of currencies that do not exist in physical form. They can lower transaction processing costs and enable seamless transfer across borders. read more
Financial Markets
Financial markets refer broadly to any marketplace where the trading of securities occurs, including the stock market and bond markets, among others. read more
Peer-to-Peer (P2P) Service
A peer-to-peer (P2P) service is a decentralized platform whereby two individuals interact directly with each other, without a third-party intermediary. read more
Peer-to-Peer (Virtual Currency)
Peer-to-peer virtual currency refers to the exchange or sharing of information, data, or assets between parties without the involvement of a central authority. read more