DEFINITION of 'Decentralized Market'

A decentralized market is a market structure that consists of a network of various technical devices that enable investors to create a marketplace without a centralized location. In a decentralized market, technology provides investors with access to various bid/ask prices and makes it possible for them to deal directly with other investors/dealers rather than with a given exchange.

BREAKING DOWN 'Decentralized Market'

The foreign exchange market is an example of a decentralized market because there is no one physical location where investors go to buy or sell currencies. Forex traders can use the internet to check the quotes of various currency pairs from different dealers from around the world.

In a basic sense, a decentralized market is where a variety of assets are bought, sold, or traded. Real estate, for example, is traditionally sold through a decentralized market, wherein buyers and sellers complete their transactions without first funneling the process through some sort of clearing house. Bonds and securitized products can also be procured through decentralized markets.

The advent and rise of blockchain technology and cryptocurrency have created more opportunities for decentralized markets to operate. Through such technology and mediums, buyers and sellers are afforded a sense of security and trust in transactions without the need for a central clearinghouse to monitor and affirm the transactions.

Why Decentralized Markets Are Used

Among the perceived benefits of decentralized markets is the fact that it can greatly reduce the possibility of hackers compromising accounts or transactions because there is no single data resource they can attempt to infiltrate.

Decentralized markets can allow for transparency between parties, especially if they use technology that ensures all parties share mutually agreed upon data and information in the transaction.

The concept of decentralized markets, in a basic sense, might not be new. As more financial transactions are conducted through them they can pose challenges for regulators and legal enforcement. By comparison, centralized markets give regulators a clear path for taking action, if necessary, regarding suspect transactions that may occur.

With the examples of blockchain and cryptocurrency, the absence of regulatory oversight of decentralized markets is often cited as a benefit by advocates for those technologies.

The continued growth of decentralized markets for financial transactions that use cryptocurrency has led to discussions on ways to potentially introduce regulation and enforcement. For some advocates of decentralized markets, this may diminish some of the benefits they sought for anonymity and direct control over the transactions they engage in.

RELATED TERMS
  1. Augur

    Augur is an open-sourced, decentralized, peer-to-peer prediction ...
  2. Decentralized Applications or dApps

    Decentralized applications (or dApps) are digital applications ...
  3. Blockchain

    A blockchain is a public ledger of all cryptocurrency transactions. ...
  4. Ethereum Classic

    Ethereum Classic is a decentralized, blockchain-based distributed ...
  5. Third-Party Transaction

    A third-party transaction is a business deal with a buyer, a ...
  6. Distributed Ledgers

    A distributed ledger is a database that is consensually shared ...
Related Articles
  1. Tech

    What are the Legal Risks to Cryptocurrency Investors?

    Cryptocurrencies may be new, but lawmakers won't let you use that as an excuse for a free-for-all.
  2. Tech

    Chinese Government is Developing its Own Cryptocurrency

    The People's Bank of China is reportedly experimenting with its own cryptocurrency.
  3. Tech

    Bank of America, JPMorgan Call Cryptocurrencies a Threat

    Satoshi told us bitcoin would allow payments to be sent "without going through a financial institution." Now big banks are listening.
  4. Tech

    Top 3 Books to Learn About Blockchain

    Here are reviews of three of the best available books on blockchain, a relatively new, but rapidly growing and very important technology.
  5. Tech

    DAO Raises $130M+, Largest Ever Crowdfunded Project

    Since beginning its token sale effort on April 30, 2016, the Ethereum DAO (Decentralized Autonomous Organization) has become the world's most successful crowdfunding project, and with nearly ...
  6. Tech

    WSJ's Vigna on Data Privacy & Facebook's Monopoly

    Beyond its uses for cryptocurrency, can blockchain help prevent unauthorized data mining and redistribution by decentralizing storage?
  7. Tech

    Cryptocurrency Market Cap is Up 810% YTD

    To say that 2017 has been a good year for the cryptocurrency industry would be an understatement.
  8. Tech

    Bitcoin vs. Bitcoin Cash: What's the Difference?

    We break down the difference between bitcoin and bitcoin cash, and what it might mean for the future of cryptocurrencies.
  9. Tech

    What Are the 10 Most Important Cryptocurrencies Other Than Bitcoin?

    Altcoins present themselves as modified or improved versions of Bitcoin. With Bitcoin prices being volatile, we think you should keep an eye on these 10 alternatives.
  10. Tech

    Blockchain Could Make You—Not Equifax—the Owner of Your Data

    All hype aside, blockchain technology is really good at one thing: taking out the middlemen. Leaky data brokers' days may be numbered.
RELATED FAQS
  1. What are some examples of financial markets and their roles?

    Learn about the three largest financial markets and their roles. Understand what constitutes a capital market versus a money ... Read Answer >>
  2. When does vertical integration reduce transaction costs?

    Trading is not only based on supply and demand, but also negotiations between companies. Vertical integration can eliminate ... Read Answer >>
  3. What number of shares determines adequate liquidity for a stock?

    Learn how the liquidity of a company's shares is generally affected by bid-ask spread and trading volume of shares bought ... Read Answer >>
Trading Center