Although blockchain technology was first introduced in 2008, there are still many rumors circulating it and its boon for the e-commerce industry. Ten years on, businesses and customers are mixing it up with Bitcoin and attributing speculative investments and illegal purchases to its use.
For a bit of background : Bitcoin is a type of cryptocurrency based on blockchain technology. Like many other cryptocurrencies today, its future remains hazy and undefined due to inconsistencies in regulation, disconnected blockchain networks, audit compliance, and more. By contrast, blockchain technology itself is providing incredible opportunities for secure data storage and safe peer-to-peer interactions. Its uses are half-explored, but they should not cast a shadow on any potential rewards.
More specifically, blockchain is a set of blocks containing digital data records. Deloitte interprets it as a “collective verification of the ecosystem” since every transaction made can be viewed and validated by all the data holders (“nodes”) instead of third-parties like PayPal or Stripe.
Once verified, each block is given a unique hash code and added chronologically to the chain, accessible to every node in the network, either public or private. In fact, the block contains a sophisticated cryptographic reference to the previous one with a randomly generated number the “nonce,” event time, and transaction data.
Thousands or even millions of computers in the network with copies of the same blockchain pose a serious challenge in regard to fraudulent data use. Each block carries its own hash in addition to the hash of the previous block, making the puzzle more complicated. If any data in the block is manipulated, it will be assigned a new hash requiring further hash updates to cover tracks (also, no block can ever be deleted).
These replacements demand a huge amount of computing power and energy. Additionally, all the computers must solve 1-in-7-trillion-odds math problems, making infringements unprofitable and therefore infrequent.
That said, blockchain solutions establish a high level of data security while maintaining transparency at all levels. This is exactly what the e-commerce industry is searching for and why 84% of companies have already put a premium on blockchain technology as PwC’s survey claims.
Let’s explore three major use cases for blockchain solutions and the advantages they give.
Blockchain Technology in Payment Methods
The global e-commerce market share (11.9% in 2018 and 17.5% by 2021 following Statista’s findings) is indicative of the growing need for online payments. In 2018, the global value of digital transactions will be $3,403,168 million with a 13.2% annual rise.
Customer representatives are gradually choosing self-service over direct interactions. This implies that digital shopping systems must be supplied with best-in-class security measures to ensure data protection in compliance with effective state regulations. However, gift card scams and online payment frauds do occur. The 2018 Global Fraud and Identity Report by Experian says that 63% of businesses fell victim to deceitful actions, while 27% of consumers grow more concerned about visible security in transactions and abandon them if they do not appear to be safe.
Blockchain-powered financial transactions can tackle this issue and put more control over payments into the customer hands. These tamper-proof payment solutions have another strong benefit – fee-free transactions.
Lately, third parties are demonstrating their thirst for higher processing fees. This is why the eBay community once refused to use PayPal. This situation puts smaller retailers at risk, since they have to raise prices. Here is how the Guardian commented on the Visa and Mastercard recent charges:
“Visa and Mastercard, which dominate the market, have simply increased scheme fees, in some cases by up to 100%. And traders can get around the ban on surcharges by incorporating the extra processing costs in their retail prices. In short, it is the consumer who pays in the end.”
In contrast to the long-establishment payment processing systems, cryptocurrency allows purchases to be made without intermediaries, chargebacks, and dishonest manipulations. Basically, blockchain solutions give the green light to cross-border trade.
Furthermore, by incorporating cryptocurrencies, the e-commerce industry is likely to attract millennials who favor P2P transactions more than other cohorts.
Sustainable Supply Chain Management
The capacities of blockchain solutions go beyond online payments. On a larger scale, the technology can be also applied to any multi-step transaction, including supply chain management. Blockchain technology is also effective when signing contracts between sellers and buyers and conducting inventory control.
With supply chain management solutions based on blockchain, e-commerce businesses can achieve a desirable level of transparency and traceability. Thus, customers can keep aware of the status of current orders and trace each product back to the source, whereas supply chain stakeholders are able to monitor in/out of stocks and shipments, take timely actions to remove hitches and detect dishonesties.
Alibaba has already implemented a blockchain solution to enhance its cross-border trade. In close partnership with logistics company Cainiao, Alibaba aims to integrate export and import data with blockchain technology to record product provenance, shipping data, arrivals, and customs reports. It also enables Chinese consumers to track roughly 30,000 commodities from 50 countries through the T-Mall mobile application. The e-commerce giant has also recently joined forces with PwC to leverage blockchain technology and develop a food control system, reducing the risk of counterfeit products.
That said, blockchain software enables the e-commerce supply chain to:
- improve global visibility by tracking inventory and shipments
- lift consumer confidence with the timely removal of fake goods
- reduce manual error-prone work and operating costs
Blockchain solutions also help customers maintain control of any personal information shared with retailers and avoid annoying advertising content.
Marketing Campaigns and Data Privacy
Thanks to blockchain’s enormous storage potential, every buyer’s journey gets recorded, assuming customers give their consent to “sell” that data to e-commerce stakeholders. Anonymity and personal data protection help improve trust and incline customers to more willingly share payment and purchase preferences.
In other words, retailers become capable of providing personalized customer experiences without investing heavily into data analytics or purchasing it from marketplaces.
Provenance.org is a good illustration of how this can work. The blockchain marketplace caters to the needs of shoppers, sellers, and sustainability experts. As a result, shoppers can access verified information about products, their origins and impact, while sellers get a wider target audience able to make custom offerings.
Amazon has gone even further and suggested using its Amazon Web Services (AWS) as a blockchain-as-a-service solution for businesses to grow and scale with ready-made blockchain templates.
Blockchain technology solutions give additional value to customers since any product information they store always remains up-to-date. Customers’ loyalty grows as they see consistent product descriptions, certificates and other data-certifying qualities. It is especially important when it comes to high-priced goods.
In addition, smart contracts (a computer program that’s in control of the transfer of digital assets and immediate enforcement of contractual clauses) can automatically enable customer loyalty programs. With every purchase being stored, smart contracts can issue a reward or loyalty bonuses once a certain spending amount is reached.
If not for regulatory diversity, lack of customers’ trust, and audit compliance concerns, blockchain software would have a much wider use in e-commerce. Still, more and more companies are jumping on the blockchain train.
Gartner predicts that “blockchain will generate an annual business value of more than $3 trillion by 2030. It is possible to imagine that 10% to 20% of global economic infrastructure will be running on blockchain-based systems by that same year.”
The existing use cases prove that its application is beneficial to both buyers and sellers, allowing lower prices to be set, efficient monitoring of assets, privacy to be mantained, and prevention of extra charges.
At Innovecs, we build blockchain software to let businesses succeed and customize user experiences. Just drop us a line to get comprehensive advice on blockchain uses!