It’s hard to have missed the recent massive hype around Bitcoin, blockchain and cryptocurrencies, as they were likely the buzzwords of 2017. Blockchain technology (in its modern incarnation) has been around since 2008, but it was only last year that the tech has found its way into the early mainstream.
Accepting cryptocurrencies such as Bitcoin as a method of payment is merely the tip of the iceberg. This because the underlying blockchain technology can do so much more than that. This includes, but is certainly not limited to, fields such as accounting, management processes, data security and logistics .
The realization that blockchain could very well be the next big thing for e-commerce has already dawned upon bigger industry players, with Alibaba investing heavily in blockchain R&D and other major e-commerce companies such as Walmart and Unilever having entered a blockchain collaboration with tech giant IBM.
This can’t help but make any business owner wonder, how will blockchain impact my business?
A Brief Introduction to Blockchain Technology
A blockchain is a distributed ledger. On this ledger, all the transactions that ever occured on that blockchain are recorded and stored in a block of data. Once a transaction is stored on the ledger, it can never be removed, and so the chain of blocks becomes longer with every transaction.
Because of this, the entire transaction history from the first to the most recent ones are always available for verification. All the data entered into the distributed ledger is protected by complex cryptography, which can easily be unwrapped when you have the key, but impossible to crack when you don’t have it.
Blockchains are so secure because of its distributed nature. Every node in a network has exactly the same copy of that ledger and the ledger is constantly checked by the entire network. As soon as one node in a network has a different ledger than the rest of the network, the network will be notified and the divergent node will be signalled and removed from the network.
This application is the true disruptive force behind blockchain technology. Cryptocurrencies as a payment system already is a great disruption of the status quo of the financial industry, however, it only applies to one industry. Smart contracts are the true killer application of blockchain technology.
Smart contracts – self-executed, automated contracts – gives referees and referrers confidence in knowing why, how and when the terms of their agreement with a company will be executed. #decentralized #Blockchain #Crowdfund pic.twitter.com/1foauUQTig
— Plentix ICO (@plentix_ico) February 17, 2018
Essentially, smart contracts are digital agreements between parties that automatically execute themselves. The smart contract itself consists out of a few lines of code that specify the details of the contract between two or more parties. These details can be anything, from an amount to be paid, the transfer of documents, the sending of a product or the threshold of electricity usage.
For e-commerce, these smart contracts allow for direct transactions between sellers and buyers. The smart contracts can be programmed to only execute when specified obligations have been fulfilled. For example, a buyer can send the determined price of a product in cryptocurrency to the contract. The seller sends the proof of ownership to the smart contract and links the smart contract to the company transporting the sold product. Once the seller has fulfilled all his obligations, the smart contract will automatically send the funds to the wallet of the seller.
This is just one of many of the applications of smart contracts. The same logic as described above can also be applied to entire supply chains, organizational accounting procedures, governance, logistics and much more organizational processes.
Blockchain Disruptions for Ecommerce
International transactions have thus far come with frustrations and even though there are solutions like PayPal, these solutions are far from perfect.
One company that’s trying to create a country and currency agnostic solution is the Request Network. This blockchain-based platform aspires to create a decentralized platform which facilitates easy, fast and secure transactions for B2B, B2C and C2C interactions.
Moreover, the Request Network wants their platform to provide easy and automated methods for invoices, accounting and auditing. By using blockchain technology, their platform can disrupt the industry for financial transactions by providing high security standards, low costs for executing transactions and a satisfying, easy user-experience.
Using PayPal comes with high fees when compared to a lot of cryptocurrencies and other issues. The recent split with one of their most valuable partners, Ebay, underlines these disadvantages. Ebay attributed this split to the high transaction costs for sellers and limited payment options for buyers. Cryptocurrencies have the technological ability to provide solutions for both of these and can remove the need for a third party like PayPal.
Cryptocurrencies can potentially be better than current digital wallet services because of the following reasons:
- Instantaneous transactions for unmatched low fees
- Country agnostic, anyone can participate
- No need for providing personal and financially sensitive information to a third party (PayPal, financial intermediaries banks)
Payments are only one of the many things in which blockchain can disrupt the e-commerce industry
The decentralized marketplace
Because of the security that both the network and the cryptography provide, blockchain technology provides a secure system through which individuals and businesses can directly interact and transact with each other without the need for an intermediary. The only minor fees that will be paid are for the network behind the blockchain for validating transactions and securing the network. Both buyer and seller pay no fees to a marketplace company, because technically, there is no company.
The platforms through which e-commerce will be conducted are blockchain applications. Because blockchains are decentralized, there is no central party, or company, that sets the rules and decides how users will transact with one another. The users, thus individuals and businesses, determine how the platform will develop and function. Developers create the blockchain and will constantly upgrade it, but they can only upgrade it with consensus from the community.
It is still very early stage to be able to fully visualize such a decentralized marketplace, but they are already being created.
In the example above, the “marketplace” runs autonomously based on its programming. No company runs the show.
Bitboost is such a marketplace, and provides a platform that facilitates B2B, B2C and C2C transactions in a frictionless way. Parties directly interact with each other and aren’t manipulated in their choices by unwanted algorithmic functions, marketing budgets of big companies, governmental or platform censorship or have to pay transaction fees. All of this will likely lead to numerous micro-marketplaces, of which the free market will pick their favorites.
Another disruptive function of blockchain technology is that it allows for incorruptible visualizations of supply chains. We’re not quite there yet, as blockchain still requires mass adoption, but once this happens, the entire chain of events of a product can be directly seen with one tap of the thumb.
Whether the product is authentic, organic, fair-trade or contains chemicals can all be directly seen on its blockchain. As blockchains are incorruptible, this allows for complete transparent supply chains through which consumers are fully informed about the products they consume.
A major flaw in the way we currently store data is that they are stored in central place and controlled by a central party. Data is the new oil and cybercriminals are eager to steal these huge databases, which has been a major pain for both large and small companies. Cybersecurity requires large capital investments and strict regulatory compliances, which deter revenue streams.
Since blockchains are decentralized, data is stored decentralized as well. Yes, cybercriminals can hack individuals, but they will only steal the information of the individual they hack. Hacking an entire blockchain is virtually impossible and implementing blockchain technology in e-commerce saves a lead of investments and headaches.
Another way blockchain technology can help your e-commerce business grow. A blockchain can create a secure, efficient and fraud-proof back up system for any company. Blockchain applications can be used for any of the following tasks;
- Inventory control
- Payroll system
Thresholds, limits and time stamps can be added to the blockchain applications to automate managerial processes. This will vastly reduce the overhead costs of running your business.
How to Deal With Blockchain in Your Business
Even though the blockchain industry is still in its infancy, its advantages are not be ignored or underestimated.
For the first time in history, we are able to directly transact and interact with the world around us without the need to go through intermediaries. Bitcoin has proven this, as value can be transferred across border without the need of any bank, but this just scratches the surface. Besides the lower cost and instant transactions, playing into the hype isn’t a bad idea either.
Cryptocurrencies are incredibly hot right now and playing into this could easily lead to free marketing and a boost in profits. Always take the volatility of cryptocurrencies in account though.
Decentralization can lead to a truly free market, in which both buyers and sellers can interact freely, unaffected by the power of big business. This does mean that e-commerce platforms will likely see a drastic decline in profit margins from the activity on the platforms themselves.
If transaction fees are you business model, change your business model. Profits will move directly to sellers, ultimately creating a much more efficient economic system for commerce.
It is important to realize that individual sellers and companies do not have to create their own blockchain or blockchain applications. Everyday, new blockchain applications are being created and all of these are open for new users. It’s still early stage, and wide scale adoption of blockchain in e-commerce hasn’t happened yet, so some scouting for blockchain solutions for your company can definitely create a competitive headstart. Blockchain platforms such as Ethereum, NEO and Stratis are a good point to start.
Blockchain technology seems to be inevitable to operate without in the next few years, as the cost efficiencies it brings forth will put those adopting it in the lead and those ignoring it out of business.
Although the technology ultimately could lead to a direct, peer-to-peer economy, it also has a lot of benefits for business in store. It is advisable to start digging into blockchain solutions and cryptocurrencies for a competitive advantage, both in efficiencies as in capturing market share. Playing into the hype could lead to a innovative boost for your brand.