Blockchain in e-commerce and online trading
Blockchain is a revolutionary force. The financial services sector was among the first to recognise its transformative power and is fast developing new products and services based on the technology.
Based as it is on an incorruptible digital ledger that provides security for all transactions, blockchain offers the potential to revolutionise many other industry sectors. They include manufacturing, shipping and logistics, energy, healthcare, gaming, retail and fashion. The technology can also make supply chain management across many sectors more efficient and even extend its impact to the world of music and the arts.
By removing the middleman, any centralised service can potentially be decentralised via blockchain and users no longer need to rely on a bank, credit card company or government as the intermediary. In unlocking the ability to move, store and manage anything of value by a technology that’s secure and trusted, blockchain lends itself to being a vehicle not only for money and financial assets but also non-financial assets including titles, deeds and votes.
According to the World Economic Forum (WEF) 10% of all gross domestic product (GDP) will be stored on some form of distributed ledger by 2027. Banks, regulators and financial exchanges are devising means to adapt blockchain technology to securely record data on stocks, bonds, property deeds or even the energy distributed over smart grids.
The potential of blockchain has been brought into focus particularly by the emergence of Ethereum, which allows the use of so-called ‘smart contracts’. These self-operating computer programs are able to execute contracts and payment transactions without the need for any human intervention.
Developing the potential
Reports on industry sectors that have responded most to blockchain have focused on the banking sector. Initially resistant to competition, banks have recognised that partnerships and other unions with financial technology (fintech) companies are the best way forward in developing blockchain’s potential rather than attempting to do so using their own internal resources.
Elsewhere in the financial services sector the ‘big four’ auditing firms – Deloitte, Ernst & Young (EY), KPMG and PricewaterhouseCooper (PwC) – recently joined 20 banks in Taiwan on a pilot for using blockchain to audit the interim financial reports of public companies.
Under the trial, blockchain will be applied to so-called ‘external confirmation’ – the process of obtaining and evaluating audit evidence – for a select group of local companies.
Until now, external confirmation has always been conducted manually by auditing firms to verify the authenticity of public companies’ financial transactions with third parties. The trial aims to allow auditing firms to view the transactions through a traceable, tamper-proof chain of data in a distributed manner that streamlines and automates the confirmation process.
Another area that has seen a particular burst of activity in the past year is in virtual games based on blockchain. The launch last November of CryptoKitties, one of the first non-currency uses of blockchain, offered gamers the opportunity to collect and trade cartoon cats with unique individual features and the initial buying frenzy slowed down the Ethereum network for several days.
However longer-term it is the electronic commerce (e-commerce) sector, which has already changed the way in which we live day-to-day and conduct business, that is likely to be impacted most by blockchain.
The technology offers efficiencies and cost savings to several areas of e-commerce, with payment services high on the list. Despite initiatives such as Europe’s single euro payments area (SEPA) to facilitate cross-border payments and the launch of solutions such as PayPal and Skrill, the payment services available for e-commerce are often still inefficient and expensive.
Payment processing fees have typically been high, as have the charges applied by e-commerce platforms on sales made by retailers using their platform, which are typically upwards of 4%-6% of the total purchase price of a transaction for international money transfers.
An alternative cross-border payment services provider, Wyre entered the market in 2013 using proprietary blockchain technology to accelerate cross-border payments and completing them in under six hours against banks’ typical completion times of up to three days. Wyre’s fees are also much lower at less than 1%.
More recently, new competition has come from blockchain-based e-commerce initiatives such as ECoinmerce, which aims to create the world’s first decentralised e-commerce marketplace and Request Network, a decentralised network built on top of Ethereum, which “allows anyone, anywhere” to request a payment.”
Both services promise to establish a blockchain-based marketplace that provides fast and secure transactions for all types of e-commerce business model.
Request Network, which has been dubbed both “PayPal 2.0” and “PayPal for cryptocurrencies” adds that its network “is designed to be flexible, to last hundreds of years, and to work with the Internet of Things (IoT), whilst being compatible with any future systems.” First set up in 2014, by founder members frustrated with the slowness of bank-controlled international payments, the network uses cryptocurrencies as a payment mechanism.
The website investinblockchain.com, which has charted Request Network’s progress, approves of developments such as its support for several cryptocurrencies – not just Ethereum and bitcoin – and the introduction of the ‘Pay with Request’ feature, a payment option that can be attached to websites just as with PayPal or a debit/credit card.
However, the site also comments: “While the project has come a long way, there is much more to do if Request is to revolutionise commerce, and their roadmap confirms that.”
Ecoinmerce is particularly appealing to retailers, with a charge of less than 1% for selling their goods, while they retain ownership of all digital assets including their digital storefronts, product photos/videos and reviews. Ownership is recorded on the blockchain, making it fully sellable, rentable and tradable.
Retailers can also tokenise their store by launching initial coin offerings (ICOs) directly on ECoinmerce, enabling them to increase brand affinity as loyal customers become early investors in their favourite projects. They can sell these tokens alongside their products, delivering new revenue streams to maximize profit.
Supply chain management
Supply chain management is another area of e-commerce, where blockchain promises to release efficiencies. An incorruptible blockchain network can provide a transparent supply chain, enabling companies to get oversight both of their suppliers and – in many cases – those supplying the suppliers.
A pioneer in this particular field is VeChain, a blockchain platform established in 2013 that combines supply chain management with providing financial services and smart contracts. VeChain added its own cryptocurrency, VET, in 2015, which was the first to make a deal with the Chinese government and became the blockchain technology partner of the regional government of Guiyang.
VeChain’s remit is to provide an incorruptible visualisation of the entire supply chain process, which has seen it devise blockchain solutions for a range of industries that include “liquor, auto, luxury goods, pharmaceuticals, retail, logistics, supply chain, food and cold storage.”
Through a combination of technologies – blockchain and smart chip – companies such as car makers can track items through their supply chain and ensure the authenticity and quality of parts from suppliers, while food companies can control the quality of their products.
Among the issues that regularly threatens to derail the progress of e-commerce is that of data security, which has come into even greater focus since the introduction in May across Europe of the General Data Protection Regulation (GDPR).
E-commerce platforms are typically home to massive amounts of data, most of which is collected directly from the companies and customers they have registered. When stored on a centralised server, this data is vulnerable to attack from cybercriminals as a number of high-profile breaches has evidenced.
By contrast, as a blockchain-based e-commerce platform is decentralised so is the customer data. Storing financial information across a network of computers makes the task of compromising data much more challenging for hackers.
Instead of having to breach just one server, falsifying a balance or making a fraudulent transaction on a blockchain is only possible if the majority of the network is compromised, while hacking into every single node of the platform is near-impossible.
Blockchain brings a greater degree of transparency to e-commerce and online trading is a further major benefit. Lack of transparency has been a major complaint brought against the likes of Amazon and eBay. Indeed, one of Amazon’s most vociferous critics is Donald Trump, who claimed they “pay little or no taxes to state as local governments, use our postal system as their delivery boy (causing tremendous loss to the US), and are putting many thousands of retailers out of business!”
While Amazon and its peers have a reputation for cutting off direct contact between consumers and sellers, transparency is central to new decentralised blockchain-based e-commerce platforms such as Bitboost Marketplace (BBM). First-time BBM users are asked to generate a strong password and an (anonymous) ether wallet is then generated for them – no registration process or disclosure of personal details is involved, as part of BBM’s remit to simplify the transaction process.
Another initiative with greater transparency as its aim is the Global Alliance of Merchants on the Blockchain (GAMB), which is being developed by German software company Gambio “to give power to the merchants”. Sellers joining the GAMB platform are invited to become members of the Alliance, so they can contribute to the rules that govern them and their businesses – unlike a more centralised marketplace.
Decisions on GAMB’s features, services, costs and fee structures “will not be written in stone”, according to Gambio. “Instead, merchants will be able to decide amongst themselves in a decentral autonomous organisation.” GAMB has made a strong start as Gambio has 25,000-plus active stores in more than 75 countries and processes billions in annual store revenues for its users.
GAMB faces formidable competition from Canadian established e-commerce platform Shopify, which has helped many small businesses set up and manage their online stores, but has seen growth slow and does not accept cryptocurrencies as an alternative to fiat currencies.
Artificial intelligenceIf blockchain offers a path to an improved user experience in e-commerce and online trading, the addition of artificial intelligence (AI) promises to open up whole new areas. Google realised the potential early on, paying more than $600m in January 2014 to acquire DeepMind, a London-based AI start-up.
DeepMind researchers are confident that AI’s steadily-growing ability to think ‘outside the box’ will see machines devising novel solutions to problems that humans haven’t begun to consider. AI is already capable of human-like problem solving and abstract thought; its ability to further augment the efficiencies that blockchain offers to e-commerce is endless.
China’s e-commerce giant Alibaba says its vision for the future of retail is one where the distinction between online and offline shopping has disappeared, and customer service is enhanced by augmented reality, AI and facial recognition.
In its home market, Alibaba is developing New Retail, a model combining the best of both in-shop and online retail experiences. The group says that traditional retailers can use it to enhance their operations ranging from the customer experience to inventory management.”
Passion for fashion
The combination of blockchain and AI could be dynamic in sectors such as fashion and luxury goods. Everledger is already established in the latter industry; since 2015 it has tracked and traced the authenticated provenance of diamonds through emerging technology on a global digital ledger. The start-up works with various stakeholders across the diamond supply chain, including manufacturers and retailers.
The fashion industry has been dominated by a handful of major players that can place massive scaled orders, invest in new technology and use their rapid design and supply chain systems to quickly knock out copies of anything original seen on the catwalk.
Blockchain now offers independent merchants and smaller labels the opportunity to compete more effectively with the big brands. Forbes magazine recently forecast that “a shift from a supply chain to a demand chain will mean clothing production moves back to local, distributed hubs”.
The magazine notes that too many brands have been exposed as “wasteful, environmentally unfriendly or simply unethical. The backlash against fast fashion is evident in a younger generation less impressed with labels and happy to purchase vintage pieces that have stood the test of time.”
Blockchain has already been put to use in exposing counterfeit fashion goods. It’s set to further transform the fashion industry by enabling consumers to select, the fabric, the cut and the label they want for a specific clothing item.