Blockchain is the renowned latest technology that Bitcoin is built on and that’s continuously raising interest. Some even believe that it’s the biggest technological breakthrough since the invention of the Internet as it influences the global economy of today. Yet apart from cryptocurrencies, there are dozens of other ways it can be applied. As of now, blockchains are widely discussed not only in the world of finance but are also used for storing and processing personal data, for identification reasons, even in marketing and computer games.
This largely explains why blockchain technology is applicable in eCommerce, a field that’s always in need of modern solutions, constant website optimization, and a future-oriented business development path. In this post, we’ll introduce you to blockchain technology and share the five ways it’ll impact the online retail industry.
Introducing Blockchain Technology
As it follows from the name, the technology is made up of a continuous chain of blocks. The chain logs the records of transactions and other data. This database is composed of an ever-expanding sequence of blocks that are shared between participants via peer-to-peer networks.
The unique thing about it is that unlike regular databases, you can’t change or delete records, you can only add new ones. The chain can’t be broken since each block contains a link to the previous one. That said, if we’re keeping a record of the number of sold teddy bears, whenever there’s an update or change on their overall quantity (say, all of them are sold out), the previous record isn’t deleted or replaced, instead, there’s a consequent new one that logs the current data (hence, we previously had 50 teddy bears, now we have none yet we know where they were distributed).
Every data block is marked with a one-of-a-kind stamp (the so-called hash sum). Each of the blocks is then placed in chains that have a very strict order that may not be changed. This means that the sequence can’t be reordered or reorganized. If you attempt to do so, an incongruity will occur and result in a systematic rejection of the action.
Topping that, the system has a smart approach to security. In order to prevent the chain blocks from being modified, the system uses both the PoW (proof of work) and PoS (ownership proof) methods.
Finally, since a plethora of independent users “locally” store the chain and its data, the changes are automatically updated in all the registries. Thus, because the data isn’t kept on a single server, the information won’t be lost even if one of the computers that keep it crashes. This is why blockchain technology is often referred to as a “distributed registry”.
If you still don’t quite understand what the fuss is about, the answer here is “convenience”.
- The technology basically provides an environment in which the participants within a transaction have no opportunity to deceive each other.
- It also eliminates the necessity of having third parties or intermediaries in the equation, for instance, a bank.
- Plus, the system isn’t centered around a single hub, meaning that it’s practically impossible to harm the chain.
- Lastly, it gives transparency to all the operations and digital transactions since everything is logged in a single database.
So What Does Blockchain Technology Have to Do with eCommerce?
Without a doubt, there are many challenges that eCommerce stores have to overcome. These include overcoming high competition, the legal responsibility for safeguarding client data, keeping track of ever-growing databases and inventories, as well as figuring out ways to lose less money on intermediaries and etc. What can blockchain offer?
1. Safer financial transactions
Among the first things worth noting are transactions. Online retail has a close tie to finances, therefore, the matter of security is always among the most important priorities. Blockchain technology gives users the opportunity to safely pass on various data, including payments.
First and foremost, this includes Bitcoin (that’s used for buying things on those sites that allow making payments in this currency) and Ethereum (a platform used by online retail stores who wish to handle individual blockchains).
In blockchain networks, the store owner and the customer confirm the transaction using cryptographic keys that are digital codes. Guessing the sequence of characters of the cryptographic key code is a one in a billion chance. This makes blockchains among the best options for financial transactions. Fair enough, there were cases when wallets were hacked, so it is advised to connect them only for the time of handling transactions and then keep them offline the rest of the time.
Therefore, when it comes to financial security, blockchains can be a beneficial solution offering wallet protection and data security. To say the least, this technology is a great way to safeguard both the store owners and their clients from cyber-attacks.
2. Simpler inventory & supply chain monitoring
Keeping track of the inventory and the products of an online store is no easy process. Blockchain can be a helping hand here too as there are solutions for tracking and tracing the stocks.
Among the well-known solutions of such is WOWTRACE. It makes it easy to find out the origins of things within the stock and supply chain. It’s a way to connect producers, distributors, and even consumers.
And the data on all operations is securely stored. The history is recorded in the blockchain and distributed across all network participants. Each block contains information about all previous operations from the very start so you won’t have to untangle the puzzle of where this or that product is with easy purchase history notes.
3. Better transaction management
Let’s assume that a client transfers 50 USD to an eCommerce store as a payment for their order. A lot of things can go wrong: issues with the bank can occur, mistakes can be made by employees, there can be a hacker attack, to name a few. In these scenarios, the records on the transaction can be modified or get lost, causing the transaction to be stopped.
Because specific organizations are the ones responsible for logging transaction information, usually, in a single place, such risks are inevitable. But these risks can be reduced using blockchain technology as the system of accounting is based on distributed registries.
4. Faster & more cost-effective transaction processing
One more awesome thing about blockchain technology is that it allows for almost instantaneous transactions. They may take time to confirm though. And the amount of time that the confirmation will occur is determined by the consensus algorithm of a particular blockchain network.
For eCommerce, this means getting paid faster and paying less. And the commissions aren’t as high as those that banks or other common intermediaries have. Because the transactions are registered by miners, the commissions basically go down to just the rewards for the support and operation of the blockchain network.
5. Smarter contract creation
Another way blockchain technology can be applied in eCommerce deals with creating contracts. This is especially relevant when signing large contracts with partners.
This can cut a lot of legal red tape out of the process. For example, transactions can be certified using the blockchain electronic notary called Stampery. At a basic level, it provides actual proof and evidence of authenticity instead of just having to take things for granted. This makes forging documents practically impossible.
Similarly, this solution gives the chance to trace down any action or change in a transparent way all the way back to its original source. In a way, blockchain technology is thus a great answer to how to handle business-vital records, be it ownership proof or a receipt.
Is Blockchain Technology Really That Flawless?
To be fair, although blockchain technology is somewhat revolutionary, it does have downsides and issues.
To begin with, its implementation requires a big deal of reconstruction, we’re talking about systems that are large and that have a huge number of participants. And because every system strives to preserve its own structure and properties, it makes much more sense to start small when it comes down to the question of blockchain implementation.
Furthermore, another obstacle is formed by the fact that there is no legal framework that regulates blockchains. The same applies to the lack of established standards. Thirdly, blockchains demand enormous volumes of computing power to be supported. This implies it being energy-intense and requires huge energy consumption.
Summing Up
To finalize, blockchain technology is already taking the cyber world by storm. Mentioning it’s eCommerce-specific benefits, it’s an outstanding solution that’s secure, cost-effective, and transparent. Thus blockchain adoption and the use of digital currency are surely a future-oriented look towards online retail on the whole.
Alex Husar, CTO at Onilab with 8+ years of experience in Magento migration and Salesforce development. He graduated from the Czech Technical University and obtained a bachelor’s degree in Computer Software Engineering. Alex’s expertise includes both full-stack dev skills and a strong ability to provide project-critical guidance to the whole team.
