Blockchain Technology and its Implications for Retail
Blockchain technology is being adopted by more retailers than ever before. The concept of blockchain itself continues to gain momentum in terms of popularity, awareness, and application. It is evidently going to become a common aspect of day-to-day life in years to come. Learn about blockchain in retail and the effect it is currently having on the industry, as well as the future implications.
A basic understanding of blockchain
Gain a basic understanding of what blockchain technology is, and why it’s here to stay.
Blockchain uses in the retail sector
Discover what aspects of blockchain technology are being used in retail right now.
Future scope and practical applications
Find out how blockchain technology might be used in your own retail business.
An Introduction to Blockchain
Blockchain has been everywhere recently, promising tremendous changes in all corners of the global economy, and the retail sector is no exception. This means, for all business people, that the time to start learning about the technology and its applications has arrived. Before we can discuss the practical uses of blockchain, however, we need to take a measured look at how it functions and what it entails. While we do not necessarily need to be able to replicate its programming in order to benefit from it, we do need to grasp its overall functionality.
On a blockchain, entries (the “blocks”) form a series of records (the “chain”) through cryptography. The result is that no one user of the blockchain is able to write a new block without other users’ consent, the maths equation for each block depends on all the blocks that have come before it. In this way, the chain becomes something like a group project: no one is able to act unilaterally. The information stored on the blockchain is then near impervious to hacking, counterfeiting, or illicit modifications.
Think of it like this: if one person thinks of a number and tells you to guess what it is, you are trusting that when you voice your guess, they are honestly telling you if you are right or wrong. That is how record-keeping has worked throughout all of history. One person writes something down or enters it into a spreadsheet, and we hope that they record the correct thing. On the blockchain, you never need to trust anyone at all. It is as if one person thinks of a number, tells another person (or in the case of large blockchains, thousands upon thousands of other people), and then asks you for your guess. There would be no incentive to lie because all of the other people who heard the number would tell you what it was.
What we need to understand about blockchain technology from the beginning is that it is very different from what many people have presumed it to be. Bitcoin, despite its monopoly on blockchain attention, is only one of many blockchain uses. The finance sector is the greatest investor so far in blockchain technology, but it’s not the only industry that will benefit.. Wherever two or more organizations or professionals are accessing data, transacting, or communicating, we are likely to find another potential application of this technology.
This technology, for professionals in every sector, is something of a revolution – and retail is no exception. Multi-Channel retail businesses will be able to benefit from the breadth of advantages that blockchain technology has to offer, including trust in new business relationships, decentralization for record-keeping and operations, greater security, greater privacy, more efficient transactional processes, lower operational costs, enhanced transparency, and more reliable data. Many of these advantages, fully realized, will render other systems and technologies obsolete. We are in the midst of another industrial revolution, every bit as drastic as the industrial revolution of the eighteenth and nineteenth centuries. Fortunately, we can see it coming – and by seeing it coming, take action to fortify our businesses.
Later in this white-paper, we will go over some of the specific blockchain applications that you can expect to see take hold in the forthcoming years. For now, we shall shift our attention to the topic most relevant to you: blockchain’s role in retail.
Blockchain in Multi-Channel Retail
You understand that to succeed as a multi-channel retailer, you need to stay ahead of your competition and find advantages wherever possible. Normally, advantages come along infrequently. They present themselves in the form of better deals or more efficient logistics. Never before has one concept promised to upend so many aspects of retail in the way that blockchain does. Look at any part of what your business is doing, and you can likely imagine something that blockchain technology will be able to change about it.
To explore a sampling of blockchain’s presence in retail, we shall go through its aspects one at a time.
Better Privacy, Security, and Data Management
To any business owner who has watched in horror as major corporations have had to disclose data breaches, thus damaging or even destroying their hard-earned reputations, one of the most alluring of blockchain’s promises is stronger privacy and security. Using blockchain technology, you can remove intermediaries, as you have for payment processing, and cut out any of the weaknesses they may have presented to your overall data management strategy.
By decentralising your databases, and moving them onto a blockchain, you are making yourself as impervious to breaches as cryptocurrencies themselves are. This means that neither you nor your customers will need to worry about bad actors getting their hands on any of your data. You can feel the surety that comes with impenetrable security: only you and the people to whom you grant access will ever be able to access anything. As blockchain expert Curtis Miles of IBM explains it: “The records on a blockchain are secured through cryptography. Network participants have their own private keys that are assigned to the transactions they make and act as a personal digital signature. If a record is altered, the signature will become invalid and the peer network will know right away that something has happened. Early notification is crucial to preventing further damage.”
Logistics
The same record-keeping applications of blockchain technology will enable smoother and more efficient logistics tracking as well. Rather than counting on faulty and asynchronous databases, logistics professionals and your customers will be able to view and update the blocks, that form your order fulfilment transaction.
Blockchain-powered logistics may look something like this: when a warehouse worker is preparing to ship a product, he or she will scan a tag. This is no different from the first step for most warehouses today, except that on the blockchain, the scan will create an immutable record. If everyone in your ecosystem can access the same blockchain, then the manufacturers may have scanned the same tag, updating the same blockchain that you and your customers will read to get updates about a purchase. Scanning a product can also initiate a smart contract (which is a program that runs independently of any human user) at any point in the supply chain – for example, automatically completing digital cross-border customs forms.
The natural outcome of blockchain-powered logistics is confidence. From the manufacturing facility to the warehouse to your customer’s home, the blockchain is providing the same information to everyone, affording people peace of mind.
Cost Reduction
Even more directly for retailers, blockchain is useful for tracking products, partners, and systems. Once again because the data on the blockchain is incorruptible and thus wholly dependable, it serves analysts and decision-makers well.
Say, for example, that there is a problem in the supply chain. Until now, it might have been easy to see that there was a problem but almost impossible to pinpoint what that problem was. Tracking, which is a gargantuan undertaking for large retail operations, escaped precision. When you adopt a blockchain ledger, you will be able to crowdsource your record-keeping, drawing on a wide range of resources within your operation, avoiding the pitfalls and difficulties that come with centralised record-keeping.
What all of this comes down to is a sharper awareness of what is going on with your supply chain. When bottlenecks or failures occur, you can look to the blockchain to tell you exactly where they are occurring and then rapidly determine what you need to do to resolve them, saving yourself time and money.
These technologies will allow you to “know your suppliers” too; many of their interactions with other companies will be known, transparent and provable. This is a double-edged sword of course for the supplier, but assuming they are legitimate and have built a good reputation for authenticity, then it can only benefit them – it would certainly benefit you to know you are dealing with a trusted source.
Counterfeit Prevention
While counterfeit money remains a major problem, millions of counterfeit pounds circulating each year, there is no such issue on Bitcoin, Ethereum, or any other blockchain. The nature of blockchain is such that no one can “fake” one unit or another. If the block is on the blockchain, then you can confirm for yourself that it is valid and genuine.
The same concept will work well for combating counterfeit goods, which represent huge losses for retailers, especially luxury retailers. In essence, you would put each of your genuine products on a blockchain, which your customers could view, to confirm for themselves that they have not purchased a counterfeit. Every time the product changes hands – again, reselling is common for luxury goods – the buyer and the seller would update the blockchain, through a code that they would get somewhere on or inside the product itself. In turn, they would generate a running history of the product’s ownership – as incorruptible as Bitcoin is.
Smart Contracts for B2B and B2C
Anywhere that you are using a piece of software in your retail operation, you may consider pivoting to smart contracts. For B2B transactions, you will be able to automate fully, and for B2C transactions, you will be able to provide a personalised experience and to tweak the experience according to a set of conditions.
Smart contracts are the “meat-on-the-bone” of blockchain technology. They are what is going to automate the flow of data like never before.
Unlike traditional software, which has required a human operator, smart contracts can run on their own. You can automate both B2B and B2C transactions such as these, relying on the smart contracts to take over and to execute on your pre-set commands with perfect consistency. For example, money can be held in escrow and automatically released once certain condition are met, such as receipt of goods being made, and quality control being satisfied.
Smart contracts encapsulate some of the greatest potential of blockchain. In time, engineers may use them to decentralise all data storage, even replacing the large clouds that today seem cutting-edge. They hint at the seemingly infinite possibilities of blockchain – and what this technology means in the near and distant future for retailers like you, knowing that when smart contracts are on the blockchain, it will be very hard to fake or trick them.
Smart contracts – the “meat-on-the-bone” of blockchain technology
Smart contracts show some of the most significant potential in blockchain technology. Their application could innovate and improve the efficiency of many industries. They appear to be the critical factor that is going to automate the flow of data like never before.
Record-Keeping and Communication
Most generally, blockchain enables retailers to cultivate a new level of transparency. Using a ledger, you will be able to track all of your products, from the manufacturer to the customer, getting a complete and uninterrupted view of what is going on in your supply chain. Because of the incorruptibility of the blockchain, there will be no doubt as to the validity of the data that you are receiving. Whatever your blockchain tells you about your supply chain, you know that it is dependable enough to shape your decisions around it.
As you improve record-keeping and communication, between all of the nodes within your business, you will then be able to build trust with your partners and your customers. For many retailers, blockchain will become an opportunity for branding. You can promote your business as one of integrity and dependability, pointing to positive, reputation-affirming statistics made possible by the blockchain. Customers who worry about your adherence to labour laws or your ethics in sourcing will be able to check in on your supply chain themselves, confident that they are getting the truth about your business.
Compliance in Product Recalls, Shipping, and more
Another implication of the incorruptibility of blockchain technology is its use in sensitive tasks such as product recalls and shipping. Each of these areas require precision and reliability. When a company is conducting a product recall, it may need to be able to prove to a court or a regulator at some later date that it has acted in accordance with its duties. Likewise, during shipping, especially for a free-on-board agreement in which the buyer is responsible for the shipment once it leaves the vendor, companies may need to be able to present evidence that they have acted appropriately.
For both of these tasks, a smart contract would prove invaluable for compliance. They will negate the costly, time-intensive efforts that go into managing compliance because they will introduce a new level of confidence into operations. Auto-executing unchangeable code transparent to all parties, smart contracts will guarantee the sort of error-free execution that product recalls require, along with all of the associated taxes, customs regulations, and freight & duty charges.
Vouchers & Promotions
There is no reason to stop at internal paperwork, either. You can also use blockchain to issue vouchers and promote deals on your products. Once again, you are able to tap into the security and incorruptibility of the blockchain to plan your promotional strategies more precisely. Because you will know at any time how many coupons you have granted and how many coupons your customers have used, you will be able to make definitive calculations about the impact that each promotion has made on your business.
There is, as well, a branding advantage to operating your promotions on the blockchain. When your customers realise that you are taking the lead on a major forward trend, your coupons will take on a special type of cachet – granting them value that you could have never added to a printed-out slip of paper.
Paperless
Instead of printing out a physical document to represent the warranties that you offer on your products, you will be able to store every document as a link to a block on a blockchain. The external file will have a “checksum”, which can be verified against the block, which prevents the file being changed in the future.
Knowing that demand for paper exceeded 399 million metric tonnes in the last year, you can both feel good about going paperless and use it as an opportunity to build your brand’s green credentials. As a bonus, the same anti-counterfeiting measures will apply to all of your documentation. You can update a block, rather than print out an easily duplicated piece of paper, to manage your records. Then, when anyone asks to see one of your records, you can direct them to its location on the blockchain.
Digital & In-Store Integrations
Applying the same ideas, you will see that anywhere you can integrate blockchain into your digital store-front or your brick-and-mortar location, you can use it to present yourself as a progressive retailer who is thinking about the future.
More practically, cross-channel blockchain integrations will make it easier for you to engage with your customers over a long period of time. You may first connect with a customer through your ecommerce platform, and then because of the tracking that is possible through blockchain technology, you may realise that they are also shopping with you online. In that situation, you can tailor the online experience to each customer, based on the insights you have gleaned from their data on the blockchain.
To the customer, this entails a smoother, more satisfying omni-channel experience.
International Payment Processing
Blockchain technology, when coupled with cryptocurrency, can also work to avoid many of the regulations that have affected payments. For retailers, this means that it is possible to accept payments from customers without engaging any credit card company or payment processor. Of course, it will also be possible for businesses to continue to accept payments via traditional sources as well, or to decide on some form of hybrid payment strategy.
Currently, according to the World Bank, the average fee for an international payment amounts to 6.51% on average, or as much as 11% if the payment comes out of a bank. On top of that, payments that cross borders take between 2 and 3 days to clear.
Compare this situation with a cryptocurrency like Bitcoin or some type of blockchain transaction. On the blockchain, there are no intermediaries to whom you need to pay out. There is also no time cost for the payment to clear, just as there is no time cost for your change to show up on the blockchain. The payments, aside from any fees an exchange may charge you to de-tokenise your cryptocurrency, are much more cost-effective and much quicker.
Successes to Emulate
Other major companies are leading the way in blockchain technology. Forbes, in an exposition of the fifty earliest and most aggressive blockchain adopters, has highlighted what they see as the most pioneering and impactful uses of blockchain that have already commenced.
Consider BMW, for example. Within their factories in Europe and North America, they have implemented blockchain record-keeping at every step in manufacturing and distribution. As a member of the Mobile Open Blockchain Initiative, the company have also begun assigning digital identities to all of the cars that they ship.
General Electric, meanwhile, extended blockchain technology to their record-keeping, tracking the aeroplane engines in a system they call “back-to-birth.” Their goal is to create such a reliable record of all their parts and engines that poor documentation is no longer an issue.
As well, Nestle partnered with IBM Food Trust in order to add scannable QR codes that then create records on a blockchain. They have used their system for tracking infant formula, baby food, and other highly sensitive food products, to ensure total awareness from their factories to their client grocers.
All of this is happening today. Next, we shall look at what is yet to come.
Possibilities for the Future
According to a study out of Deloitte, businesses that hope to make the most out of blockchain should take an orderly approach. They recommend first implementing “trial projects,” which would demonstrate the value of blockchain technology within a specific business model. Before integrating blockchain more widely, they believe that it is wise to “explore, wait, and see.” Most importantly, they urge all business owners to plan blockchain integrations diligently.
Speaking of the retail sector specifically, the same Deloitte study highlights the three areas they believe will lend themselves best to blockchain: “improving and protecting the consumer experience,” “improving process efficiencies across the supply chain,” and “improving transaction processes and ensuring the validity and implementation of contracts.”
Throughout the retail sector, many organisations have already started applying Deloitte’s counsel. Loyalty programs have emerged as one of the earliest grounds upon which engineers are building blockchain systems. Giants like Walmart, Nestle, Alibaba, and Starbucks have all implemented blockchain-based points systems, as have multiple large airlines for reward miles. We can think of these integrations as a reflection of the first step that Deloitte has suggested: while loyalty programs do not entail the same value that the supply chain would, they do entail enough value as to serve as a proof-of-concept for further blockchain integrations.
As a retailer, you may consider creating a loyalty program around blockchain or even adapting your existing loyalty program to a blockchain system. This way, you can see for yourself how blockchain works within your business model. Remember the advantages of blockchain technology for promotional strategies: you know what you are giving out, no one is able to counterfeit anything, and you position yourself as a technologically savvy brand. This is an all-around win for your business, and because the code for blockchain technology is mostly available through open-source licenses on platforms like Github, it will likely cost much less than you may guess it would.
It is also wise, as a retailer, to consider the potential impact of blockchain on privacy laws, such as GDPR. In the future, blockchains may offer individual data preferences, stored on shared blockchains, even enabling customers to see which companies have accessed their data or would be able to access their data. While this consideration is longer-term, it is something about which retailers should remain aware.
For a more expansive look at the possibilities for the future, we only need to examine vaccination efforts throughout the Covid-19 pandemic. At a time when statistically significant proportions of young people have expressed uncertainty about Covid-19 vaccines (between 10% and 20% in the UK, according to one study out of the International Monetary Fund), IBM has developed a tool – called simply IBM Blockchain – to monitor manufacturing details, side effects, supply chain, and recalls. This is an initiative to build trust in the Covid-19 vaccines, in a way that only the incorruptible blockchain can.
All of this is happening today. Next, we shall look at what is yet to come.
As IBM has put it, “With a vaccine distribution network powered by IBM Blockchain, manufacturers can proactively monitor for adverse events and improve recall management. Distributors can gain real-time visibility and an enhanced ability to respond to supply chain disruptions. Dispensers can improve inventory management and safety monitoring. Citizens can trust the vaccines and confidently return to society.”
This program, while at first seemingly disconnected from the retail sector, shines a light on the reality of blockchain technology: its uses and applications will continue to surprise us by revealing themselves when we least expect them. Because there is no way to foretell every difficulty that your business is going to face, there is no way to tell with certainty how and when you are going to need blockchain technology in the future. What you can say, all the same, is that you will need it. If not today or tomorrow, the time will come that the momentum for the blockchain and all its advantages will be irresistible.
The danger of not adopting is, in turn, that you will get left behind. For the moment, we remain on the cusp of the blockchain era. We are a little more than a decade into the lifecycle of Bitcoin, and already it is disrupting global markets. As more retailers discover the security, the privacy, the service, the record-keeping, and the experiential benefits of integrating blockchain into their businesses, they will win over customers. Retailers, when they resist this sweeping trend, risk investing their capital in the wrong places and becoming relatively inefficient to the point of insolvency.
Blockchain is that enormous a technology. Twenty years ago, the internet was the newest, shiniest invention. Some businesses resisted it: mostly unsuccessfully. The businesses that did best as the Yellow Pages gave way to Google were those that got their websites up and running in a timely manner and then encouraged their customers to engage in any way that was comfortable. A successful transition to blockchain will look similar. You “test” and “explore,” as Deloitte puts it, until you find the areas in which blockchain technology fits your retail business.
Henry Ford is often misquoted as saying, “If I had asked people what they wanted, they would have said faster horses.” The fact is that there is no evidence that the Ford Motor Company founder ever said anything of the sort. This quote, while false, seems relevant today: if you ask most retailers what they need to make their businesses more stable, they will tell you about the systems they already use for the supply chain and the methods through which they engage their customers. Few will mention, however, their vision for the blockchain.
Now equipped with an awareness of this technology, an understanding of its functionalities, and insights into its benefits, you can develop a vision for the blockchain. You can begin to think through all of the areas of your business that blockchain technology will inevitably impact – and also think through your most informed and most careful approach to the changes in the years ahead.
Next, if you so choose, you can continue to learn about one of blockchain’s more generally known applications – in currency.
Appendix: Learn about Blockchain in Currency
Cryptocurrency, despite its recent popularity, is only one of many applications for blockchain technology – as we have seen. That people have taken to using blockchain as a cryptocurrency points to its flexibility as a tool: anywhere that there is an exchange of data or a transfer of information, the technology may prove useful.
Even at the International Monetary Fund (IMF), there have been preliminary discussions to move their grant and banking processes onto the blockchain. Although IMF leaders concluded that they were not yet sufficiently comfortable with the smart contract-enabled blockchains available on the market, their discussions were groundbreaking. They pointed to a simple truth about blockchain: its staying power. As a retailer, you should keep that truth in mind. Whatever drawbacks there may be to one blockchain system or another, the concept of blockchain is no more escapable than computers were fifty years ago and ecommerce was twenty years ago. It may take time for the technology to catch up to business owners’ demands and expectations, but as progress continues, blockchain tools and systems will become ever more integral components of the modern economy.
None of this means, however, that cryptocurrencies are without their faults. One of the most persistent criticisms of Bitcoin specifically is that it consumes too great an amount of power for it to remain a viable technology in the long term. According to one study out of the University of Cambridge, that amount of power equalled the total consumption of Finland annually.
This is where the debate over proof-of-work and proof-of-stake takes root. Proof-of-work, the original system for mining a blockchain, relies on many different computers solving the same maths, duplicating efforts and then presenting their solutions. Proof-of-stake, on the other hand, reduces a blockchain’s energy consumption by avoiding effort duplication. Cryptocurrencies like Polkadot and Cardano have made their names in part on promising to run on a proof-of-stake model. Ethereum, although it runs on a proof-of-work as of this writing, has also expressed an intent to transition away from proof-of-work. Bitcoin, however, seems likely to continue to run on a proof-of-work model, to the chagrin of many large investors, including Tesla founder Elon Musk, who has said that he will not make any further investments into the cryptocurrency as long as it consumes as much energy as it does.
One of the other major criticisms of blockchain technology is its history of theft and association with black markets. Running from 2011 to 2013, Silk Road was a platform where users could buy and sell illegal items. It was possible only because of payments through Bitcoin. Mt. Gox, the largest Bitcoin exchange at the time of its closure in 2014, almost brought the cryptocurrency to the ground when thieves made off with 750,000 of its customers’ Bitcoins, equivalent to approximately £21.7 billion today.
What is worth noting, however, is that neither theft nor illicit payments arise naturally from blockchain technology in currency. Like any tool, it lends itself to a variety of applications, including unsafe exchanges and illegal marketplaces. As a retailer, you want to recognise that there is nothing written into any blockchain that makes it more susceptible to abuse than any other record-keeping system – and in fact, entails protections against breaches that centralised exchanges like Mt. Gox do not.
The market cap for Bitcoin, which has fluctuated between £500 billion and £750 billion over the last year, is proof positive that a large segment of the economy has bought into cryptocurrency and, by extension, blockchain.
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