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 whitepaper, 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.
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.
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.
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 e-commerce 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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