How Blockchain Technology Can Impact eCommerce
I started learning about marketing and technology because, like many people, I would like my own business. Now at Furlough Community, I have found a way to keep learning, to share what I’m learning, and to help others.
So, if you are like many of my friends who are starting an ecommerce business and have heard about blockchain, but don’t know how it could help your business, keep reading.
1. Blockchain for non-techs
Blockchain is a technology that resolves a problem of trust. Have you heard about ecommerce Attacks? In summary, an attack is a malicious attempt to steal information. The attacker steals your client or your clients’ information or money.
Our society resolves the problem of trust with a third party. For example, when you have a contract – an agreement to exchange things or services, with a plumber but he doesn’t finish the job, a court enforces the contract. In this example, the court is the third party. You can’t make a payment in the supermarket if you do not have enough money in your account. A bank keeping track of how much money you have in your account is another example of a third party.
The problem with this system is that we have some untrustworthy third parties. For example, we experience a loss of privacy with some commerce. We have added cost–banks are not free, right. And we experience delays in the processing –how long do you need to wait to make a contract?
2. Resolving the Problem of Trust
Blockchain replaces a third party for software running on a network of computers (circles united by a line in the image above.) Every computer (or group of computers) on this network is known as a node (green circles in the image) and every node in this network has control. The information is codified or encoded for security and authentication. The information cannot be changed or removed and every node has a copy of a transaction.
This programming code in the blockchain creates a consensus mechanism. Imagine that your computer is a node, Mike’s computer in Europe is another node and we have multiple nodes around the world. In this example, we have honest people or nodes and dishonest ones. The consensus mechanism makes that there are significantly more honest nodes making it hard for the dishonest actors to attack. In other words, it is more expensive to create the attack than to gain from stolen data or money.
Now imagine that you can use this type of technology on your website or in your eStore. That’s it! Not everything related to blockchain has to be cryptocurrency. There is a world after Bitcoin. Your eStore could run in a blockchain with the help of Smart Contracts, and transform it into a Decentralized Application or Dapp. As of June 1st, 2021 there are 3511 Dapps.
3. Decentralized Applications & Smart Contract
At this point, you already know that blockchain eliminates the third party. Currently, all the centralized apps, all the apps that we use, are dependent on a third party. Google, Amazon, or Walmart are examples of a third party. They can make unilateral decisions, deciding if a listing or an account is canceled, even if the problem with the account was external or by a hijacked attack. In a decentralized Application or Dapp, all the information is managed in the Blockchain with the help of a Smart Contract. In other words, Dapps are built on Smart Contracts.
Let me give you an example, imagine a simple transaction like selling a purse online. Here is a simplified list of conditions and outcomes that have to meet:
- eStore offers the purse
- The buyer sends money to buy the bag
- eStore sends the purse to the buyer
- When the buyer receives the purse eStore receives the pay
In a Smart contract, all these interactions are transformed into a computer code that implements that contract.
Specific instructions run when the conditions are met. In this example, instruction 2 (The buyer sends money to buy the bag) has to be completed for the following conditions to run. If the bag does not arrive, the contract doesn’t run and the money returns to the buyer. In this way blockchain is the notary, verifying that the processes have been completed.
Of course, this is a simple example and Smart contracts are much more complex. Currently, the applications need to be a hybrid between technologies. For example, the part that we see as users is not in a Blockchain. The list of products or inventory neither. On the contrary, the Smart contract and sensitive information, like our personal information or credit card data, are stored in the Blockchain.
4. Blockchain Potential and Limitations
Blockchain in eCommerce represents better security and efficiency for consumers and retailers, from protecting our private information to improving the supply chain. The uses in Blockchain are many around the world, from health care to finance and even in voting processes and definitely to avoid fake reviews on ecommerce.
However, Blockchain still has limitations. Given that Smart contracts are written in computer code, the level of specialization makes accessibility difficult. There is a shortage of skilled talent to create Smart contracts, so if you are thinking about a new career, this could be your answer.
Remember 30 years ago not everyone could have a web page and now every business needs one. Even so, creating a blockchain is becoming easier to reach.
The legal and regulatory uncertainty had been constant, but more countries have recognized the necessity of creating a regulatory framework. The EU is working on Blockchain regulation that is expected to be operational in 2021/22. Probably you heard that El Salvador has been the first country to accept a cryptocurrency (Bitcoin) as a legal tender – which means that taxes may be paid with Bitcoin. Multiple countries like The United States or Canada, accept cryptocurrencies as legal but that doesn’t make it legal tender. And that doesn’t make the framework clear to use blockchain. If you are interested in Blockchain, review the regulations in your country.
Dapps that run in a public blockchain, today, are subject to the economics and volatility of that blockchain. Examples are Ethereum, Cosmo, Hyperledger, etc. The value of the cryptocurrency and its volatility affect the Dapp. You can avoid this volatility with a private blockchain but that decision will depend on the necessities and characteristics of your business.
5. Becoming a Dapp in ecommerce business
Blockchain on ecommerce is no longer just a promise. If you google “Dapp ecommerce developers” you will find multiple companies already developing Dapps for ecommerce businesses.
Blockchain concept and applicability have grown because of all the benefits and the impact in multiple industries. If you are interested in this technology, define your goals and technical requirements, explore the features and functionalities that blockchain can bring to your business. As an even endeavor, get advice from a certified specialist. And if it is the first time that you hear about blockchain, I recommend you to stay tuned on this technology and all the products around because it is the future in the management of a supply chain.