This is the final blog in a 2-part series on blockchain technology.
Blockchain technology has the potential to do for businesses and governments what the internet has done for individuals: define a new way of doing things. The internet, as we all know, has enabled us to buy, borrow, and sell almost anything – yes, even your organic kale! – without leaving home. In the process, the internet has transformed global commerce; however, the way businesses (and governments) conduct basic transactions, execute contracts, and track records has not really changed in the last 70 years. Business, legal and social contracts are still dependent on 3rd party guarantors, record keepers, market makers, and clearing houses. These are the risk arbitrators. But the services these organizations provide come at a cost. Intermediation creates an inherent friction in the system; it not only induces inefficiencies and slows down the pace of commerce, but also generates a cost often borne by consumers. Blockchain has the potential change this.
Since the introduction of blockchain in 2009 as a “peer-to-peer electronic cash system” (one without need for an intermediary), this technology has had a tumultuous start. Blockchain received early bad press when online hackers used it to collect ransom for locking people and companies out of their computers and networks. Even blockchain’s origin has been shrouded in mystery with the primary creator of the algorithm behind Bitcoin hidden behind a pseudonym. Yet somehow, blockchain has become a gathering storm on the digital horizon, as the next disruptive technology that will transform business and governments as we know them. Blockchain promises to cut intermediaries, speed up transactions, make data tamper-proof, prevent fraud (interesting, considering blockchain’s early use), offer transparent audit, streamline business and government operations, improve reliability, and reduce transaction costs.
What can blockchain do for retail?
Blockchain has unbounded potential within retail. It can securely record ownership, from deeds, to intellectual property, to actual items. It can enable “smart contracts” for vendors and real estate transactions. It can bring transparency to the entire supply chain. The technology can help build trust, reduce fraud, and enable transparency, while lowering cost of transactions. Here are some examples where blockchain is showing promise in retail:
- Authentication against Counterfeiting
Blockchain can be used as a public ledger to register all new products, warranties, and their transfer of ownership. Blockchain-supported technology such as Blockverify can be used to tag products whenever a consumer makes a purchase. This in turn can create a chain of authenticated ownership. It will prevent counterfeiting, so if the product was ever stolen or lost, it will be possible to trace any subsequent transaction on the blockchain, instantly notifying the legitimate owner of its whereabouts.
All of this may have a significant impact on collectibles (e.g., sports items), art, and even luxury goods (high-end fashion handbags, apparel and jewelry). Equally intriguing, independent artists and content creators will be able to use the web to register and transact in their intellectual property. Music, video, films, articles could all be registered in this way to form a fool-proof intellectual property audit trail.
Everledger, a company that uses blockchain technology, is a permanent register for diamond certification and related transaction history. It provides verification for insurance companies, owners, claimants, and law enforcement. According to the company, £45 billion is lost annually in the US and Europe because of insurance fraud, while £100 million is paid out annually in relation to jewelry theft. Everledger’s use of blockchain technology assigns each asset a unique identifier that is difficult to destroy or replicate. This implementation uses smart contracts, a hybrid of public and private blockchains, which delivers the best of both worlds; an accountable and highly secure public blockchain and the complexity of a smart-contract-enabled private one.
- Loyalty and Buying Habits
What if consumers could track their loyalty information (points – additions / subtractions, offers) real-time across all retailers’ loyalty programs in one place? It could be possible with blockchain. Extending this example further, what if these points could be used across vendors with an agreed exchange rate built into smart contracts on a blockchain? Allowing consumers to use points where they see fit, outside of a single loyalty system, adds value for consumers and the companies that maintain the loyalty systems. Additionally, by providing visibility into total buying habits (how a customer is shopping across brands), this technology could help organizations better understand customer interaction.
- Brand Management
Consumers today are demanding more transparency around where and how the products they love are made. Retailers can use blockchain to build brand trust through verified manufacturing and assembly item tracking. The inherent transparency of blockchain can help make this level of trust possible. Furthermore, it will allow for claims such as “organic fish” and “child-labor free apparel” to be easily tracked and authenticated.
- Supply Chain Transparency
Blockchain can help track shipments at every stage, providing the complete journey of a product. Multiple participants in the transaction share the same ledger. This “one version of the truth” greatly reduces reconciliation, lost shipments, complex tracking, funding delays, and the excessive cost of intermediaries, such as bank letters of credit. Integrated smart contracts allow for immediate event-based funding without waiting for one or more third party validations. This applies to not only named brand product, but private label product, as well.
What are the challenges to adoption of blockchain?
While blockchain has come a long way since its mysterious origins, the technology is still at a crossroads, and its acceptance by governments and a wider business community is not widespread. The recent actions by the Chinese government are case in point: The authorities in China have halted all transactions in bitcoins (the most popular digital currency associated with blockchain) and declared illegal any ICOs (initial coin offering). This is a significant setback, and it will likely continue to fester doubts about blockchain. However, it should be noted that the Chinese Government has been working on their own blockchain solutions.
As if government hostility and skepticism was not enough of a challenge, bitcoin must compete with deep-seated economic, governmental, and social systems, that will be difficult to upend. The technology behind the internet took about 20 years to finally be brought to the global mainstream, and blockchain will follow a similar path: early adopter proof of concepts, special use applications, shared networks and repositories, and then finally mainstream integrated systems and platforms.
With the rapid acceleration of technological advances and adoption, there remains significant debate about whether blockchain will take 3-5 years or 10+ years to drive major value for global business, but few argue that impact is less than groundbreaking. The real winners will likely be the platform and network providers who make these powerful ledgers easy to create, adopt, manage, and leverage for the enterprise and consumers.
For retail executives, it is certainly important to understand this game changing technology and the effects it will have businesses and the overall retail industry. Unlike the internet that provided new access to customers and new sales channels, the greatest benefit of blockchain will likely be twofold:
- Greater cost efficiencies, improved security, lower cost of audit/compliance, and improved supply chain transparencies
- Ability to work smarter with more accurate, secured, and shared data
The leading companies in this new arena will have higher profitability and more powerful analytics, especially when combined with artificial intelligence, robotics, and IoT (Internet of Things).
Click here to learn more about our Next Generation IT service offering. Want to continue the conversation? Contact us at email@example.com, and read the first three parts of our series on digital transformation.