Blockchain: Advantages and Disadvantages

How can and will blockchain impact the e-commerce sphere?

What would happen to your business if you started to implement blockchain in all of your processes?

 

E-commerce is a highly competitive and capital-intensive industry. Purchasing goods remotely and selling to customers from behind a computer screen can be risky at times. Trust and transparency among all partners and customers are critical to business success.

 

Previously, though, this trust has been lacking. Costs for e-commerce goods have been rising due to all of the ghost middlemen taking a cut of the profit and the lack of transparency in logistics, production, and pricing. If just one partner overcharges or doesn’t deliver, the whole value chain can start to fall apart—and merchants and customers get the brunt of it.

 

But blockchain can help solve these concerns.

 

Starting with cryptocurrency and moving into other spheres, blockchain has now begun to permeate every aspect of business. Its properties are being used to completely revolutionize how the e-commerce value chain works.

 

What does the future of e-commerce and blockchain look like?

 

What is blockchain?

Blockchain is more than just Bitcoin (though blockchain’s initial use was to power cryptocurrencies). Blockchain is a technology that builds a public ledger of data and changes in a business’s full supply chain. It’s often referred to as “the internet of value,” because it stores all of the value of a single unit, transaction, or process.

 

Blockchain hosts “blocks” of new and previous information. Data can’t be edited, adjusted, or changed, so anything that goes in is there permanently. This creates a completely transparent system that allows all parties to see the records of that specific operation.

 

Important notes about blockchain:

  • Blockchain is network-driven. This means that its efficiency is proportional to the number of partners along the chain that are using it.
  • Blockchain builds a “transaction ledger.” It creates a public record of all entered data.
  • Blockchain tech is immutable (unchangeable). Nothing can be edited or deleted. Everything that happens in the blockchain is stored permanently.
  • Blockchain is trustless. You’re not relying on trust—you’re relying on transparent data.
  • Blockchain is secured by cryptography. This makes it nearly impossible to hack.

 

Those blockchain properties are all useful, especially for e-commerce businesses that previously relied on trust in order to do business. So what are the advantages of blockchain for your e-commerce business?

 

What are the advantages of blockchain?

1. Transparency

One of the greatest advantages of blockchain is its ability to make the supply chain more transparent.

 

Transparency has always been a problem for online merchants. You buy goods from overseas factories without knowing anything about production, supply, or logistics. You ship with international carriers without knowing how quickly and effectively they’re working. You’re not sure how many middlemen are providing supplies and putting their hand in the pot.

 

A group of 4 young professionals having a meeting in a computer room

 

Buying products online can feel like you’re shooting in the dark. You have to rely on trust with your partners to get the best goods at the lowest price. But, unfortunately, all too often this trust falls to the wayside in terms of finances and logistics.

 

Blockchain pulls together the information of all your partners to better understand what is going on at each step of the process. All partners can input their information and data, which is stored in multiple public “blocks.” This takes the “problem of trust” out of the supply chain. Every partner can see the data going into the operations and logistics of that one product.

 

For example, you make hats. The supplier of cotton inputs all of the data about cotton sourcing, collection, and dyeing. The producer inputs all of the data about their factory and workers who assembled the hat. The transporter includes info about packing, labeling, loading, unloading, and ship times. The merchant (you) can then input sales and marketing information. The customer can then go in and see where their product came from and each of the processes that went into making it.

 

Every partner along the process can see the information from the partners before and after it on the supply chain. This is a secure, transparent way to rely on data to drive your business.

 

 

"Starting with cryptocurrency and moving into other spheres,  blockchain has now begun to permeate every aspect of business."   Click to Tweet

 

 

2. Cost reduction

One of the biggest concerns of e-commerce is all of the middlemen in the supply chain. There are too many hands in the pot looking to get a cut of the profit. This raises the costs for merchants and customers—which makes it harder for you to compete in the aggressive marketplace.

 

Because of blockchain’s increased transparency, costs can go down. Blockchain shows exactly what partners are doing what and where their expenses are coming from. This gets rid of ghost partners who are taking some of your money without providing any value. Blockchain can also help you see where there are lags in your process that can be fixed to streamline processes and costs.

 

Plus, you can actually transfer money securely over blockchain (aka cryptocurrency). This adds security to your financials while cutting down on external costs.

 

For example, if you purchase products online, you usually have to pay credit card fees of around 2.9%. This can quickly add up and eat away at your profit margin. Blockchain takes away these fees by allowing for secure payment transferring without the need for credit card transactions.

 

3. Security  

Even though blockchain is publically visible, it’s virtually un-hackable. It’s wrapped in cryptography, which is one of the most secure forms of encryption. This means that hackers can’t get in and change or edit data, which further boosts the trustworthiness and security of your data ledger.

 

Even if someone could hack the system, the blockchain would store all old and new changes—so your original information would be easily salvageable.

 

4. Social Responsibility

If you are an eco-friendly or socially responsible company, the transparency that comes from blockchains can help prove your credibility and legitimacy. You and your customers can look at all of the data from the people who are making the product. This can provide information about green processes, labor laws, and other social factors.

 

For example, your e-commerce company has a “green mission,” where you aim to reduce energy in all processes from A to Z. Blockchain can show how your supplier, producers, and shippers are making strides to reduce energy. You can spot processes that can be analyzed or altered to be more aligned with your mission. You can then show this blockchain info to customers to prove the legitimacy of your green efforts.

 

The more transparent your supply chain, the more you can stay aligned with your social missions.

 

5. Marketing

Because of the reduced costs and increased transparency, your business has more resources available for marketing and growth.

 

Blockchain is also a strong way to market to your customers. You can give customers access to the blockchain information, so they can see where your products are coming from and how they’re produced. This is a great way to open up the transparency to your customers, who are becoming less and less trusting of their online companies. This gives your customers all the info they need to make an informed purchasing decision.

 

You can also host loyalty programs with blockchain. People can get cash or points right in their digital wallets, delivered instantly by the blockchain. The same is true of referral programs, as the new customer and referring customer both get your business’s reward right to their digital wallet.

 

The more data you have, the easier it is to market and advertise to your customer.

 

A chain made up of a web of digital connections

 

What are the challenges of blockchain?

Despite blockchain’s number of current and growing advantages, there are still some challenges with dealing with a new technology.

 

Firstly, blockchain is network-driven. It only works if everyone on your supply chain agrees to use it. The purpose is to condense all data on one secure platform. If even one partner isn’t using it, you could have a gap in your blockchain that renders it less effective.  

 

Secondly, the future of blockchain is still unclear. When Bitcoin first launched, people weren’t sure what it would look like or how it would grow. It also relied on the network effect—and it would only work if there were businesses willing to accept Bitcoin as a viable form of payment.

 

The same is true of for most of the other forms of blockchain payment available today. It’s still to be seen how effective blockchain can be at building a network of business support.

 

Conclusion

Nevertheless, blockchain is growing—and it’s growing rapidly. Amazon and Alibaba already have plans to make blockchain a part of their future technology endeavors. This means that smaller companies will need to take part in blockchain as well in order to partner and work with these major e-commerce beasts.  

 

We still have to watch how blockchain evolves, but changes and advancements are not to be ignored.

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