Reshaping The Retail Industry One Blockchain at a Timebr>
The pandemic brought a massive uptick to online shopping, and today’s cautious consumers want transparent, secure, and traceable transactions throughout their (online) buyer’s journey. Blockchains give consumers what they want – a place to share, store, and spend their assets. In fact, the retail blockchain market is projected to hit $32B USD by 2027, according to a recent report by Research and Markets. When you consider this figure was only $325M in 2020, it signifies major changes ahead for retailers and consumers alike. Large retailers like Home Depot, Newegg, Overstock, Macy’s, and Shopify are already doing business on the blockchain, and there’s rumblings Amazon may be next.
However, it is important to understand that the centralized architecture of many of today’s leading blockchain networks raises serious security, speed, scalability, and environmental issues. Within a centralized blockchain, transactions must occur in parallel and transaction data must be recorded, confirmed, and stored on every node before being processed. As more users join and more transactions occur, this process demands more energy and creates a significant lag that makes facilitating thousands of transactions per second impossible.
Alternatively, decentralized blockchains allow transactions to occur simultaneously and independent of each other in a peer-to-peer and parallel fashion. Their architecture enables thousands of transactions to occur simultaneously and scale quickly, and that’s a huge benefit for retailers and ecommerce businesses who require speed.
Educating retailers and consumers about the safety and security of decentralized blockchains will prove critical to their acceptance. These blockchains offer additional benefits to retailers and consumers including:
Low to Zero Transaction Fees:
Decentralized blockchains allow transactions to occur between the buyer and seller directly. There is no middleman involved in facilitating the transaction, which means there are no additional fees incurred by the retailer (or the consumer) for holding or withdrawing funds, charging taxes, settling transactions, or converting currencies. In some countries where transaction fees can be as high as 12%, imagine the savings to both parties when transaction rates are less than .1% (if not zero).
Secure and Private Transactions:
Fiat currencies in bank accounts are not protected from an attack nor are they anonymous. That means data is exposed to hackers. Decentralized blockchains allow consumers to make transactions anonymously and prevent hackers from tracing a transaction back to any specific individual. That is not possible on a centralized blockchain since all transaction data must be recorded on-chain. It is also one of the main reasons ransomware attacks are successful.
Ecommerce and retailers accepting traditional currencies and/or a wire exchange are unable to settle a transaction or collect payment immediately. Payments remain pending until the amount is verified, validated, and transferred by all parties which can take several hours to several days. This means retailers must wait to get paid; decentralized blockchains eliminate processing speed issues by allowing payments to be completed in less than 250ms.
Two Main Obstacles to Blockchain Adoption: Uncertainty and Fluctuation
With the rise in ransomware attacks, it is not surprising that people remain hesitant to join the blockchain bandwagon. Traditional banking is accompanied with government regulations and consumer protection clauses that allow the average investor to feel secure. However, the blockchain and crypto space is still largely unregulated – and that makes retailers and consumers nervous. Bitcoin is gradually becoming more mainstream. For instance, consumers can pay for a coffee at McDonald’s or Starbucks in bitcoin (via an app). U.S. government agencies and lawmakers continue to discuss cryptocurrency regulation, while El Salvador has already accepted bitcoin as a legal tender. However, the need to comply with existing regulatory framework has prevented mainstream adoption to crypto.
Fluctuation is a second hurdle. This is because the value of bitcoin – and the 8,000 other cryptocurrencies currently available – fluctuates daily. While fiat markets and traditional exchanges also fluctuate, within the crypto world these are significantly more dramatic with values changing by the second. A solution to this issue is the use of stablecoins, which will improve efficiency and reach within the retail industry. A stablecoin is a type of cryptocurrency whose value is tied to an outside asset – such as fiat currency or a gold – to stabilize the price. Stablecoins are becoming increasingly popular because they allow individuals to quickly switch between a volatile cryptocurrency and a stablecoin to protect the value of the holding(s). They also offer a way to reduce the risk to crypto assets without ever needing to leave the crypto ecosystem itself.
Blockchains will eventually reshape global commerce by transforming how tangible (and digital) merchandise is bought, transferred, and sold between consumers. Until then, there are many emerging technologies that have the power to propel blockchain adoption forward and put retailers and consumers minds at ease.
White label custodians protect the digital assets of all parties involved while eliminating fraud. Retailers considering blockchain adoption should use, provide, and accept hot and cold wallets via trusted white label custodians that leverage know your customer (KYC) and anti-money laundering (AML) solutions. Eliminating passwords and keys is also essential to protecting retailers and consumers from ransomware attacks. Decentralized identity and zero-trust, passwordless solutions allow user accessibility at any time, from any device, and in some cases, with only a fingerprint. These next-generation technologies offer retailers and consumers protection from hackers, while saving money, headaches, and time in the process.
Blockchain can also help the retail industry reinvent the customer experience and meet customer retention goals through an improved loyalty program. The global Loyalty Management market is estimated to be $8B USD in 2021 and is projected to more than double to $18B USD by 2026. Blockchain technology adds security, allowing customers to exchange tokens for rewards without compromising private data. It’s also more cost efficient as smart contracts automatically implement the terms of the loyalty program and increase the flexibility of the reward program itself.
Before the fiat system arrived, people exchanged goods and services by bartering with one another. Payments were made in gold, silver, and nickel, and exchanges were verified and confirmed directly by both parties. Decentralized blockchains can be seen in a similar light; they allow users to retain control over their own assets and to make transactions directly with other users (peer-to-peer).
In the 2021 Global Crypto Adoption Index report conducted by Chainanalysis, crypto adoption among retailers surged 881% in the last year and has grown more than 2300% since Q3 of 2019. Those are astounding numbers that signify retailers and consumers are ready to embrace the crypto space – a driver for helping the market see the enormous opportunities that blockchain technology brings to our global economy. In the meantime, educating retailers and consumers about the safety and security of decentralized blockchains will prove critical to their acceptance.