Pros and Cons of Using Blockchain for Data Accessibility and Traceability
Blockchain is a hot topic in ecommerce today, discussed in corporate blogs and at IT and trade conferences, and studied and researched by various institutions and professional industry organizations. Many sources tout the benefits that blockchain represents to ecommerce, and this post will surely shed some light on them as well.
But when it comes to googling specific case studies of blockchain adoption in ecommerce, at least at the time of writing this post (mid-year 2022), there is virtually nothing online. Why? What is preventing blockchain adoption in ecommerce? Let’s explore the situation.
The blockchain is a distributed database that allows for secure, transparent,”
and tamper-proof digital transactions.
eCommerce Counterfeit Problems Are More About Trust Than Technology
For thousands of years, there have been centralized ways of recording property transactions. By opening medieval property books, you can find out who owned an ancient building in the past. It would not occur to you to doubt that the real owners’ names are recorded there. In other words, you trust the records in these ancient registries.
But when it comes to recording transactions in today's modern ecommerce world, why do we need some other trust mechanism, such as blockchain technology, than we do for government or private registries? It comes down to a lack of trust, and the fact that the vast majority of our data is now maintained in the form of electronic records within databases. Whether it’s true or not, the general perception is that this data is easy to alter with the help of hackers or even by bribing employees.
The problem with trust is particularly serious in supply chains. Customers want to know before they press the “buy” button that they are ordering an authentic product and not a fake. In fact, no one can deny that a real problem with trust in the quality of ecommerce goods does exist. Many people have encountered a case at least once when a product bought in an online store turned out to be an imitation of the real brand.
This is a peculiarity of online trade, because in an offline, brick-and-mortar store, you can hold the product in your hands and at least visually make sure of its quality. For example, shoe afficionados can easily identify a knockoff by the cheap materials, poor stitching, and other signs of inferior quality. If you have any doubts when you examine it, you simply won’t buy a product with questionable authenticity.
Until the idea of blockchain emerged, anti-counterfeiting technologies included measures taken by manufacturers and special security features like holograms, watermarks, special reliefs, and even radio-frequency identification tags (RFID). QR codes are a high-tech means of fighting counterfeiting, which provides not only a system of marking and ensuring traceability of goods, but also easily accessible information about the product for consumers.
Does blockchain seem more appealing than these other, more traditional methods of product tracing and anti-counterfeiting? Perhaps the answer should be evaluated in terms of costs versus results. After all, the purpose of trade is to maximize margin, sales turnover, and customer satisfaction, not to fight counterfeiting at all costs. If traditional anti-theft methods offer an acceptable level of reliability, then a move to blockchain may not be economically justifiable right now.
Blockchain technology is still in its infancy and there are several issues that need to be addressed before it can be widely adopted.”
Potential Benefits of Blockchain in eCommerce
Blockchain technology has the ability to create "trustless" systems in various business models, including B2C, B2B, C2C, and the marketplace. Trustless systems are those in which each party is confident that the other parties will fulfill their obligations without the need for a central authority to oversee the transaction.
Blockchain technology allows for the implementation of decentralized systems that can be operated without dedicated oversight. This enables businesses to create a trusted network of operations throughout their entire supply chain. In addition, blockchain provides unified access to immutable data, such as orders, transactions, and payments, allowing this information to be shared across different subsystems. The accessibility and traceability of data and payments are essential in today's business world.
The use of blockchain technology in ecommerce provides numerous benefits to businesses and consumers alike. For businesses, blockchain improves supply chain management, reduces fraudulent activity, and increases transparency. For consumers, blockchain is a more secure, efficient way to make purchases and track shipments.
This is due to the fact that, in a blockchain system, all transactions are recorded on a shared ledger, visible to all parties.
It is this transparency that makes it more difficult for one party to cheat or defraud the others. Marketplaces are among the business models in which blockchain has significant benefits. When implemented and used by all parties involved in a transaction, blockchain has the potential to revolutionize the way businesses operate in the marketplace model.
Blockchain is poised to become a major force in the marketplace model. What are some of the benefits that blockchain brings to businesses operating in this model? Let's take a closer look.
- Improves supply chain management. Blockchain helps businesses track products and components throughout their entire supply chain, from manufacturing to delivery. This allows companies to quickly and easily identify any issues that arise, such as delays or problems with quality control. In addition, blockchain-based supply chain management reduces the reliance on paper records, which can be lost or stolen.
- Reduces fraudulent activity. Blockchain provides a secure, tamper-proof way to record transactions. This enables businesses to verify the identity of customers and suppliers, as well as track the movement of products and payments. This helps reduce fraudulent activity, such as charge-backs and counterfeit goods.
- Increases transparency. Blockchain-based systems are transparent by design. This facilitates sharing information with customers and suppliers in an open, honest way. In addition, blockchain creates a public record of customer reviews and ratings. This gives businesses the opportunity to build trust with their customers and show that they are committed to providing a positive experience.
- Provides data traceability. Data traceability is another important advantage of blockchain technology. Because all transactions are recorded on a public ledger, it is possible to track the history of any piece of data stored on the blockchain. This is very useful in supply chain management, since it allows businesses to track the origins of their products, for example, to ensure they were obtained from ethical, sustainable sources.
These benefits outline the potential of blockchain, although in some instances, its implementation can be complicated and expensive, not justifying the investment.
All Theory, Dear Friend, Is Gray, but the Golden Tree of Life Springs Ever Green
To me, this quotation from Faust, a tragedy written by Johann Wolfgang Goethe, reflects the metaphorical rebirth that blockchain is poised to produce, even though in its present, shadowy theoretical state, there are many technological and legislative constraints and limitations to overcome before implementation. And since I am not a philosopher, I will stick with the technological challenges of introducing blockchain into commerce.
To be sure, the biggest technological challenge is that blockchain tree structures grow very fast. There would quickly come a time when gigantic computing power would be required to validate transactions, which, of course, is not appropriate for normal businesses and their customers.
Blockchain impact on privacy and security in ecommerce
Transactions are generally associated with pseudonym usernames in public blockchain systems. If ecommerce is to be enhanced with smart contracts, security concerns must be addressed regarding the secure implementation, fair execution, and privacy of these transactions.
One key concern is how accessible and traceable data is on a public blockchain. In a B2C setting, for example, businesses need to know whether customer data is accessible and traceable. In a B2B setting, companies need to ensure their data is not shared with competitors. And in a C2C or marketplace setting, individuals need to be able to track their own data and ensure it is not being used without their permission.
Blockchain technology also comes with a number of new security risks, including miners taking control of the infrastructure, private keys being lost or stolen, double-spending attacks, or flaws in smart contracts.
Blockchain challenges of implementing traceability
Traceability, as defined by ISO 9001:2000, is the ability to trace the history, application, or location of an entity throughout its entire supply chain.”
An efficient blockchain data tracking solution has the following features:
- Trustlessness. The data tracking solution does not rely on any overarching entity or third party for its correctness.
- Tamper-proof. Once data is committed to the tracking solution, it is essentially impossible to modify or delete it.
- Independence. The tracking solution is not tied to any particular blockchain platform or application.
These features make blockchain seem like an ideal solution for organizations seeking to improve their data security and ensure compliance with regulations such as GDPR. However, there are also some challenges to consider when implementing a blockchain system.
One of the biggest factors to consider is scalability, as the decentralized nature of blockchain can make it difficult to process large amounts of data in a timely manner. Additionally, blockchain systems are often complex and require specialized knowledge to set up and maintain. There is also the challenge of getting buy-in from all parties involved in a blockchain system, as everyone needs to agree on the rules that govern the network.
The final challenge to blockchain is traceability, as input data vulnerabilities exist. Even though the data remains unchanged over time, blockchain has no verification mechanism to prove that the input data is correct.
Mechanisms must be in place to verify the integrity and veracity of the underlying data, and traceability solutions must be implemented, independent of the data recorded on the blockchain network.”
Examples of Blockchain Implementation in eCommerce
If you google the subheading above, the search results will return news about a patent Amazon filed for a distributed ledger system (DLT) for consumer goods named Authenticator. Quite interesting is the fact that Amazon applied for the patent quite long ago, in 2017, but it wasn't until 2020 that the patent was published. Obviously, this was done to get ahead of the competition, even before blockchain technology was actually implemented in commerce.
You can view the contents of Amazon patent #US 20200242547 for yourself on the U.S. Patent and Trademark Office website. Let me tell you, however, the patent is written in very complicated, bureaucratic language, so chances are, you won't want to read it until the end.
Overall, the Amazon patent describes an enterprise services platform that allows trading parties to map their global supply chains. Using this mapping provides real-time visibility of supply chains from the point of production to the end customer. The platform includes roles for supply chain parties (e.g., manufacturer, courier, distributor, end user, or secondary user) to register with the certification authority and integrate existing or new commodity processing systems with a set of application programming interfaces (APIs) that consumes and stores various supply chain events (including test reports and certificates) as goods move through the supply chain.
The certification authority can validate events from nodules in the supply chain and provide a secure, distributed ledger on the network. Access to the distributed ledger can be governed by permission controls, ensuring confidentiality of the supply chain's own data.
As opposed to existing supply chain verification systems, Amazon argues that its distributed system offers a compelling solution. DLT can protect data from change, eliminate single points of failure, and avoid management problems of centralized power, such as bottlenecks.
Whether this actually works, I cannot say, because my search in Google returned no links of the implementation of Amazon’s patented blockchain system nor any publicly announced results.
Probably the most important question now is whether there is an easier way to try blockchain technology for your ecommerce site. If you are the owner of a B2B portal that's thirsty for Web3 and blockchain technologies like Ethereum, then it makes sense to start with implementing tokens as rewards.
From my point of view, one of the first steps is implementing tokenized loyalty programs for customers with digital assets like NFTs. The team at Virto DevLabs will help you find the right loyalty program software that supports tokens. We also assess your compatibility with the Virto ecommerce solution. Once this has been completed successfully on our end… congratulations! Now the second phase begins — running pilots or small-scale projects among a select group of participating clients, then rolling out initiatives more widely across all client types.
The way businesses operate is changing rapidly, and new technologies are emerging that are changing the landscape completely. One such technology is blockchain, which has the potential to revolutionize the way businesses operate.
There are many discussions about using blockchain as a ledger for digital transactions in ecommerce. However, blockchain technology is still in its infancy and there are serious technological issues that need to be addressed before it can be widely adopted.
For consumers and B2B clients, one of the main issues is blockchain accessibility. The technology is still not well understood by the general public and many business owners, and there are relatively few options for businesses to get started with it. This lack of accessibility means that blockchain adoption is likely to be slow in its early stages.
Even so, blockchain has many potential advantages. Most importantly, it is resistant to data tampering, which means that once a transaction is recorded, it cannot be altered or deleted. I am optimistic about the future implementation of blockchain in ecommerce, and I will definitely keep you posted about cases we implement for Virto Commerce clients.