Data sharing has come a long way since the days of floppy discs. And with the advent of blockchain technology it’s progressing at an even faster pace and in new and intriguing ways.
But what is blockchain? How could it impact the way we manage information? And what does it mean in practical terms for retailers? Read on to find out.
What is Blockchain?
Limitations with data transfer and record keeping exist because we create and control data using separate storage systems. Be they computers, networks, databases or some other method, one individual or organization is always the creator and controller of the data. Which gives enormous power to those who can amass significant amounts of data.
So much of what we do relies on data. Whether we’re downloading a film, making a credit card payment or sending a file to someone via email. All these interactions are underpinned by the copy and transfer of data.
Take an import export business as an example. There are two people at either end of the transaction who may not know or trust one another. One person creates a record of the outgoing product, the other person creates a record of the product as it comes in. Instead of having an exchange of information, blockchain can be used to create a single record with both ends of the transaction recorded.
Because the data is accessible and visible to both parties and cannot be altered, individuals cannot amend or falsify any of the records. This removes the need for any third party to arbitrate the activity. The technology is also enormously scalable and reliable because it’s decentralized in innumerable computers across the world.
Think back to food traceability issues and the horsemeat scandal and you’ll see how this technology is extremely helpful.
How Does Blockchain Work?
As you might have guessed form the name, blockchain works by recording data transactions in blocks. Every ten minutes, a new block of data is added to the existing chain of blocks that have been created previously. Each new block is added in order giving a chronological sequence of data events.
Originally adopted by Bitcoin to underpin its digital currency, blockchain technology is often referred to as an immutable public distribution ledger.
This means that data:
- Cannot be erased or changed once it’s been in the blockchain for a couple of hours because so many other transactions have been built on top of it.
- Is held in the public realm not on a bank, government or company database or an individual’s hard disk drive. This means anyone can look at it. However, recipients’ and senders’ identities are protected as their records are attached to pseudonyms.
- Is not held in a master version somewhere, copied and sent to where it’s needed: it exists as synchronized copies held in computers around the world. No one copy is more complete than another.
- Comprises a ledger showing a list of all transactions that have been made.
Why All the Fuss?
While blockchain technology is closely associated with cryptocurrency, it can be used in many other ways.
After all, digital money is just information being passed from one place to another. Which makes it useful for communicating other data. As Don and Alex Tapscott, authors of Blockchain Revolution (2016) state:
“The blockchain is an incorruptible digital ledger of economic transactions that can be programmed to record not just financial transactions but virtually everything of value.”
Information held on blockchain is like a shared database that continually updates itself. Here’s a very basic but useful description of how it works:
“Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.” Blockgeeks
We’re already seeing the benefits of this kind of document sharing using the internet with the likes of Office 365 and Google Docs. People with the document link can access and amend the same document at the same time without making a copy because the document is stored on the internet and not in a database or network. Blockchain works in a similar way but is hosted on a public network of computers which brings a range of other benefits too:
By decentralizing the space where data is held, nobody needs to give permission for data to be shared or viewed: anyone can access it because it’s in the public domain making information easily verifiable. The potential for the kind of mass collaboration that this could enable is only just starting to be explored now.
Because the blockchain isn’t housed in a single location, there’s no central version of the data for a hacker to target and corrupt. It also cannot be controlled by one entity and has no single point of failure making it highly secure. Altering even a single record would take a huge amount of computing power.
Data can also be protected so that only individuals with the right key can open the locks that have been applied. This creates a private blockchain ensuring the security of the data being shared.
The Blockchain Opportunity for Retailers
This is all very interesting, but what does blockchain signify for retailers? Is it a pipedream or something you need to pay attention to right now? We look at five key retail areas and identify how far away this technology is from becoming a reality.
Supply Chain Connectivity / Assurance
Accuracy in supply chain records is of paramount importance, particularly in food production where ingredients must be tracked.
The nature of blockchain is such that it naturally records every event leading up to the purchase of an item. From where and when a lasagna was made, all the way back to the individual ingredients and their supplier.
By replacing separate, disconnected databases, blockchain provides real-time, trusted data-sharing between all concerned parties. Adding an additional layer of IoT technology can enhance blockchain further by providing the system with regular automated updates.
This is particularly valuable for retailers and consumers who want to ensure that products have been stored at a consistent temperature, sourced in a particular way, for example from fair trade or organic providers.
When every transaction carries a bank fee, your combined annual sales add up to an enormous amount of lost revenue. Accepting crypto currencies, which tend to incur lower costs, could help your business make significant savings in comparison to traditional banking.
Be warned: there are a range of challenges with this alternative coinage, ranging from insufficient e-wallet protection to wildly fluctuating cryptocurrency transfer costs which have increased from 5 cents to $5 dollars for certain transfers. Cryptocurrencies are also still volatile, so this probably should be one to watch rather an implement-right-now opportunity.
However, given that blockchain was developed specifically for cryptocurrencies, this is one area that’s a long way ahead of other potential uses for the technology.
Something that even the banks are looking into is the potential to use blockchain for B2B payments.
By building algorithms into blockchain technology, ‘smart contracts’ are being developed. These private blockchains will record the actions – including those of the seller, buyer or third parties – taking place regarding a contract.
Once all the relevant contract terms have been fulfilled, payment can be made automatically replacing paperwork with digital data transfer.
Proof of concept is still required but the R3 Consortium, with 15 participating banks, are currently evaluating blockchain’s potential to replace traditional letters of credit.
Proof of Ownership
Counterfeiting costs. Particularly when you produce high-end items.
Blockchain’s end-to-end visibility means it can be used to track the origination of an item and its authenticity. High-end fashion house Babyghost are using near-field communication tags to enable items to be verified at every touchpoint using blockchain technology.
This isn’t a realistic application for low-value items but for US jeweler Helzberg Diamonds, it’s certainly been worth protecting their merchandise with this tech.
Is it Time to Start Investing in Blockchain?
In short, yes, but it does depend on your business. Although blockchain might seem like technology of the future it’s already been around for over a decade. As with all technology, early adopters implementing blockchain solutions bear the brunt of the cost of developing the technology. But as its use increases it will become more viable for a wider range of retailers.
Does this mean out with your old technology and in with the new? Not quite.
There are ways to incorporate blockchain with your existing platforms making the adoption of elements of this technology more affordable. By adding another layer to add to your capabilities, rather than a wholesale change, you can position your business to reap the benefits of this new approach to data sharing.
Our view is to keep your eye on blockchain developments and be ready to work with a specialist provider when the time’s right.