The potential of blockchain for international e-commerce

The game-changing implications of blockchain lend themselves to diverse industries and sectors. The academic community has now begun to explore some of the commercial possibilities, as well as critiquing and helping to refine the core technology. This research includes the potential for blockchain and decentralised technologies to revolutionise e-commerce – with one recent study making direct reference to BitBoost Marketplace solution for digital commerce.

Assessing the potential of blockchain for international e-commerce.
An introduction to an academic work about blockchain and e-commerce

With the rise in prominence of cryptocurrencies over 2017 and 2018, blockchain technology has been gaining more attention from researchers as well as in the media and among regulators. Some of this academic work has – quite naturally – focused on the possibilities that distributed ledger technology (DLT) holds out for online commerce. These studies are obviously of interest to BitBoost and its community, since our blockchain e-commerce marketplace was created to break down the barriers inherent in the current centralised model of internet shopping.

We would like to share a recently-published academic work about the application of blockchain to international commerce, written by Jose Castelao López, a Masters student of International Commerce at the Escuela Universitaria de Estudios Empresariales (Vigo, Spain). López’s study gives an overview of the sector and technology, and makes specific reference to BBM in this context. Thanks for the shout out!

If you read Spanish, we recommend you take a look at the thesis in full. You can find it here. For those who don’t read Spanish or who just want the short version, here’s a summary of some of the key points of the paper.

Efficiencies of DLT

Today’s enterprise networks are typically inefficient, due the requirement that every participant maintains their own transaction record in isolation from all the others. This means that much unnecessary effort is expended in synchronising records, through various onerous processes and middlemen, and the system is always prone to errors and syncing problems.

Blockchain offers greater efficiency for data transfer and storage, both for individuals and corporations. All the same, this does not mean that every company should adopt a DLT solution. In many cases, this will not be necessary or worth the effort. According to López, at least three of the following factors should be present before a blockchain solution is sought:

  1. Multiple parties share data.
  2. Multiple parties update data.
  3. Requirement for verification.
  4. Intermediaries add complexity.
  5. Interactions are time sensitive.
  6. Transactions created by different participants interact with each other.

If enough of the necessary conditions are met, blockchain can profitably disrupt two major elements of the traditional e-commerce landscape: payments and intermediation.

Blockchain and e-commerce payments

Blockchain’s very first use case was in building a payment network, Bitcoin. Unsurprisingly, bitcoin was used for e-commerce right from its earliest days. (The famous ‘Bitcoin Pizza’ transaction took place on 22 May 2010, a little over a year since Satoshi launched the Bitcoin network. BitPay, which provides bitcoin payment processing services for merchants, was founded a year later in May 2011.)

Bitcoin was soon followed by many other cryptocurrencies. One of the major concerns of any company that operates online is the fees that have to be paid to financial intermediaries. These fees have a real impact on profits, especially for low-margin businesses, and have to be passed on to the customer in the price of the products and services being sold. Fees for blockchain payments are typically significantly lower than when using traditional financial services. (This research was carried out before the last BTC scaling and fees crisis at the end of last year, which has since been resolved with the implementation of SegWit and transaction batching by exchanges.) The potential for low-fee transactions has many benefits for e-commerce companies.

Blockchains as intermediaries for e-commerce

The second area of interest and application for blockchain technology in online commerce is in disintermediating merchant-customer relationships.

At present, any SME that wants to sell inventory online has two options:

  • To create their own store with a dedicated website
  • To create a store on an established marketplace platform, such as Amazon, eBay or Alibaba.

The latter option tends to be more successful in terms of sales, due to the greater network effect of these large corporations, but comes at a high cost to the merchant. These intermediaries, who control around 40% of total global e-commerce, exact heavy commission fees from their sellers, dramatically reducing their profit margins. There have also been reports of routine harsh and unfair practices – see the various Amazon controversies.

This is exactly the problem that BitBoost Marketplace solution is designed to address, as well as other blockchain-based stores like OpenBazaar. These offer a true peer-to-peer transaction protocol that removes middlemen at key points, while trust and confidence are maintained by the unique features of the blockchain. A further advantage of this technology is the relative privacy it offers over centralised marketplaces. Since there is no registration process, the customer does not need to provide the company with any personal information to use the service, and blockchain payments can be made from any number of different (and anonymous) addresses. Hacking and data leaks are solved by ensuring the customer isn’t required to give up their data in the first place – something that is becoming ever more important in the age of Cambridge Analytica and the new GDPR laws.

Conclusion

It is gratifying to see that not only are the general principles that led to the creation of BitBoost Marketplace solution being validated by academic research, but that BBM has explicitly been identified as one of the platforms spearheading the new blockchain e-commerce movement in this study. The thesis is an intriguing piece of work that explores the potential of blockchain for online retail in some detail. If you read Spanish, make sure you don’t miss out!