Blockchain can be a powerful enabler for businesses with advantages for consumers as well
By Kalpana B
Blockchain has the potential to impact businesses and society by providing a secure, direct way of exchanging anything of value, such as money, intellectual property and other assets, without any intermediaries. The technology has been adopted and leveraged by the D2C sector to enhance existing processes and curate unique experiences for their customers.
While the industry has seen a profound impact on both – business and customer-centricuse cases, blockchain in particular, shows immense promise at enhancing supply chain economies, by increasing efficiency, value and transparency. It can also act as a single source of truth for customers, by empowering them to ensure that the products they purchase are indeed what they claim to be.
The global blockchain in retail market size was valued at $83 million in 2018 and is projected to reach $11.18 billion by 2026, registering a CAGR of 84.6% from 2019 to 2026. There have been several factors driving and restraining the blockchain boom. While improved transparency in transactions and enhanced customer and identity management have managed to garner interest amongst stakeholders, a lack of understanding of the technology and associated cyber threats still pose question marks.
Let us try to understand blockchain with the help of a short story.
A group of friends namely Tom, Harry, Sam, Jack and Peter meet for dinner. After the meal, Tom pays the bill and all of them agree to split the bill amount. The next day, when Harry sends his share to Tom via an online money transfer, the transaction goes through without any glitches. But when Sam, Jack, and Peter send their respective shares to Tom, their transactions don’t go through. This could be because of technical issues such as an unsecured payment gateway or transfer limit getting exceeded.
The failure In transferring money created an unnecessary misunderstanding among the friends. To solve this and to avoid such misunderstandings in the future, the friends resort to maintaining a smart ledger system where everyone would register their respective records. Every time they would spend money, each would track it in their respective ledgers. In case of any discrepancies, they would cross-check all ledgers and would choose the most common record as correct.
Blockchain works exactly like the Smart Ledger system, except that the records are stored digitally in a de-centralised system, which refers to the transfer of authority and decision making from a centralised entity (person, organisation, or group thereof) to a distributed network.
The mechanics of blockchain can be further broken down into:
TRANSACTION: It takes place in digital form among the parties in the network.
VERIFICATION: Depending on the network’s configuration, the transactions are verified.
STRUCTURE: Each of the blocks are identified by a unique hash number. It contains a header, a reference to the previous block’s hash, and a group of transactions. The sequence of linked hashes creates a secure, interdependent chain.
VALIDATION: The blocks are validated to be added to the blockchain. It is performed through proof of work.
BLOCKCHAIN MINING: For blocks to be validated and added to the blockchain, miners solve a complex mathematical problem called ‘proof of work’.
THE CHAIN: After the block is validated, it is distributed through the network.
BUILT-IN DEFENCE: Whenever a malicious miner tries to submit an altered block, the hash function of that block, and the following blocks, get changed. The other nodes detect these changes and reject the block, preventing corruption.
Blockchain in retail
Many retail and D2C brands have leveraged blockchain to enhance existing processes, create unique experiences, increase brand awareness, encourage interaction and create interest and exclusivity for their brands and products. Nike has patented a system of blockchain-compatible sneakers dubbed CryptoKicks, wherein when a customer buys a pair of CryptoKicks, s/he will also receive a digital asset attached to a unique identifier of thatshoe; thereby creating digital scarcity. If any customer sells the shoe to another person, the ownership of the digital asset can also be transferred to that person.
DeBeers uses blockchain to keep track of the source and progress of every natural diamond they mine, helping them address consumer concerns surrounding the ethical sourcing of gemstones.
Ikea creates blockchain solutions to democratise renewable energy. Ikea’s innovation lab plans to develop a blockchain-powered solar microgrid.
While examples may be plenty, the use cases can be broadly classified into business and customer-centric.
Business-centric use cases
Traceability and visibility in supply chains: Manufacturers can sell, buy, track, and pay for their products.
Product delivery: Retail D2C brands can monitor deliveries to customers across the supply chain.
Authenticity of digital advertising: Accurate verification of a campaign’s execution and client involvement is made possible through data transparency.
Product development and innovation: Businesses can create innovative, customised tools and apps that are quick, secure, and dependable.
Product authenticity and origin: Every transaction along the supply chain, be it from a supplier or a manufacturer, can be added as a valid and verifiable record to an item’s pedigree.
Fraudulent financial transactions: Smart contracts can be used to authenticate financial transactions, eradicating fraud.
Automated recordkeeping: Organisations can improve their inventory management by storing and analysing relevant data about their products and supply chains.
Product recall: Businesses can identify products that are unsafe or have defective parts and issue targeted recalls.
Product safety: By tracking real items and separating counterfeits, businesses can assure the safety of their products.
Supply chain trade and finance: By streamlining financial transactions, accelerating workflows, and lowering the costs and risks associated with intermediaries, business-to-business payments can be made more quickly, securely, and easily.
Consumer centric use cases
Accessing product information: Consumers can have constant access to comprehensive product information.
Consumer payment: Using safe networks, consumers can make quick and safe payments.
Access to aftercare services: Customers can choose from established contracts and agreements for warranties and aftercare services.
Smart loyalty programs: As firms collect and monitor consumer data, consumers can participate in customised loyalty reward programs.
Consumer protection: On blockchain-enabled systems, digital records of customer information and purchases are safe, or less likely to be compromised than those kept onlocal platforms.
Blockchain for supply Chain
The core tenets of blockchain technology and the core requirements of supply chain industry perfectly fit into each other like a jigsaw puzzle. Apart from helping to improve the transparency in supply chains, blockchain has the potential to increase a business’s profitability by reducing the associated administrative costs and optimising working capital. As a result, many key players in the supply chain industry are rearranging their setups to integrate them with blockchain technology.
As per analysis done by Research Dive, the global blockchain in supply chain market is expected to garner a revenue of $1.4 billion at a CAGR of 57.4% between 2021 to 2028.
To better understand the use of blockchain, let us see how it can be utilised within the textile industry.
Blockchain can be used for recording the purchase order and shipment information by each entity in the textile value chain, to achieve transparency in operations. The details of all the entities contributing to the manufacturing of a garment can be viewed using an audit trail graph and geolocation details on a global map. The visual representation of the complete end-to-end traceability can be accessed via a QR code which displays information pertaining to the source of the raw material, buyer, seller, and product details, and the raw materials consumed in the production of the requested product.
Blockchain’s intervention and traceability of end-to-end transactions ensure:
Real-time audit trail of the material movement through QR codes. Material movement is registered on a blockchain network.
Supply chain players to take necessary actions on deviations found against industry standard due to the chain of custody.
End B2B customers can easily monitor the timeline of orders and address delays and deviations in realtime.
Users get an overview of the raw material inventory available for manufacturing.
From a consumer’s point of view, blockchains can empower them to find out precisely if products are indeed what they claim to be. This end-to-end tracking canalso be used to monitor fashion trends and help brands better anticipate and forecast changing customer tastes and preferences.
Blockchain for transparency
Blockchain is a potential solution for a lot of the challenges consumer product companies are facing and the largest impact blockchain will have in the short term will be in traceability in the supply chain. But blockchain does not only benefit companies from an operational point of view, it also has direct consumer applications.
It has the potential to change the way we shop and pay for products, provide alternative payment platforms, and power superior loyalty programs. It has also come to the forefront because of the rise of the conscious consumer.
To utilise blockchain technology, organisations can experiment with smaller applications to gain experience and better insights but successful implementation throughout a whole supply chain can be challenging. It requires considerable investment and cooperation from the whole industry.
While the market is nascent and a clear recipe for success has yet not emerged, companies can determine whether they should invest in blockchain by focusing on specific use cases and their market position.