CSA Q&A: Defining Blockchain—and its value for retailers
Blockchain technology is poised for widespread, mainstream adoption — and it’s likely to happen sooner rather than later.
A 2018 report from Deloitte argues that blockchain integrations across retail and consumer packaged goods could “revolutionize” the industries.
The report, “New Tech on the Block,” predicted that blockchain will become “a standard operational technology across the financial, manufacturing and consumer industries,” and that the next five years will be “a tipping point” as businesses begin to grasp the technology’s potential.
Blockchain is a digital, decentralized, distributed ledger that provides a way for information to be recorded, shared and maintained by a community (private and public). While the technology is best known as the backbone of cryptocurrencies such as bitcoin, more broader-based applications are on the horizon — if not already here.
Christian Kameir, managing partner and blockchain venture capitalist at Newport Beach, California-based private equity firm Sustany Capital, spoke to Chain Store Age about how the emerging technology can streamline operations and lower costs across retail organizations.
CSA: What is a layperson’s definition of blockchain?
Kameir: Blockchain technology, at its core, is a database that is distributed across a network of computers, also known as nodes. All transactions are checked for validity by the nodes in the network then stored on a block with a unique code called a hash. Every block also stores the hash of the previous block in the chain. Hash codes connect blocks together in a time-stamped manner to create a blockchain.
Because each new block is built from the verification of previous blocks, it becomes nearly impossible to change or tamper with information recorded.
CSA: How can retailers take advantage of blockchain?
Kameir: Blockchain technology can streamline operations and lower costs across systems (i.e., supply chains, transaction audits and middlemen fees), as well as improve customer retention programs. Utilizing the immutable record-keeping of blockchain, retailers can more efficiently manage vast amounts of information gathered about their products, services and customers to quickly see where inefficiencies lie and create the appropriate synergistic blockchain implementations.
CSA: What are blockchain’s biggest impacts for retail?
Kameir: Blockchain’s biggest impacts can be seen in four areas: supply chain management, automating and auditing transactions, lowering credit card fees and customer retention.
In supply chain management, blockchain technology can reliably track products from production to end user purchase or consumption. Blockchain’s immutable transaction records thwart attempts to counterfeit items. There are also fees associated with simply proving that a product has arrived at its destination. Blockchain technology is an excellent tool to automate and audit these transactions, and reduce costs associated with the transport of such items.
Purchase trails often include the activity of several middlemen which adds to the cost for the end-consumer. Many functions of these intermediaries can be automated through blockchain-based applications. Immutable audit trails for supply chains enable all parties to monitor products without the need to access data silos guarded by third parties. Blockchain-based auditing systems can be integral to streamlining systems for physical products as well as virtual assets.
Credit-card fees can also be drastically lowered, especially when buying or selling products internationally. Traditional exchange of currencies is encumbered by fees, but blockchain will allow retailers to accept foreign currencies easily and make cross-border settlements painless while also lowering fees.
Finally, blockchain impacts the customer retention programs (i.e., discounts, coupons, rewards, etc.) that retailers offer. Oftentimes, these can be hard to keep track of and manage, as customers forget to bring their coupons, rewards cards or forget they have ‘points’ accrued. Present systems require the consumer, point-of-sale (POS) systems and cashiers to keep track of these programs, which are inefficient ways to manage programs.
Tokenization of reward points can eliminate this by immutably and automatically calculating, monitoring and managing each customer’s points. Additionally, point-based systems can be converted into blockchain-based virtual currencies that are easily exchanged with compatible tokens, creating greater incentives for consumers to acquire these assets.
CSA: What challenges does the technology present?
Kameir: The biggest challenges revolve around the compatibility of different blockchains, as well as legacy POS systems supported by credit card companies and banks. To be implemented, blockchain infrastructure must replace traditional POS systems. However, legacy technology providers and credit card companies make their money from fees – as much 3% per transaction – so it is not in their best interest to go away without a fight.
CSA: What hurdles do retailers need to overcome to leverage blockchain?
Kameir: The biggest are POS systems and suppliers. POS systems and their associated credit card companies will not be quick to give up their dominance to be replaced by blockchain systems. The efficiencies of blockchain become moot if only some of the parties involved in the supply chain system are on board, so retailers must begin a discussion with all vendors in order to build a holistic system and maximize efficiency.
CSA: What role will cryptocurrency play in blockchain’s adoption in retail?
Kameir: There is a general attitude of distrust in cryptocurrencies, and that must change. A lot of people think cryptocurrencies are either Ponzi schemes or only used by people who would like to purchase illicit goods when, in fact, the main objective of the first cryptocurrency, bitcoin, was peer-to-peer transactions. Cryptocurrencies and their technological underpinning, blockchain, are actually an instrument for decentralized peer-to-peer transactions that will streamline systems by cutting out middlemen.
If you want to continue on the topic, I recently added a more nuanced description for cryptocurrencies on Forbes - https://www.forbes.com/sites/forbesfinancecouncil/2018/08/29/the-fundamentals-of-cryptocurrency-investment/#7d0f0c51491c