introduction
Blockchain technology threatens to disrupt virtually all industries. This is a welcomed revolution because it offers superior security, more transparency and enhanced trust. One of the sectors that badly needs blockchain adoption is the ecommerce sector.
Ecommerce is basically one of the biggest of all industries. Stats have it that the ecommerce trading volume for 2023 is expected to surpass $5 trillion. Most purchases that happen now are done online and in the next few years, more and more online purchasing will happen. While the growth of ecommerce is unprecedented, glaring challenges continue to limit is potential for bigger growth. Blockchain technology could be the missing puzzle that ecommerce needs to thrive faster than it is doing right now.
Current challenges of the ecommerce industry.
The ecommerce setup today is filled with huge obstacles that limit its potential for massive growth. Consider the following:
- The middle man: One of the biggest challenges of global ecommerce is the ready presence of a middle-man. There is almost always an intermediary in today's ecommerce business model. The main job of the intermediary is to establish trust and credibility.
Transacting parties in a ecommerce business do not know each other and there is no trust. The buyer is afraid not to release goods to complete strangers. The seller is afraid to pay when goods have not been delivered. So the intermediary - usually an agency bridges the trust especially with regards to payments.
When the buyer places an order and makes payment, the middleman holds the payment. Then the seller is notified that payment has been made and releases the goods. Intermediaries make ecommerce transactions more costly as they must charge for their services. So there are additional payment processing fees for the intermediary and this generally increases the final price of goods purchased.
- Fraud: Perhaps one of the biggest issues facing the ecommerce industry is fraud. It happens in many different ways and its not stopping. Fraudulent dealers ship faulty or malfunctioning products. They might reduce the quality of the shipped goods or even reduce the number. Most times, what you see is not what you get in ecommerce.
There is buyer fraud too. Some buyers would receive goods and claim they never received it. Sometimes, fraudulent buyers claim to have made payments when in essence they have not. And there are buyers that are not allowed to make purchases due to restrictions, but they still attempt to do so.
So in today's ecommerce space, there is global lack of trust between buyers and sellers due to established instances of fraud. This greatly impedes the ecommerce industry growth.
- Payments issues: How to make payment prevents many potential customers from participating in the global ecommerce industry. The payment gateways usually accepted might not be available for people from all regions. As a result, purchases are not completed and goods are not shipped.
Delayed payments also constitute a problem for the ecommerce industry. Sometimes, the payment gateway might experience a downtime or other technical challenges. These issues might make it unavailable for some time or for some specific users.
- Bogus dispute handling: Disagreements do occur in trade and most times, the return policy of some platforms are not well spelt-out. When trade disputes happen, some platforms takes days or even weeks to settle the dispute. Such is a very long time in todays fast-paced world.
Moreover, there is the issue of differences in time-zones which might really make dispute resolution challenging. The individuals involved might live in different time zones and this makes for delayed communication. Besides, finally reaching a conclusion on whether products should be returned or the amount of chargebacks are all issues that complicate dispute resolution in today's ecommerce set up.
The above are some of the many challenges that make it difficult for the ecommerce industry today to grow and thrive at rates the should. Interestingly, the blockchain has a solution for these and many more issues only if it is adopted.
Decentralized marketplaces - introducing a solution
Decentralized marketplaces offer solutions to all the challenges plaguing the ecommerce industry today. Interestingly, some different sectors of decentralized marketplaces are already working, proving that this is a tested alternative to ecommerce models today.
Decentralized marketplaces are simply ecommerce platforms built on the blockchain. Such markets inherit the structure, features and functions of a typical blockchain. All trading transactions are powered by the underlying blockchain, thereby eliminating the challenges discussed above.
Why decentralized marketplaces?
Consider how decentralized marketplaces would utilize blockchain technology to tackle known challenges of the ecommerce sector today:
1. Smart contracts remove intermediaries: Decentralized marketplaces do not need a middleman because blockchain transactions are automated using smart contracts. There would be no need to create or bridge trust between the buyer and the seller. All agreements about the transaction are encoded into the smart contract, creating a trustless system for transactions.
Smart contracts not only ensures that everyone fulfills the terms, but it also allow for a peer-to-peer transaction between the transacting parties. No need for a middleman to mediate between them. With blockchain transactions, trading will happen faster and there is no network fees paid to payment gateways. As such, transactions are completed at no extra cost to the buyer.
Smart contracts can also be used to set up chargebacks too. So if there is a delay in delivery or shipping, there should be an amount to be paid by the supplier. Other disagreements could also be encoded as part of the smart contract. In this way, conflict resolution and trade disagreements are easily handled through blockchain smart contracts.
2. Fast, global payment: On a decentralized marketplace, the cryptocurrency is the unit of exchange. Instead of having an intermediary that processes payments using banks, crypto payments are preferred. They are fast. There is no processing to be done. Paying for purchased goods would be as easy as sending crypto directly to the sellers wallet. This is fast - can happen in a matter of seconds.
Another great benefit of crypto payments is that it is global. To say it in another way, it is inclusive too. Crypto payments make it easy to have buyer from all parts of the world. Once a customer has a crypto wallet, they are ready to transact. No restrictions and no limitations.
Micro-payments are also possible if cryptocurrencies are used to accept payments. Today, many ecommerce platforms have minimum order amounts because it is not profitable to use traditional systems to process small amounts. But with cryptocurrencies, any amounts no matter how small could be accepted. This is a great upgrade to current payment systems in the ecommerce space.
3. Crypto Loyalty Rewards: Today's customer loyalty systems are broken with so many irregularities. Most times, rewards are given in form of coupons that are only redeemed through making further purchases. Blockchain does it better by giving out rewards in form of crypto. Customers earn these cryptos by repeat orders or years of purchase history.
Instead of giving coupons, cryptocurrencies are sent directly to customer wallets as rewards. This makes the reward system to be transparent and more valuable than just coupons. Crypto rewards are much more tangible and would be more appreciated by customers than coupons and discounts.
4. Privacy: Todays ecommerce platforms collect user personal data and endanger it by sharing them with partners or selling them to marketers. Decentralized marketplaces provide a secure environment where users own their data. All blockchain transactions are encrypted. Users can decide how much data they are willing to share with suppliers and dealers.
With the anonymous nature of blockchain transactions, privacy is all but guaranteed. This is what everyone wants - a system that puts them in full control of personal data.
Are decentralized marketplaces possible Now?
I think the answer is yes. In the finance sector, there are many decentralized marketplaces. All of them fall under defi. For example, decentralized exchange platforms allow crypto traders to buy and sell crypto and other digital assets on the blockchain. They therefore have all the features mentioned above.
The ecommerce space is till young when it comes to blockchain implementation. While there could be challenges for a system now, the possibility that it will work is well- established. The future of ecommerce is with blockchains. Sooner or later, we will see decentralized marketplaces replacing Amazon, Ebay, Alibaba and many of the centralized ecommerce models we see in operation today.