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Understanding the long term effects of blockchain technology is an important step for businesses looking to take full advantage and stay competitive. The current sea of myths makes that difficult with reliable to-the-point information hard to track down.

That’s the purpose of this blog — to answer all your burning questions while presenting you with the information you need to know. Each week we will release write-ups that examine how blockchain is disrupting industries globally.

Today’s topic — e-commerce.

Quick Recap

Before we dive in we should review. In our kick-off article we discussed the basics of blockchain; a technology that allows information to be digitally transferred between people without the use of intermediaries like banks, insurance companies, and clearinghouses.

This gives blockchain a clear advantage for companies concerned with information security and costs. With blockchain, companies can work directly with consumers to exchange money and services while cutting costs associated with servers, storage, and security.

That said, how then is blockchain going to disrupt e-commerce?

The Current Situation of E-Commerce

E-commerce is growing — it’s an undeniable trend. From 2017 to 2018, online sales increased from $2.3 to over $2.8 trillion, representing a 10% of current total global retail sales. Although impressive, it’s taken twenty to twenty five years to get there. Considering the limitations of early e-commerce infrastructure and payment systems, as well as the need for internet penetration, it is understandable.

If we analyze the over-complexity in which those legacy interoperability and payment systems have evolved into, and how the expansion in developed markets have hit a wall related to consumer trust with security fears and privacy concerns, it is reasonable to see that global growth can’t go any faster.

Another issue is related to the dominance of some e-commerce platforms. As KJ Erickson, founder of Public Market, puts it,

“E-commerce is broken. In less than two decades, a handful of private e-commerce platforms have grown to account for over half of online retail sales. The exorbitant fees and commissions they charge force sellers to drive up prices, ultimately hurting consumers.”

We go further in stating that it not only hurts consumers, but also the ability for small and medium enterprises (SMCs) to enter and engage on e-commerce.

The success of these platforms is partly due to their ability to create an e-commerce solution that attracts small and medium companies (SMCs) that don’t have the time and resources to create and promote their own e-commerce platform. These fees and commissions leave little room for SMCs to actually make money out of e-commerce. In some cases, fees can run up to 20%. There are also credit card or payment processor fees to factor in. PayPal, for example, typically charges around 3%. All of these have to be included in the price and passed on to the consumer. Because of this, many end up in an environment they can’t compete, and decide to jump out and not participate, disenchanted from the early dream that e-commerce would be a huge opportunities for SMCs to create wealth and reinvest it in the societies they pay taxes at. Not exactly the same than these macro-platforms most of them paying their taxes in fiscal paradises.

So the question we need to ask ourselves is, can blockchain solve the issues related to costs and infrastructure that limit companies’ ability to jump into e-commerce and help it grow? And by doing so, would it provide the means for SMCs to be able to do it by themselves, and help brake the current monopolies?

Before jumping on the solutions, let’s look at what we have determined to be the three main barriers for the growth of e-commerce today.

Three Barriers Limiting E-Commerce Growth

Costly and Complex Infrastructure and Performance

These issues create barriers related to speed and performance, security, and interoperability, which are critical in the user experience and have a critical effect in reach, engagement, and activation of consumers. Therefore setting up online sales for your own local business is a daunting task, and one of the main reasons why to choose jumping on one of the global e-commerce platforms.

Access

One access issue has to do with entering developing markets, and the extra difficulty related to the first barrier mentioned above. Also, current systems do not have a way to access the uncredited. Note that this group is bigger than expected. For example in US states like Texas, 20% of the population do not have access to credit or lack financial history to get the credit. This group is even larger for those around the world who do not have access to a bank account, estimated in around 2 Billion people. Last, cryptocurrency payments still have a marginal acceptance, which is a shame considering it could be the perfect solution for the uncredited and unbanked, or for those. Let’s not forget that the cryptocurrency market cap is near $120 Billion, and holders don’t have many ways to spend their funds. This is especially frustrating for merchants, who could decreasing their costs, getting their money quicker, and eliminating fraudulent actions like canceled charge-backs, if accepting cryptocurrency payments.

Trust

Lastly, a lack of trust in security and privacy by consumers presents one of the biggest problems for adoption and industry growth, specially in developed markets where infrastructure or access is not a problem. Note that surveys find that in the US 49% of customers do not trust shopping online and that when asked what factors influence where they bought goods online, 60% of US respondents cited security and privacy policies. In addition to their concerns over privacy and security, many consumers see disadvantages with multiple gateway logins. More so, the lack of transparency in the supply chain waves a red flag for many.

These three barriers exacerbate even more as e-commerce tries to penetrate developing markets from the lack of traditional banking and internet access availability.

In short, traditional e-commerce is complex and expensive. It limits access to many merchants and consumers while causing distrust between the two. These are all issues that blockchain can address.

Solutions — Blockchain Can Save the Day

Cryptocurrency Payments

Let’s start first by looking at the benefits of cryptocurrency payments. Trace Mayer J.D., a leading expert on Bitcoin and gold said it best:

“Instant transactions, no waiting for checks to clear, no charge-backs (merchants will like this), no account freezes (look out Paypal), no international wire transfer fee, no fees of any kind, no minimum balance, no maximum balance, worldwide access, always open, no waiting for business hours to make transactions, no waiting for an account to be approved before transacting, open an account in a few seconds, as easy as email, no bank account needed, extremely poor people can use it, extremely wealthy people can use it, no printing press, no hyperinflation, no debt limit votes, no bank bailouts, completely voluntary. This sounds like the best payment system in the world!”

Instating their use in e-commerce would open up access to the cryptocurrency market — an industry currently valued at over $8 billion. One WTO study estimates that figure to rise to $3 trillion by 2030.

Cryptocurrency payments non-reliance on banks would enable the world’s nearly 2 billion unbanked and uncredited individuals to participate in the market — bypassing the need for current intermediaries allowing peer to peer instant transactions to happen. This means a much larger consumer pool with cheaper costs for exchanging money and services.

The diminished relevance of banks would also mean that international transactions could occur with lower exchange rate fees and would eliminate the possibility of fraudulent purchases and charge-backs. A great advantage for companies looking to safeguard themselves.

Infrastructure

Many of the nightmares facing traditional e-commerce infrastructure would resolve with the adoption of blockchain. Its decentralized nature would reduce the need for data storage while simultaneously cutting costs associated with data handling and security. The blockchain network would store this information internally across the network.

Blockchains anonymity and functionality would help with customer privacy and data security. This too would help minimize fees going to intermediaries that manage security. Blockchains public nature would also help with the visibility of order fulfillment and supply chain.

This is all good news for the business owner. Lower costs would remove many of the barriers that have kept small businesses from entering the market. More and more, these companies globally could participate in the e-commerce industry without the need to compete with mega-corporations like Amazon.

User Experience

For the consumer, blockchain backed e-commerce would eliminate the need for multiple getaway logins while backing purchases with better security. It will ease their concerns and provide visibility that will greatly help spread adoption — and who doesn’t want a happy customer?

Paytah — A Real World Example

Paytah is an e-commerce payments solution provider based in Malta. They are taking the advantages of blockchain and cryptocurrency payments and integrating them with traditional FIAT payments. Paytah is but one exciting project that is working to improve the e-commerce industry through the benefits of blockchain and cryptocurrency payments.

Behind them is the cutting edge Heat Ledger blockchain technology and cryptocurrency experience in cryptocurrency wallets and decentralized asset exchanges. It provides Paytah with scalability, easy integration of FIAT and crypto payments, the best functions of cryptocurrency wallets, and a very high-security consensus mechanism. With this package, Paytah is able to provide to merchants a solution that enjoys all the benefits of blockchain tech infrastructure, while giving access to fiat and crypto payments markets.

Blockchain Enabled Systems Are the Way Forward

With blockchain adoption, the e-commerce infrastructure will become cheaper, faster, more accessible, and more secure. Instant, 3rd party free cryptocurrency payments will benefit sellers in reducing costs, and speeding up payments, but most importantly open up a channel for the world’s unbanked and uncredited individuals to participate as consumers in the e-market.

The reduction in costs will also help for small and medium businesses to be able to join e-commerce activities, since they will no longer be left uncompetitive from the current high costs of joining global platforms like Amazon.

And by being able to properly communicate this level of security and prove it, there’s a great opportunity to build on the current missing trust from potential online shoppers.

Be sure to let us know your thoughts about blockchain and e-commerce below! Want more? Follow us in order to receive notifications on our newest postings where we discuss the power of blockchain in global industries!

Written by Stephen Webb & Fito Benitez