Decentralizing E-Commerce (PART 1)

Blockchain is a technology that makes it possible to build applications where multiple parties can record transactions without the need for a trusted, central authority to ensure that transactions are verified and secure (Merkle 1979). It enables this by establishing a peer-to-peer network where each participant in the network has access to a shared ledger where the transactions are recorded. These transactions are by design, immutable and independently verifiable.

However, the sector it will transform, and have the highest impact on day to day consumer and seller activities, is the e-commerce industry. The e-commerce industry has arguably changed the way we shop and live, which to many people has basically become one and the same.

The convenience, affordability, and vast array of products offered by e-commerce platforms shows some of the benefits of the e-commerce industry.  With the growth of the industry large e-commerce companies like Amazon, Alibaba, EBay and a large group of other companies which account for over 50% of that market valuation. However, problems associated with e-commerce are beginning to emerge.

Despite its evident popularity and market penetration, e-commerce has drawbacks. Most of these relate to the centralization of marketplace platforms and the size of the corporations behind them. Some of these problems relate to payments, supply chain management, data security, transparent marketplace, satisfied retailers, efficient management systems, and satisfied consumers. The current e-commerce architecture will have a hard time resolving all these issues in one fell swoop, with the best solution to these problems is blockchain technology.

PROBLEMS OF THE MARKET

Fees

Sellers are typically required to pay high commission fees, but have little choice if they want to access the large audience that the top e-commerce platforms enjoy. Fees can run to 20% in some cases. There is 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.

Gatekeepers

With conventional e-commerce, the platform and company behind it act as gatekeepers who limit contact between buyer and seller. Merchants struggle to build a long-term relationship with customers. The marketplace company does not want them trading outside of its e-commerce platform. Communication is often restricted, or takes place within strict parameters. The platform is able to view any messages exchanged between buyer and seller.

Use of personal information

Every large online service harvests extensive personal data from its users and monetizes it in various ways. Uses of such personal data ranges from tailored advertising through to selling it or sharing it with third parties.  In attempt to overcome this problem, the European Union signed the General Data Protection Regulation(EU) 2016/679 (“GDPR”). It is a regulation in EU law on data protection and privacy for all individuals within the European Union (EU) and the European Economic Area (EEA). It also addresses the export of personal data outside the EU and EEA areas. The GDPR aims primarily to give control to individuals over their personal data and to simplify the regulatory environment for international business by unifying the regulation within the EU. Additionally, data breaches are an all-too-common occurrence. Personal data has been called the oil of the internet, and its value makes it a popular target for hackers. Although GDPR has somewhat improved matters, in many jurisdictions, the laws around data use are far less clear. There may be no straightforward procedure for how companies should act in the case of a data breach, and they may not tell their customers that their personal information has been compromised for months, if ever. In short, data loss has gone from being an embarrassment or inconvenience for a company to little more than the price of doing business.

 

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