Crypto, blockchain, and the future of e-commerce

Image by Geralt via Pixabay.

There is talk about a bubble building in cryptocurrencies. Certainly public interest has piqued as Bitcoin continues its exponential ascent up its price chart stealing headlines along the way. And there is definitely some froth as the irrationally-exuberant enter the market and thrash about looking for a fast buck.

Much of the bullishness is due to speculators seeking higher and faster rates of return than can be found just about anywhere else these days. At the same time, Bitcoin is being talked about as “digital gold”; a secure store of value in these interesting, uncertain times.

Also driving the perceived value of cryptocurrencies is the growing number of organisations and entrepreneurs who see enormous long-term potential in its underlying blockchain technology for all sorts of applications. This has sparked a proliferation of initial coin offerings (ICOs) and initial token offerings (ITOs) — crowdfunding models that raise money for blockchain-based not-for-profit projects, for-profit businesses, and, yes, scammers too.

ICOs and ITOs are not equity offerings. Rather the coins and tokens offered are credits to be used on a blockchain-based application. Power Ledger, for example, which is one of the most successful Australian ICOs so far according to CoinSpot.com.au, uses blockchain technology to enable households and buildings to trade excess solar power peer-to-peer. The Power Ledger tracks the generation and consumption of all participants and settles energy trades based on pre-determined terms & conditions in near real time. The POWR cryptoasset allows holders of it to buy Sparkz, the medium of exchange.

In aggregate terms, organisations that have relied upon ICOs and ITOs for start-up funding have barely scratched the surface. The estimated market capitalisation of cryptoassets comes to more than US$250.5 billion. It is a big number but it includes Bitcoin, which accounts for more than $137 billion, or about about 55%, of the total market cap — all by itself! Number two is another general purpose cryptocurrency, Ethereum, with a market cap of more than US$ 36 billion. By comparison, the market cap for the aforementioned Power Ledger coin or token is 29th on the list at “only” $277 million. (All market cap estimates in this paragraph are from coinmarketcap.com as at November 23, 2017 — it changes rapidly!)

Image by Geralt via Pixabay.

What is blockchain?

A blockchain is a decentralised, public ledger of transactions also known as a distributed ledger. Transactions between encrypted accounts are verified within a network of nodes (computers) on the internet. Each node maintains a copy of the blockchain (the ledger) so that if one node goes down all the others have a copy.

The nodes compete to be the first to verify and timestamp each transaction in exchange for tiny crytpocurrency commissions. This is called “mining”. The open, decentralised marketplace for the mining job is why transaction costs are so low, which presents an enormous opportunity for a next-generation e-commerce platform.

Newer generations of blockchains are also able to record the terms & conditions of transactions, via “smart contracts”, which is also important for e-commerce.

Image by Varun s (CC BY-SA 4.0) via Wikimedia.

The opportunities for blockchain-based e-commerce

Whether or not you believe there is already a bubble in crypoassets it is worth noting that the blockchain technology underlying cryptocurrency is here to stay — just as the technology underlying the dot-com bubble of the early noughties is very much still with us.

Consider for a moment if you had entered the dot-com bubble market of 2001 and chosen wisely. Amazon, the e-commerce giant, is the prime example of a dot-com crash survivor. It had a market capitalisation of US$ 4.5 billion back then. Now it’s worth US$ 546 billion — more than double the current market cap of all cryptoassets!

Other stories of disruptive dot-com success that very few people understood properly in the ‘90s and early ‘00s:

Google’s initial public offering (IPO) took place in 2004 when its share price was $85. In 2017, at $1100/share, the oft-used verb’s market cap is currently worth about US$ 720 billion — nearly three times the market cap of crypto.

Facebook did not list until 2012, but it was valued at US$5 million in 2004 when Peter Thiel invested $500,000. Now the social network is worth more than US$350 billion — 100 billion more than the market cap of crypto.

While Google knows everything about what you search for, and Facebook knows who your friends are, Amazon wants to know everything about you so that it can sell you your own life. The e-commerce company started as an online bookshop. While it’s traditional brick and mortar rivals dabbled in websites, Amazon went all-in online and developed a super-efficient centralised stock management system. It also developed a highly effective algorithm for up-selling; offering personalised recommendations based on your purchasing history and the purchasing history of customers with similar literary tastes.

It learned a lot from the experience and quickly expanded into just about every other product category either directly or indirectly via third-party vendors. Now Amazon wants to enter customers’ homes and lives via Alexa, its digital assistant, and its Echo smart speaker. The concept of personal privacy is being lost for the sake of a willing digital companion one can ask questions of, order around, and to which (or whom!?) shopping decisions can be delegated.

For many people that is a terrifying prospect. Blockchain-based e-commerce offers an alternative. How?

Security and privacy

There is a very good reason why many of the early adopters of Bitcoin as a medium of exchange have been criminals: Bitcoin, thanks to its blockchain, offers a previously unsurpassed level of privacy and immutability. So while serious concerns about online privacy and security turn many people off traditional e-commerce, blockchain technology has the potential to allay those fears and encourage even greater acceptance of e-commerce among consumers.

Secure transactions. As described above, a blockchain is a decentralised ledger of transactions. Each node on the network maintains a copy of the blockchain so that if one node goes down all the others have a copy. Anyone can view a copy of the ledger on any node to satisfy themselves that they are all exactly the same. In crypto-speak, this benefit is called “trustless”, which is an unhelpful use of the word as it means the opposite of what is intended. The intended meaning is that trust (in people or organisations) is not required. However, trust in the technology is.

Private transactions. While anyone can view the ledger, they will be no wiser as to who’s participating thanks to the long strings of letters and numbers that represent each account. Crypto accounts are encrypted, hence the name.

Smart transactions. New-generation blockchains are able to record the terms & conditions of transactions via “smart contracts”, so while blockchain transactions are immutable, so are the terms & conditions attached to them. This is great for simple transactions but has limitations for full e-commerce application (see below under “challenges”).

Savings through efficiency

Blockchain technology offers the tantalising prospect of a super-efficient electronic marketplace. Potentially, blockchain-based e-commerce can help stakeholders:

Save a lot of money on products. Due to the open and decentralised market for mining (verification and time-stamping), blockchains cut out financial middlemen such as PayPal and credit card companies. This disintermediation effectively slashes transaction costs for both buyers and sellers, which means a more efficient marketplace for everyone and cheaper products for consumers.

Save on micropayments. Traditionally, transactions regardless of size were dinged with annoying fixed fees, so micropayments suffered the mockery of disproportionate charges. Blockchain mining commissions on micropayments are micro too.

Save on international transfers. Similarly, traditional international money transfers incur large bank fees, often at both ends, as well as forex commissions. International crypto transactions cost no more than local transactions of the same size.

The challenges for blockchain-based e-commerce

UX hierarchy of needs ( Stephen P. Anderson)

Technology is only useful to most people if it is user-friendly. Consider the iPod and subsequent smart phones with their intuitive user interfaces; hundreds of million of users know little if anything about the technology in their hands yet they use it confidently and with confidence in the tech.

User-friendliness is the key challenge for any blockchain-based e-commerce solution — and it can be broken down into the following four problems:

Cryptocurrency transactions are neither easy nor intuitive. While traditional payments result in higher prices, users know how to use their credit cards and payment platforms. It’s easy. Cryptocurrency payments, however, require a steep learning curve. For the average person who has never purchased anything with cryptocurrency or set-up a wallet, the task can seem daunting. And because a simple mistake can result in total loss, many potential users are scared away.

Slower than the cloud. Users want a highly responsive application. While the idea of a fully decentralised marketplace powered by blockchain is a great goal, current implementations are more like social experiments than well-executed solutions. Blockchain ledgers are not designed to be a source of highly available data. Current protocols are relatively slow and not designed to deliver the same speeds as are currently available from cloud-based servers.

Differential data handling. Applying blockchain to e-commerce is not as simple as moving all of the data to a public blockchain. While it is wonderful to have a seller’s history and current product offerings available for mass consumption, listing a buyer’s delivery address in the same manner is highly inappropriate and unlikely to please the buyer!

Smart contracts lack flexibility. Smart contracts are great for handling simple transactions, however much can go wrong during an e-commerce transaction. The wrong item (or no item) may be delivered or there may be something wrong with it, for example, and the acceptable fixes can vary widely depending on the product, the seller, and the buyer. Problems and disputes need to be handled in a much more nuanced way than smart contracts can handle, which is fair to all parties, and within a system that cannot be exploited by either side. Attempts to use smart contracts to handle this problem demonstrate a distinct lack of real-world e-commerce experience on behalf of the developers.

Introducing Plaza Systems

An entrepreneurial team led by experienced e-commerce professionals is working on overcoming these challenges. Plaza Systems aims to occupy the intersection of lifestyle and technology; to strip away the complexity and maximise the utility of emerging technologies such as blockchain and artificial intelligence.

Visit Plaza.Systems to find out how the team plans to do this. And while you are there be sure to sign up for updates on how you can join the upcoming PLAZA token ICO.

About Plaza Systems

Plaza Systems occupies the intersection of lifestyle and technology.

We are developing the Total bCommerce™ solution, which includes the fast and future-proof MerchantChain™ — a blockchain commerce (bCommerce) infrastructure upon which others can build decentralised applications — as well as the Freedom Lifestyle™.

The Freedom Lifestyle suite of product search & payment tools offer:

  • The ability to quickly and conveniently browse the best shopping deals across the whole internet, anytime, and from anywhere;
  • The privacy, savings, and security of cryptocurrency payments;
  • The sensible flexibility to enjoy the products of your favourite vendors using a payment system everyone is familiar with; and
  • That’s not all! Follow the links below to find out more …

Website: plaza.systems

White Paper: plaza.systems/whitepaper

More news & opinion from Plaza Systems: medium.com/plaza-systems