10 Ways Blockchains Can Benefit Merchants

The Internet is buzzing with how blockchains can solve problems and disrupt multiple industries. But what exactly is a blockchain and how can it benefit merchants?

A blockchain is a “distributed ledger” —i.e., data spread across many computers — that can be used to record any transaction, such as a money transfer, a contract between two parties, or an order shipment. Multiple parties can update the data simultaneously without a central party controlling it. Each update is secure and trusted, by encrypting data and verifying each transaction based on set of predefined rules.

Each data record is called a “block” and a series of these blocks form a “chain” — hence the name “blockchain.” Each block consists of three items: (a) an identification code, also called “proof of work” as it can only be created using a set of complex algorithms, (b) a pointer to the previous block’s code, and (c) transaction data.

Each block is time-stamped and cannot be changed, but it is open for anyone in the chain to view. New blocks can only be added to this chain after they have been validated by complex algorithms.

Bitcoin, the cryptocurrency, uses blockchains. Blockchains are appealing, in part, because they enable secure transactions without involving a third-party middleman. Thus transaction costs are lower. Industries that have traditionally required a third-party, such as escrow for home mortgage, can be disrupted using blockchains.

Blockchain for Merchants

Blockchain is a new technology, with new use cases appearing frequently. Here are 10 examples of how blockchains could benefit merchants.

Mobile payments. A drawback to mobile payments has been security risk. Blockchain eliminates mobile payment fraud by recording all transactions in the distributed ledger and otherwise enabling peer-to-peer money transfers.

Loyalty programs. Loyalty programs have two primary functions: accrual of loyalty points and redemption of these points. Blockchain can facilitate having the right contracts in place to manage both functions. Also, blockchain can be used for easy redemption of loyalty points by utilizing a cryptocurrency, such as bitcoin.

Supply chain. Blockchain can be used to trace the journey of each product in the supply chain from the manufacturer, to the distributor, and finally to a retailer’s warehouse. This can track the product to avoid tampering or losses and also to raise alerts when there is a health issue, such as an E. coli breakout for food products.

Authenticity of products. As blockchain can capture every touch point in the life of a product, making it easier to determine if a product is authentic. This capability can be used for luxury goods and also for one-of-a-kind merchandise, such as art, or time-sensitive items, such as concert tickets.

Smart contracts. Retailers who sell to other businesses regularly create contracts. Blockchain can set up multiple types of contracts to be used across many customers.

Intellectual protection. Websites and mobile apps often use original content that needs to be secured. This content can be registered on blockchain, providing an immutable proof of ownership of that content. This use case is already being used in the music industry to track royalties.

Identity management. Identity theft can be eliminated by using blockchain. The technology assigns a unique code to a person and that code can be used to verify identity. Financial services organizations are already using this capability.

Crowdfunding. Crowdfunding is popular among merchants and inventors to raise money. Blockchain has made it easier to raise funds via cryptocurrencies.

Advertising. Retailers can offer a few bitcoins (or any other cryptocurrency) to consumers who click on an ad or watch an advertised video for a few seconds, making it easier for advertisers to get clicks and consumers to learn more about products displayed in the ads. This helps the advertiser and the consumer.

Marketplaces. Marketplaces take a cut of each transaction. An example is the Apple App Store, which receives a portion of every app that is purchased. Blockchain can eliminate these third parties by building a marketplace that supports peer-to-peer sharing.

Do you have experiences with blockchain? Please share in the comments, below.