Blockchain, which is a distributed, public ledger of all cryptocurrency transactions, consists of blocks – a constantly growing list of most recent, completed transactions which are recorded and added in a chronological order. As it is open and decentralized and distributed, it allows the market participants to keep track of digital currency transactions and thus removes the need for central recordkeeping.
A block typically consists of a hash pointer as a link to a previous block, a timestamp and transaction data, which when gets completed goes into the blockchain as a permanent database. After each block gets completed a new one is generated and thus they are connected in a linear, chronological order with each other. Once recorded, the data in any given block cannot be altered retroactively because that would have needed unprecedented computing power to override the entire network of connected devices. Hence, the more devices are connected to the blockchain, the stronger it is. The blockchain has complete information about different user addresses and their balances right from the genesis block to the most recently completed block.
How does it work?
The basis of entire blockchain network is “Nodes” which are nothing but electronic devices. They are connected to the blockchain network using a client that performs the task of validating and relaying transactions. Whenever a new node joins the network, the entire copy of the blockchain gets downloaded automatically in it.Every node is an “administrator” of the blockchain and joins the network voluntarily (in this sense, the network is decentralized).
Where did it come from?
The first distributed blockchain was conceptualized in 2008 by an anonymous person or group known as Satoshi Nakamoto and implemented in 2009 as a core component of bitcoin where it serves as the public ledger for all transactions.
Why is Blockchain so Important?
There are no centralized databases in a blockchain. It ensures that no one, be it individual or party in the system has the power to modify or tamper with the data. It also removes the need for a third party or central authority to authenticate or process peer to peer transactions and hence increases transparency.
Challenges in E-Commerce:
1.Trust: Buyers and sellers use intermediaries because they may not trust the other party, but they trust that the intermediary will assure the transaction is completed faithfully. However, this trust comes at a cost as each of these intermediaries charge the buyer or seller a fee to maintain the ledger.
2.Frauds: E-commerce companies face huge problems with counterfeit or substandard products due to difficulty in regulation and selection of vendors which ultimately diminish the brand image.
3.Slow transactions: The eCommerce supply chain involves several parties with negotiated commissions and shipping rates. On top of that, ordering, tendering, shipment tracking, delivery confirmation, and settlement of the costs and charges can make the whole transaction process unnecessarily complicated and delayed for weeks or even months.
4.Other Costs: At present e-commerce supports different modes of payments like Cash on delivery, bank transfers, mobile wallets, Credit/Debit card etc. But each step in the payment process draws a nominal fee from the buyers/sellers. Apart from costs, there are other risks involved in the current method of transfer like delays in settlement, errors in reconciliation and counterparty risk.
Blockchain Impact :
Let us now see how blockchain can effectively solve these issues and may bring a whole new revolution in ECommerce.
1.Cheaper Transactions: Blockchain enables the existence of “smart contracts” which would essentially be software programs that self-execute contract instructions. This would significantly lower the cost and complexity of transfers and transactions.
2.Faster transactions: With blockchain, the transactions, order details, commissions in the form of the smart contracts can be used to save all the documents, shipping, delivery and any other possible events that affect financial settlements. Thus, each individual or a company involved in the supply chain can make vital data visible to others. Such visibility significantly lowers the dangers of dispute, delays, and disorganization and speeds up the transaction process.
3.Transparency: The blockchains store the entire owner history with it. No matter where the product goes and how many times it is repurchased.Thus it can eliminate the frauds and brings transparency to both consumers and merchant.
Blockchain has brought a whole new revolution of digital currency and transaction system where every single transaction, agreement and process would have their own digital signature and could be identified and validated always by anyone. The contracts are embedded in the code, transparent and stored in shared databases and they are completely protected from loss, deletion and tampering. In such world, intermediaries like brokers, banker’s lawyers might not be needed at all.