Blockchain Can Fix Information Asymmetries in Retail

February 8, 2018 10:22 am UTC

The basic buy and sell relationship that governs the retail industry is a concept as old as humanity, yet the changes this dynamic has endured have been exponential within the last several decades. Some may remember a time when the primary merchants of life’s everyday necessities were the mom and pop shops across the street, but department stores, and then eCommerce pushed fast forward on the industry within just a generation or two. This accelerated process of global centralization is convenient for consumers, having morphed into entities like Amazon and Alibaba, but it also leads to a severe lack of transparency and intentional inefficiencies for the sake of profit.

If anything, the internet only made it easier to consolidate commercial power, due to its requirement for trusted authorities to be the gatekeepers of their customers’ sensitive data. Retailers play their cards close to the chest to protect their suppliers and margins, but also obscure marketing and advertising data crucial to the operation of affiliates and other partners. This asymmetry of information is used to support a system where retail intermediates like Groupon can put their own interests ahead of everyone else’s, while still marginally benefiting the brick and mortar stores they hold hostage. It’s a system that works, albeit not very well, yet blockchain has exploded out of the fintech sector in recent years and threatens to turn the tables on this very status quo.

Inefficiencies Abound

Retailers must be able to show consumers the products and services they provide in an easy and accessible interface, making the World Wide Web an ideal canvas. However, commerce on the internet comes with strings attached—namely that online stores must be able to safely accept and store customer financial and identifying information. The burden of safety is on these websites due to a centralized manner of hosting content, but it also gives them a distinct advantage. They have the responsibility to safeguard customer data, but have used it to hoard and profit in many ways.

Business information doesn’t move freely through our free market economy. Thanks to the internet, services built on this model naturally become value-extracting rather than value-added. For retail, a relevant idea is how middlemen such as FourSqare or Groupon use their access to make themselves crucial to struggling local businesses, but then keep them on a starvation diet of data insights that barely allow them to scrape by. This parasitic dynamic is easy to advertise as beneficial, especially when some get results, but it’s a far cry from where it should be. However, like anything else on the internet, this unfairness is difficult to prove, necessitating an alternative solution that pulls the curtains down in irrefutable fashion.

Blockchain’s powerful decentralized infrastructure will be able to fulfill this ambition, once proper retail solutions use it to gain critical mass. An industry stratified by greedy go-betweens like Groupon will be made clear as day, and can show participants exactly how elusive and unbalanced the current paradigm is.

Solutions on the Horizon

Early attempts to create a modicum of transparency in retail resulted in products like the Kelley Blue Book, a list that allows people to see the most accurate appraisal of used vehicles for sale. It was one of the first tools designed to aggregate information related to a specific sector and still helps shoppers to avoid charlatans and particularly pushy salesmen. With knowledge of a car’s true value, it’s impossible to push an unfair price to buyers or sellers, regardless of any party’s margins. This is the degree of transparency that blockchain can bring to retail as well. Companies like Provenance use the technology to create consumer trust by clearly tracking supply chain data and offering it to customers to see if producers are being honest. Similarly, Block Verify is being used as an anti-counterfeiting solution and to authenticate luxury retail items.

Information captured on the ledger is instantly available for all participants to view, and each controls his or her own identity and the data they generate with it. Accordingly, the impetus for the big data industry as we know it today doesn’t even exist on blockchain, because service providers can’t assign demographic or identifying information to a unique dataset. Companies like HotNow are already using this idea to build online-to-offline coupon solutions that are more effective by default, because they make use of voluntary data insights via the blockchain. Where entrenched interests like Groupon force companies to offer coupons with a minimum discount of 50%, cram redemption periods into a single-day windows, and obscure potentially crucial data all for the sake of the sale, HotNow offers a more equitable and sustainable deal.

The crux of the idea is cryptocurrency, a blockchain-hosted digital cash that preserves the transactional dynamic between merchants and customers, but also encourages them to be more accountable. These platforms use this idea to motivate increased value from online fans of local businesses, by paying them in tokens for spreading the good word. Missions like ‘checking in’ via Facebook, writing a review, or answering a questionnaire are gamified by the companies’ ledger to participants when a mission’s smart contract is triggered. Customers will use tokens at the business, and can prove their loyalty to be able to borrow in bulk. As such, the cycle of value is kept circular, with each contributor benefiting no more than any other.

Blockchain’s Slow Roll

Blockchain exists to demonstrate for the first time that all participants in a system can profit simultaneously, even when no one party has an advantage. Autonomous, universal consensus is the name of the game, and while it has already made an enormous impact in finance, retail is next in line. The undercurrents guiding this massive industry will soon be revealed, but not in a detrimental way. Blockchain’s revolution is slow, but with its deliberation comes true change—something that even the most infrequent shopper will appreciate in the coming years.