It’s clear that global interest in Blockchain-based payments is at an all time high. As retailers explore different avenues through which to accept payments and process transactions, many are jumping at the benefits associated with the use of crypto in this regard.
However, as Nithin Palavalli warns in this guest post for The Fintech Times, there are many elements to consider when utilising this contemporary form of payment technology. As the CEO of the Blockchain network RubiX, Nithin details the differences, benefits, and pitfalls associated with centralised and decentralised blockchains.
According to a recent Research and Markets report, the retail blockchain market is projected to reach $32 billion by 2027. That’s an astounding number, especially when you consider that it sat at only $325 million in 2020. It’s clear that global consumers want transparent, traceable, and secure transactions when they shop – and that only became more evident during the pandemic as retailers watched online shopping skyrocket.
The retail market continues to experiment with blockchain and crypto technologies. Home Depot, Overstock, Newegg, Macy’s, and Shopify were some of the first retailers to do business on the blockchain and accept cryptocurrency. Recent rumblings around retail giant Amazon preparing to accept crypto has brought this discussion into the spotlight again in recent weeks.
While today’s leading blockchains give consumers what they want – a place to share, store, and spend their assets – their centralised architecture presents serious security, speed, scalability, and environmental challenges. Within a centralised blockchain, all transactions must occur in parallel, and all data must be recorded, confirmed, and stored on each node before it can be processed. This creates a significant lag and makes these blockchains ill-equipped to handle thousands of transactions a second that the retail and ecommerce markets necessitate.
Alternatively, decentralised blockchains allow transactions to occur simultaneously and independent of each other. They allow consumers to run their own nodes and maintain their own wallets to store, protect, receive, and send their own payments. Besides putting the power back into the hands of users, they offer several additional benefits to suppliers, retailers, and consumers that centralised blockchains will be unable to offer because of their design. Here’s a few:
- Low to Zero Transaction Fees:
Decentralised blockchains allow transactions to occur between the buyer and seller directly in a peer-to-peer fashion. There is no middleman involved in facilitating the transaction, which means there are no additional fees incurred by the retailer (or the consumer) for holding or withdrawing funds, charging taxes, settling transactions, or converting currencies. In some Latin American countries where transaction fees can be as high as 12%, imagine the savings to both parties when transaction rates are less than 0.1%, if not zero.
- Secure, Private, and Protected Transactions:
Fiat currencies in bank accounts are not protected from an attack nor are they anonymous. Translation: You (and your data) are exposed. Decentralised blockchains allow consumers to make transactions anonymously and prevent hackers from tracing a transaction back to any specific individual; this is not possible on a centralised network since all transaction data must be recorded on-chain and is one of the key reasons ransomware attacks are proving successful.
They also offer users the highest level of encryption and security because of decentralised identity, passwordless, and zero-trust solutions that makes user data and assets impervious to hackers. The retail market must look to leverage these new security protocols on their decentralised blockchain because they guarantee the security and safety of all users and their assets.
- Quick Processing Time:
Ecommerce and retailers accepting traditional currencies and/or a wire exchange are unable to offer an immediate transaction settlement to purchasers or collect payment. Payments remain pending until the amount is verified, validated, and transferred by all parties which can take several hours to several days. This means retailers must wait to get paid and have no recourse should a consumer suddenly halt or dispute a payment. Alternatively, decentralised blockchains are the only network that can allow thousands of transactions to occur simultaneously with individual payments completed in less than 250ms.
- Two Main Obstacles to Decentralised Blockchain Adoption
Even with all these capabilities, the mass adoption of blockchains and crypto within the retail industry faces two main obstacles.
The first is uncertainty. Retailers and consumers are worried about losing their money. With traditional banking, there are infrastructures and regulations in place which allow consumers to feel protected. With ransomware on the rise and few real crypto regulations in place, people are hesitant to put their assets on blockchains. Ecommerce and retailers should use, provide, and accept hot and cold wallets by leveraging white label custodians that utilise know your customer (KYC) and anti-money laundering (AML) solutions. This technology protects the digital assets of all parties involved while eliminating fraud. The use of white label custodians will put consumers’ minds at ease since they allow accessibility at any time, from any device, and in some cases, with only a fingerprint.
The second obstacle facing mass adoption is crypto is fluctuation. The value of bitcoin – and the 8,000 other cryptocurrencies currently used today – fluctuates daily. While fiat markets also fluctuate, within the crypto market these are significantly more dramatic with crypto values changing by the second. Most everyday consumers don’t feel comfortable taking a daily rollercoaster ride with their assets. Establishing a stable blockchain cryptocurrency (like the U.S. dollar or Euro) will allow people to feel more comfortable about investing and purchasing on the blockchain because it will ensure digital assets retain the same value, day in and day out.
Before the fiat system arrived, the barter system reigned supreme. Payments were made in gold, silver, and nickel, and it didn’t matter where those commodities came from. People simply verified the weight and bartered directly with one another. Today’s decentralised blockchains can be seen in the same light, opening the doors for transactions to take place on a global scale and allowing users to control their own data, transactions, and assets. Not only that, but they make everyday life simple, no more cash, credit cards, or checks. In fact, fiat currency – alongside traditional payment methods – are no longer a necessity and an increasing number of people, myself included, have already abandoned them completely.
Free and accessible to all, decentralised blockchains have the potential to reshape the future of global commerce by transforming how tangible (and digital) merchandise is bought, transferred, and sold to and amongst consumers. The good news is that the technology to make it possible is already here – retailers and consumers must simply be willing to try it.