Modern E-commerce platforms enable businesses of all sizes to sell their products and promote their brand to a vast audience, much larger than they would be able to capture by any other marketing tool or strategy. This E-commerce sector has grown by leaps and bounds in the last decade, and it is still constantly evolving, however, a number of key challenges have solidified over this timeframe with no effective, readily available solutions. Although the application of blockchain technology in e-commerce is still in the early stages, it offers viable solutions to some of the more pressing problems plaquing traditional e-commerce platforms.
Below we will take a look at some key challenges faced by most of the e-commerce platforms today.
High Transaction Fees
One of the main issues in traditional e-commerce is the high transaction costs, which traditional e-commerce platforms pass on to sellers and sometimes buyers. Multiple intermediaries, including payment processors and credit card companies, charge hefty fees to merchants and vendors, which can amount to a significant percentage of each transaction. These costs are most often passed on to consumers, making online shopping more expensive for customers, and reducing the competitiveness of merchants, particularly smaller ones.
Centralized Control
Most of all modern e-commerce platforms like Amazon.com are controlled by a single entity, where merchants are often subject to arbitrary rules and policies. Due to this monopolistic model, vendors have very little leverage with the platform operator and are often forced to accept terms that vary from less than ideal to straight draconian, this being especially true for smaller businesses.
Lack of Transparency
In traditional e-commerce, tracking product origin and quality can be difficult due to opaque supply chains, this is a problem for both platform operators and consumers that use the platform.
Data Privacy Concerns
Centralized platforms often collect large amounts of user data, and with no third-party oversight over such data collection and storage practices, it raises serious privacy concerns.
Security Vulnerabilities
Traditional systems are vulnerable to various cyber threats, including identity theft, phishing scams, and fraudulent credit card transactions. Many e-commerce platforms have inadequate security measures because they are highly centralized and rely on centralized server infrastructure. This single point of failure makes them easy targets for hackers. When attackers breach these central servers, they can access vast amounts of sensitive customer information, leading to significant financial and personal data losses.
High Cart Abandonment Rates and Poor Customer Retention
The e-commerce industry faces a high rate of abandoned shopping carts, typically around 70%, which significantly impacts overall sales. This high abandonment rate is often due to ineffective checkout processes, hidden price increases, and the requirement to create an account before making a purchase. Customers desire a fast and secure buying experience, and when these expectations aren’t met, they are likely to abandon their shopping carts altogether. The frustration from these obstacles leads to lost sales and also diminishes customer loyalty.
Supply Chain Inefficiencies
An efficient supply chain is a crucial element in modern e-commerce platforms due to widely adopted just-in-time inventory models, and high customer expectations regarding product availability and delivery times. However, traditional supply chains are often slow and encounter various bottlenecks, such as inventory shortages and cross-border trade delays due to customs processing, leading to increased costs and lower customer satisfaction.
Blockchain-based decentralized solutions, although still in their infancy, offer a real potential to revolutionize the e-commerce landscape by addressing key challenges of traditional platforms, reducing transaction costs, and providing greater transparency, security, and user control.
Reducing Transaction Costs With Decentralized Marketplaces and Smart Contracts
Blockchain technology enables peer-to-peer transactions without intermediaries, facilitating the creation of decentralized marketplaces that allow direct interactions between buyers and sellers without the need for a central authority to manage transactions. This significantly reduces transaction and overhead costs for the merchants and allows them to offer consumers reduced pricing. Additionally, self-executing smart contracts can automate transaction processes, thus further reducing the need for intermediaries and lowering transaction costs.
Another benefit of decentralized marketplaces is the lack of a central controlling entity, which allows much greater flexibility and better terms for merchants using these platforms.
Improving Transparency With Decentralized Reputation Systems and Product Origin Records
Decentralized systems can leverage blockchain technology to build transparent reputation systems where buyers and sellers can review each other based on past interactions. These blockchain-based reputation systems are more tamper-resistant since participants’ identities are verified and authenticated.
Blockchain-authenticated products are another use case where, by leveraging the blockchain, brands can verify the origin, quality, and sustainability of their products, offering customers trustworthy and verifiable information in real time, thus further improving operational transparency.
Enhancing Security and Ensuring Data Privacy
A key advantage of distributed ledger technology is the ability to provide a transparent and immutable transaction history. Data recorded in this manner is nearly impossible for hackers to alter, ensuring the integrity of the information. This feature helps prevent fraud by making all transactions verifiable and tamper-proof. Additionally, encryption and consensus mechanisms prevent customers from manipulating the authenticity of information on the platform, thereby enhancing overall security and trust in the system.
To address the issue of data privacy, blockchain-based decentralized identity (DID) solutions allow users to manage their personal information more securely. Using the blockchain to handle customer data also facilitates compliance with any existing and new privacy regulations by providing an immutable audit trail.
Improving Checkout Processes and Building Customer Loyalty
Implementing decentralized identity (DID) systems also enables customers to authenticate themselves quickly and securely without needing to register multiple accounts. This streamlines the checkout process, reducing obstacles that often lead to cart abandonment.
In addition to improving the checkout experience, tokenized loyalty programs provide merchants with easy-to-deploy, flexible, customer-centric loyalty solutions to help build brand loyalty and improve customer retention. In contrast to traditional loyalty programs, where reward points can only be redeemed for specific products or services, consumers can earn tokens that have liquidity and broader utility within a decentralized ecosystem. This innovative approach creates a digital economy where loyalty rewards function as a form of cryptocurrency. DeFi instruments can be used to further enhance said loyalty programs by enabling users to earn interest on their tokens, giving customers an incentive to hold them and engage with the brand. This system encourages repeat business and provides customers with incentives to increase their future purchases.
Optimizing Supply Chain Management
Blockchain technology offers an effective solution for tracking the origin and movement of goods through the supply chain to ensure product authenticity and quality. By enabling real-time traceability from manufacturer to consumer, we can ensure every step of the last mile is visible and verifiable. This increased transparency helps eliminate delays, reduces the risk of fraudulent deals, and ensures timely product delivery. Additionally, these technologies optimize operations such as customs clearance and inventory management through the implementation of smart contracts, making the entire supply chain more effective.
Conclusion
Blockchain technology holds a promise of solving many of the problems plaquing traditional e-commerce platforms of today. Implemented properly, it will reduce transaction fees, enhance security, and simplify checkout processes, reshaping the e-commerce industry as we know it. The integration of such systems in e-commerce will only accelerate shortly, and will inevitably reach mass adoption by the industry.
by Igor Pelipenko, OrdinalsGoods
About Ordinals Goods
OrdinalsGoods is a decentralized Web3 e-commerce platform that offers an alternative to traditional platforms like Amazon or Shopify, specifically tailored for SMEs selling niche consumer goods and services.
The platform provides vendors with lower costs, greater flexibility, and the advantage of upfront payments for subscription-based products. Buyers benefit from discounts, price protection, and added value through blockchain technology. Our mission is to create innovative, customized solutions that meet the unique needs of digital nomads, remote workers, and the businesses that serve them.
