As the adage goes, “knowledge is power.” In the internet age, nothing could be closer to the truth, but in modern times, data is knowledge when it comes to understanding consumer preferences and trends. For retail, the voluminous amounts of data generated both in-store and online is a treasure trove of information, often contributing to the growing imbalance of power between merchants and consumers.
Modern retail dynamics disproportionately favor industry gatekeepers maintaining the leverage thanks to the vast amounts of monetizability from data they can use to derive insights or sell to advertisers and other intermediaries.
However, the consumer side of the stakeholder equation is absent in these notable benefits obtained by retailers and gatekeepers higher up on the value-chain. Centralization of activities most often comes at the expense of the least empowered group of participants in the equation. In the case of retail, this means that consumers are left most exposed, whether via informational asymmetries or biases.
Until very recently, bridging this gap was a pipe dream at best. However, cryptocurrency is showing that better stakeholder relationships can be forged thanks to the introduction of more transparent, closed-value ecosystems that abolish the role of unnecessary intermediaries.
The Impracticalities of Necessity
The birth of the internet led to a gradual but very real centralization of data in the hands of a few corporations. Despite its unique ability to make the world a smaller place, the internet reinforced the time-honored tradition of intermediation. Whether ISPs, search engines, marketers, or merchants, the amounts of data generated by global internet users is immense. That numbering is estimated at 2.5 million terabytes daily according to figures compiled by IBM. For retailers, the data they collect on user habits and behaviors is extremely valuable, harboring insightful and actionable information used to better monetize consumers, and even predict future buying patterns.
Despite this massive daily output, the actual data remains in the hands of a few parties that decide how to manage and capitalize on the information. Amazon perfectly exemplifies this problem by acting as an intermediary between merchants and consumers, taking fees for their services alongside all data pertaining to transactions. This data is then mined for marketing re-targeting purposes and other push advertising activities. Even though merchants do receive some information about their consumers, they remain largely at the mercy of Amazon, and rarely see the full picture.
Instead, Amazon can drip-feed them nuggets of information while keeping the valuable aspects of data for themselves. Furthermore, merchants listing on Amazon are required to pay monthly subscription fees and a fee per sale.
Nevertheless, these drawbacks have not prevented Amazon from capitalizing on its central role in e-commerce. It is evidenced by the rapid surge in its market capitalization and growing list of services. Even so, new market participants are quickly disproving the myth that online retailers need intermediaries or facilitators.
Shopee, a Philippines-based mobile commerce application has boldly gone where Amazon has not, offering a platform free of fees and commissions as it attempts to grow its market presence.
Small and medium-sized businesses are flocking to the service thanks to its helpful guides on launching an online presence. It has to date already garnered widespread support with over 80 million downloads in 2017 alone. However, despite the benefits for consumers and merchants, the one area they’ve left untouched is sharing the data.
Cryptocurrencies Eschew Centralization
Today, data is money and power. The ones in control of it (gatekeepers and intermediaries) are able to extract the most value with no trickle-down or benefit to merchants or consumers. Instead of building a more transparent retail relationship which generates better loyalty and satisfaction, the two-tiered system currently propagated means that the consumers responsible for the largest contribution reap a fraction of the rewards.
Meanwhile, instead of retaining value within the retail equation, intermediaries and gatekeepers extract as much as possible for themselves the value without returning it to the retail network. Thankfully for consumers and merchants alike, blockchain and the cryptocurrencies built upon the architecture promise to permanently alter this current dynamic.
By enabling trustless and transparent relationships between parties, blockchain and its peer-to-peer capabilities effectively eradicate the need for layers of brokers, intermediaries, and other entities that extract value in lieu of sharing or contributing. Thanks to its unique design and immutable ledger, blockchain-based cryptocurrencies bring balance to a skewed equation by ensuring that the most valuable systems are those by which value remains contained and shared equitably.
One of the obvious applications is payment processing, a notorious pain for merchants and a cost that is sometimes passed on partially or in full to consumers. Thanks to cryptocurrency’s unique properties which enable rapid transmission of value across the globe in minutes instead of days alongside minuscule transaction costs, blockchain has sparked a race to build the replacement for existing credit card payment systems.
Apart from payments, cryptocurrency helps build contained ecosystems that do not leak value because only a finite amount of coins are minted at the outset. The deflationary nature means that over time, an ecosystem can gain in value as more users embrace their functionality. Tokenization especially is a strong feature of these newer services that break down the barriers and eliminate the role of middlemen.
Users are rewarded with tokens for activities like social posts and completing tasks that promote a retailer. Before redeeming tokens for discounts at their favorite retailers, they complete the value cycle without any leakage. Meanwhile, retailers benefit from increased loyalty and positive advertising. By connecting directly, both merchants and consumers advance their respective interests without any value extraction.
Blockchain At The Vanguard Of Disintermediation
There are notable drawbacks to centralization, namely poorer services that extract value instead of adding value to an ecosystem. It also adds unnecessary layers of intermediaries throughout the value chain, raising the costs of doing business, a burden that is ultimately shouldered by merchants and consumers alike without the benefits of mining the accompanying data.
Blockchain and cryptocurrency are especially attractive and unique for disrupting this model thanks to beneficial models that abandon intermediaries. They help level the playing field for participating merchants and consumers, sharing the data and insights transparently for all participants. Furthermore, these closed ecosystems help contain the value, with greater adoption contributing to an idea’s potential and worth over time. As they gain momentum, they will likely displace established names in eCommerce or force giants like Amazon to embrace more open models that lower the costs of doing business while cultivating better relationships between merchants and consumers.