March 7, 2021

Ecommerce and Blockchains; is it worth it?

Dr Peter Mowforth

I recently came across an interesting experiment called Ecoinmerce. It’s stated objective is to create a decentralised marketplace that aims to create secure, blockchain-based shopping. This would involve every bit of information about each and every trade being distributed throughout the community of traders. Chief proponent and architect, Ping Ji, has argued that a blockchain approach to ecommerce will facilitate group purchasing, group referrals, group transactions and group incentives. Although the approach has caused a lot of interest across social media, I remain unconvinced. Primarily this is down to the missing key ingredient; competition. When large volumes of content, products and money all flow through a single point (e.g. Amazon) they create strong vested interest (e.g. share value). Such a motivating factor is missing within the Utopian concepts behind these consumer-distributed blockchains. For that reason, I see it as unlikely to gain traction within the rather ruthless and mercenary approach to trade that we have worked with for the past few thousand years.

Blockchain is undeniably a paradigm-shifting technology that is already having a huge impact on the world of finance through digital currencies such as Bitcoin. The blockchains are implemented as a widely distributed and encrypted ledger that shares the life history of transactions for each and every bitcoin. This, in turn, provides fraud protection which in turn provides trust.Anyone working at the coalface of online trade knows that trust is the key facilitator for ecommerce. Trust drives both traffic and conversions. Powersellers with high approval scores on marketplaces will sell more than other traders because they carry more trust as a result of their historical performance. However, there is a problem with this assumption because you have to trust that the marketplace is giving you the correct information. Amazon reviews have been questioned in the past when it was suspected that many were written by those close to the authors. Sites like twitter have recently been suspected of giving false trending results as a result of automated bot traffic. What these suffer from are single points of weakness. With blockchains, there are no single points of weakness because the information is spread across a large number of different electronic records. This provides yet another angle to trust by allowing a cynical trader to know and to verifiably understand who bought what from who and when they did so. You can’t cheat the blockchain. If you try to change one bit of the ledger with an attempted false transaction then the rest of the blockchain effectively overrules you.Alibaba have just announced a major blockchain initiative involving it’s cross-border supply chain. From the public announcements, this seems little more than a very basic distributed ledger that records country of origin, shipping method and arrival port along with customs report details. JD has also just announced the setting up of it’s own blockchain accelerator programme. Not to be outgunned, Japan's Rakutan is also launching its own blockchain initiative and currency.Everyone seems to be jumping on a bandwagon that’s all about being cool. What is not getting communicated is a precise and detailed understanding of why blockchains offer a benefit over, for example, a few duplicated and backed-up transaction copies.

In the final analysis, the strength and power of the blockchain is that it offers a computational architecture and framework that offers trust. Trust is there because there is no single point of weakness, there is strength in numbers, it’s totally self-checking and includes strong encryption. The problem is that all this comes at a price. Enthusiasts and investors are skipping over the blockchain core problem. To manage a big blockchain takes a colossal amount of computer power. The amount of electricity needed to manage the bitcoin network was estimated in 2017 as 3.4 Gigawatts which adds up to 30.1 Terra-watt hours (TWh) per year of energy. This is more than the production capacity of many countries. A single Bitcoin transaction uses as much electricity as an average British home consumes each week.The computational effort needed to power the blockchain is enormous. Even with the awesome power offered by the global internet, it still takes, on average, around one hour per Bitcoin transaction. To put this into context, financial centres like London put in huge effort to gain one pico-second within a transaction time. This type of high-speed network performance underpins their status as one of the main financial capitals of the world.Compute time and energy usage together constitute the inherent achilles heel of the blockchain. Until this deep and fundamental issue is solved then, blockchains should be left well alone. Doing otherwise is simply jumping on this most lumbering of overweight bandwagons. Is it all worth it, I think not.

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