Blockchain technology is revolutionizing the way we buy online, having entered the mainstream as a viable alternative to traditional banking. Perhaps the most well-known impact of blockchain is the emergence of cryptocurrencies like Bitcoin and, more recently, NFT. Now, the power of cryptocurrencies and blockchain technology is making major waves in the business of e-commerce and fintech.
Blockchain can be quite a daunting idea if you’re not too familiar with how it works – but it’s only getting more and more prominent in business – so it’s important to understand what makes it so revolutionary.
What is blockchain technology?
A blockchain is a decentralized network that can act as a distributed ledger for online transactions. It is a list of records, or ‘blocks’, that are cryptographically connected in a virtual chain.
How does blockchain work?
In a decentralized network, every party involved in the transaction will manage its own independent ledger, and these records are compared to ensure all of the information lines up. The blockchain automates this verification process. You can picture it as an online document existing on the cloud that anybody can access at any time, which updates in real time.
When a transaction is made via blockchain, a record of that transaction is added to the chain as part of a block. A block contains pieces of digital information in the form of code. These pieces of code are like puzzle pieces that must be put together in the right way in order to verify the block.
Once a block enters the chain – it’s there forever and cannot be altered. Every block is mathematically connected to the block that comes before it, which helps keep the chain unbreakable.
In order to ensure the integrity of transactions, individuals can become nodes or miners. Nodes and miners are users that ‘solve’ or decipher the code contained within a block. They have their own version of the blockchain - but every miner can see every other miner’s version. The first miner to solve the code adds it to the chain, and then the other miners validate that the code has been solved correctly. The miner that initially solved the code is then rewarded; this is called a block reward.
Having a fully transparent ledger that is verified by a network of users allows the blockchain to operate accurately and fairly.
Why is blockchain technology useful?
As you know, when transactions are made online, no physical cash is actually sent from the sender to the receiver. Instead, banks and other financial institutions exist as a ledger to regulate, manage, and verify the integrity of transactions. The central banks are in charge of securing, updating and managing the transactions we make and the money we move – and we trust them to do so fairly and accurately.
Banks also have the power to block payments, change balances, and freeze accounts. Plus, fraud, data breaches, and corruption still happen even with a central bank presiding over every transaction. Using a bank also comes with extra costs that wouldn’t be necessary using a decentralized entity. Over time, people have come to realize that a centralized ledger isn’t necessarily the most trustworthy or efficient option.
Rather than rely on a single entity to verify and manage transactions, the blockchain exists as a transparent, decentralized ledger of transactions that can be connected to by anyone with internet connection.
Blockchain and e-commerce
Blockchain offers many benefits to both businesses and consumers when it comes to e-commerce and online transactions.
Using blockchain technology helps cut back on costs. For one, blockchain does away with the hefty fees that come with using banking institutions to facilitate payments – especially with international transactions. A business can also use blockchain to monitor its supply chain far more efficiently, which also helps cut costs.
Blockchain will save e-commerce businesses a lot of time. Payments can occur a whole lot faster when they’re verified in real time without having to rely on banking hours and human labor. With the bank, you may have to wait hours or even days for a transaction to be processed, but a blockchain transaction is processed almost instantly.
Blockchain technology provides a secure, unbreakable platform to manage e-commerce businesses through smart contracts. Through smart contracts, e-commerce businesses can automate a bulk of their operations, like inventory management and blockchain invoicing, in turn cutting down on costs and boosting efficiency. A smart contract acts just like a traditional contract, but without any room for error or dispute, offering a simpler, safer way to do business globally.
Transparency is one of the clearest benefits of blockchain transactions. Fraud and forgery could become a thing of the past when everything is clear and visible on the blockchain.
Using cryptocurrencies also makes it easier for businesses to connect with a larger audience – without the barriers and costs that come with dealing with multiple international currencies.
We can help
GoCardless helps you automate payment collection, cutting down on the amount of admin your team needs to deal with when chasing invoices. Find out how GoCardless can help you with ad hoc payments or recurring payments.