Blockchain: opportunities and challenges for retailers

What links a Carrefour chicken with a De Beers diamond? Not much in terms of appearance, use or price.

However, both products can now be traced by consumers from source to shelf through the ever-growing use of blockchain technology in the retail sector. Retailers can gain much from the use of blockchain, but as a quickly emerging and loosely regulated technology, blockchain also presents a need for caution.

What is blockchain?

The blockchain is a decentralised public ledger system which keeps a record of every transaction ever executed via that system, using the resources of a large peer-to-peer network to verify and approve each transaction. The technology allows for the exchange of value in the form of cryptocurrencies such as Bitcoin, using the blockchain to permanently time stamp and store exchanges of value which have occurred on the network.

Benefits in the retail sector

The record-keeping nature of blockchain means that its integration into the retail sector could have positive effects for consumers and retailers alike. By keeping a record of every transaction in relation to a product, retailers can track, and pass on to customers, information from each stage of the supply chain.

French supermarket giant Carrefour, for example, this year implemented IBM-developed blockchain technology to allow consumers to track the origin of their chicken products, and recently announced plans to use the technology across a wider range of products.

Driving trust with consumers

At a time where increasing focus is placed by consumers on the ethical sourcing of goods, retailers who align their brand in this way stand to benefit from blockchain by increasing the level of trust with their customers. This is also relevant in luxury retail, where not only the sourcing of products such as diamonds and luxury clothing can be proven to consumers, but also their authenticity.

As well as monitoring the supply chain to provide information about the provenance of products, blockchain can help retailers to track delivery actions from source to destination. For example, the technology could easily record, in one place, the conditions of travel of a product and the efficiency of its transportation.

A new model for loyalty

In the United States, a franchisee of the Hooters restaurant chain reportedly saw its stock price rise considerably after announcing that its reward programs would move to the blockchain.

Tokenising loyalty points can allow customers the option of either redeeming their points, or liquidifying them by freely trading the tokens on the blockchain. However, care should be taken here; while liquidifying loyalty points benefits the consumer, the concept of trading or selling loyalty points as a crypto-asset in their own right rather than spending them could be seen to undermine the purpose of promoting customer loyalty in the first place. It is also important to bear in mind the regulatory landscape when designing the structure of any loyalty scheme or token.

Challenges of implementation

While the above benefits may seem attractive to retailers, blockchain is still an emerging technology. The devil will be in the detail as to the legal implications of any particular solution.

Data on the blockchain is often public by its nature and can be read by other members in the network; this is something that will need to be considered when designing the architecture of any rollout of the technology.

Moreover, at present there is a lack of clarity around the application of the existing legal and regulatory regime to blockchain technology. One example of this is the currently unclear legal status of smart contracts; a mechanism blockchain supports to create and evidence contracts. There remains some uncertainty under English law as to whether smart contracts executed using digital cryptographic signature meet requirements of a valid contract (i.e. whether the form of agreement together with the method used to digitally sign it reflects offer and acceptance of the contract, consideration, certainty of terms and an intention to be legally bound) or whether a digital cryptographic signature has enough evidentiary weight to ensure that the contract is enforceable.

Emerging solutions

A possible solution to this evolving landscape could be for brands to pre-emptively publish policies regarding their use of blockchain and to self-implement such regulations. Taking this further, they could perhaps even collaborate across their respective sector to create industry standards.

But the current direction of travel is top-down regulation. We are starting to see the emergence of future legislative support for blockchain technology. The European Parliament (EP) recently adopted a non-legislative Resolution on distributed ledger technologies and blockchain which noted the significance of the technology in improving supply chains. The Resolution highlighted that distributed ledger technology should, in theory, reduce the risk of illegal goods entering the supply chain and ensuring consumer protection.

The EP stressed that any regulatory approach toward the technology should try to remove existing barriers to implementing blockchain. It called on the Europe Commission and the Member States to support the harmonisation of regulatory approaches.

Due diligence is key

Throughout an organisation, employees will need to be trained and systems must be unified and capable of implementing blockchain. If systems are not ready, accepting bitcoin and other cryptocurrencies as payment on the blockchain system could slow down the payment and disrupt the business’ operations.

Retail brands should tread carefully when looking to integrate blockchain into their business, bearing in mind the risks that its emerging and unregulated nature provides. However, where implemented with due diligence and in a manner that aligns with a brand’s values, blockchain technology could prove a vital tool to engage customers while maximising efficiency and profit.