Blockchain is spreading its chains

The growing impact of blockchain beyond the financial sector

Over the past few years, use of blockchain technology has grown, particularly in the financial sector. The most well-known application of blockchain technology is the bitcoin cryptocurrency. Blockchain technology, however, is also expanding rapidly beyond the financial sector. The recent announcement by luxury brand LVMH regarding its collaboration with two other luxury companies, Prada and Richemont, in a “blockchain consortium” to provide their customers with a proof of authenticity, demonstrates the growing relevance of the blockchain technology in the retail sector. This article focuses on the use cases of blockchain in the retail sector and the approach currently adopted by the EU.

Blockchain and the retail sector

The emergence of blockchain in the retail industry has brought considerable advantages. Firstly, blockchain technology is applied for stock inventory management. Ensuring a sufficient volume of stock while also avoiding excessive stock is the key to maintaining profitability for brands. Unfortunately, the industry is heavily plagued by mismanagement and over-production, which is not only extremely costly, but detrimental to the environment and damaging for customer satisfaction. In this regard, blockchain allows all relevant parties in the supply chain to share and communicate their stock levels, minimizing excess inventory and maximizing gain.

Blockchain technology is also used in supply chain management to cope with a number of issues the retail industry has been facing for years, such as counterfeiting and a lack of transparency. By using blockchain technology, companies can store all relevant information throughout the entire supply chain and trace and authenticate the entire manufacturing process of a product. This enhances security and transparency and reduces the environmental impact of the production process.

The exchange of personal data is also omnipresent in the retail sector, typically through a simple client-server networking model which does not meet high security standards. Hence, the retail industry is highly prone to system breaches and data losses. Because of its encrypted, decentralized and cross-checked nature, blockchain presents an interesting alternative in this respect, as it can serve as a secure ledger for data storage which cannot be hacked. This would not only avoid losses of revenue due to huge security breaches but also improve customer loyalty maintenance.

Blockchain presents many other advantages for the retail sector, such as a more effective management of customer loyalty, as loyalty points, rewards and coupons can be managed through one single wallet instead of multiple fragmentated programs. Lastly, the technology may also provide for efficient staff time tracking, thereby relieving the highly time-intensive burden from retailers with multiple stores.

EU Blockchain Strategy

The importance of blockchain has been strongly recognized by the EU Commission in its Blockchain Strategy. It sets out a “gold standard” for blockchain, including environmental sustainability, data protection, e-identity, cybersecurity and interoperability. According to its Blockchain Strategy, the EU wants to be a leader in blockchain technology – not just by using it but also as an innovator and as a home to significant blockchain platforms, applications and companies.

The Commission also aims at delivering pan-European public services using blockchain technology, which is being realized through the European Blockchain Services Infrastructure (EBSI) built and developed by the European Blockchain Partnership (EBP). The EBP is currently still working on three additional blockchain use cases that will be added to the EBSI after mid-2021. These concern:

• SME financing;
• a European Social Security Number to facilitate cross-border access to welfare services; and
• facilitating the management of cross-border and cross-authority asylum demand processes.

Once the EBSI is in full production, private companies and organizations will be able to join the EBSI as a utility.

As part of the EU Blockchain Strategy, the EU Commission is currently also developing a pro-innovation legal framework in the areas of digital assets and smart contracts that protects consumers and provides legal certainty for businesses. As part of the development of this framework, in September 2020 the EU Commission released a proposal for regulating crypto assets and for creating a pan-European regulatory sandbox for innovative blockchain solutions.

Next steps

The emergence of blockchain currently presents a major challenge within the EU. While the current Blockchain Strategy is ambitious, the focus to date has been on the financial and public sectors. To maximize its potential benefits, a smooth uptake of blockchain must be ensured in all sectors, including in private sectors such as the retail sector. A legal framework providing for enhanced blockchain interoperability and common standards in this respect would allow disparate blockchain systems to interact and cooperate, which would benefit the digital future of the EU as a whole.