Luxury fashion and the Italian textile industry are both relying on blockchain to move them into a new age – who will come out on top?
Blockchain consortiums for small businesses
Blockchain as a technology has permeated the fashion industry, among others, showing how technology can be used to help fashion develop across singular platforms. As a way of building trust between brands and consumers, it allows for tracking the supply chain or it provides an opportunity to offer offers and discounts to the customers, among other uses. As the blockchain space expands, so do the formats that the systems exist in. While for many luxury houses the idea of open-source, decentralized systems don’t work, it could be a solution for small businesses that want to showcase their product lifecycle in the most efficient way. A blockchain consortium is defined as a group of companies working together to create a solution using blockchain that can be applied across the different needs of its members. Collaboration between brands on a technology solution sounds new, as many brands don’t work together on a collaborative basis in fashion, focusing instead on honing their individual mark on the industry. According to a report by the Digital Currency Initiative and the MIT Media Lab, most consortiums are in finance, with only a tiny section working in the consumer industries. The Aura Blockchain consortium is a step away from finance, hoping to bring together luxury fashion houses like LVMH, the Prada Group and Richemont on a blockchain-enabled tracking solution to develop the relationship between customer, brand, and product. «The Aura Blockchain Consortium further nourishes the trusted relationship that already exists between brands and customers with added authentication and certification. The initiative allows members to enhance personal and individualized client relationships and develop new services for its customers», says Timothy Iwata Durie, Global Innovation Director of Cartier. While some names are notably absent (Kering) from the line-up, the consortium still exists as the biggest effort of fashion houses working together on solutions for problems facing the luxury market like counterfeits.
Aura Blockchain Consortium
With a growing interest in sustainability and an understanding that luxury products hold a trackable supply chain, the idea of bringing in luxury item ID’s using blockchain seems like a move against replicators. According to Toni Belloni, Managing Director of LVMH, «all of the founding members have the same commitment to the quality of their materials, craftsmanship and creativity. Their customers value savoir-faire and high-quality sustainable materials above all else and see the Aura Blockchain Consortium as a key tool to promote these values and beliefs». This is what unites the houses that form the consortium – a commitment to the old-world fashion industry steeped in craft and artisan focus as well as an understanding that their brands are here to stand the test of time rather than buying into hype. The houses of the future understand that to survive they want to remain the most trusted among their consumer base, while also considering the environmental impact of using blockchain across their supply chains. According to Timothy Iwata Durie, Global Innovation Director of Cartier, this is also the main reason for keeping control over the blockchain. «Conventional public blockchains use decentralized data infrastructures all over the world and the ‘proof of work’ consensus mechanism to validate data logged on blockchain. They are more energy consuming and there is a lack of transparency of whether any green energy is used. Thanks to its private and local nature, Aura’s blockchain does not consume more energy than the use of CRM, websites, or other internal IT tools. In addition, this private and local structure allows every member of the Aura Blockchain Consortium to maintain its own data and adhere to the strictest standards of customer privacy». Doubts have been raised over blockchain’s impact on emissions as the ‘proof of work’ structure requires vast amounts of computational power. As luxury consumers have a vested interest in keeping their data private, encryption is of paramount importance. «Contrary to other blockchain solutions, our technology will not have visibility over the brands´data and will therefore not have access to client information or to product specifics. All data will be encrypted while uploaded. Brands will be entitled to read their own data and obtain customer information which they already manage through existing in-house solutions. The Aura Blockchain Consortium will operate authenticated platforms, based on the blockchain technology, for the benefit of its members. The set-up, operation and maintenance of these authenticated platforms have been structured in a way to prevent the Aura Blockchain Consortium, its members and third-party service providers (including their representatives and employees) to have access to any confidential information uploaded by another member on the authenticated platforms» says Lorenzo Bertelli, Prada Group Head of Marketing & Head of Corporate Social Responsibility. Making confidentiality a key feature of the blockchain consortium is one point of differentiation for the luxury brands involved.
What about blockchain standardization
Blockchain is not only used within private structures – it can exist in a decentralized way that allows for an open-source format, making it more adaptable to the shifting uses for blockchain. As features like the supply chain tracking gain the attention of governments and councils, there are concentrated efforts to create a standardized blockchain solution for areas like the textile sector to showcase a better industry standard and ensure affordability for European SME’s. As part of the EU Horizon 2020 program, the Trick Project works on creating an ethical solution to the blockchain problem. Coordinated by Piacenza Spa, with the Sistema Moda Italia playing the role of guarantor, it is working with twenty-eight organizations, associations, and companies to present a solution using blockchain for small businesses. By understanding the entire supply chain, including data, services and semi-finished products, the Project would show how it is possible to improve it, not just in one company but across the European continent. This highlights a difference between the Aura Consortium and the Trick Project, with the geographical scope being far bigger within the project. As previous supply chain tracking has shown though, the necessary data on the blockchain still needs to be input by a person making it vulnerable to deception and error. Considering this fact, would the geographical scope become a hindrance, without being able to control the individual data inputs on the blockchain? This is one of the main reasons that blockchain solutions are seen as such for one end of the supply chain – without rigorous training for blockchain data entry, the idea of a decentralized, SME-focused textile blockchain system may not work.
Private consortium or interdisciplinary collaboration
Considering the challenges posed by the Italian blockchain model and the possible lack of transparency within a private blockchain solution, it is clear to see that while the blockchain system is meant to be used to foster trust and create a more sustainable industry, it still has not settled on an ideal format. «We do not see meaningful comparisons between Aura and other blockchain protocols. The true value of a blockchain model is not driven by the degree of decentralization. Value to our customers is derived from the diversity of applications/use cases that a blockchain protocol can deliver to brands. At the moment, none of the existing decentralized models cover the entire value chain of the Luxury industry. They tend to focus primarily on downstream use cases by issuing a digital certificate on the finished product but do not cover traceability of raw material and supply chain transparency for instance. Aura is created by luxury companies for luxury companies, and it is in a much better position to innovate and to protect both customers and member brands. Another key differentiating factor for Aura is that it is structured as a non-profit organization with a democratic governance model to ensure each participating luxury brand member has a voice», says Timothy Iwata Durie, Global Innovation Director of Cartier. The applications for the blockchain model have so far been limited to supply chain tracking and exclusive member options – it is to note that no other uses for blockchain within the fashion industry exist. Even initiatives like the Trick Project have understood that they would struggle with possible applications if they were only to focus on one industry. Their interdisciplinary applications could show the way forward for standardization across industries where tracking is difficult – their proposed ideas after textiles focus on the food industry. The variety of SME’s have challenges that are not similar, making it important for ideas like the Trick Project by Sistema Moda to determine the different ways that the blockchain can be used to create a universal form of access and data for the European textile industry.
Aura Blockchain is a new non-profit organization launched in April by luxury companies LVMH, Prada and Cartier. Its aim is to promote the use of blockchain technology to make sure consumers have the information they need on transparency, traceability, and product authenticity. Their most recent appointment comes with Daniela Ott, previously from Agape Strategy Consulting, who steps into the General Secretary position, reporting directly to the Consortium’s Board of Directors.