Fashion is realizing it cannot work in a vacuum anymore. With blockchain, material tracing technology and NFT’s, here is the future of the industry
What is blockchain? Mr. Lorenzo Bertelli
Ever since the rise in clothing consumption of the Eighties, fashion has split up its supply chain, moving large parts to Asia, mainly Bangladesh and China. With nascent technologies aiming to change the way that supply chains are tracked from yarn to shop floor, fashion is about to go through a transition. Blockchain, a ledger system that is supposedly fully track- able, would allow tracking across the whole supply chain. Blockchain is dependent on concepts that define a way of managing, conducting, and tracing transactions. Previously, administrators would either allow or deny the request to add a transaction to a ledger account – the technology does this differently, validating the transaction through three consensus mechanisms. These are: proof of work, where one party needs to prove that a certain amount of computational effort has gone into the process (as with Ethereum where the act of finding the asset in dataset allows for it to be added to the chain); proof of stake, where a larger number of coins dictates that a participant is more experienced and trustworthy; and proof of authority, where the reputation of a participant forms the value.
Blockchain is split between business-focused systems where participation is either public, and anyone can join if they fill the pre-requisites, or private. Public participation is simple – if participants can adhere to the three consensus mechanisms, they are free to use the blockchain. Private, on the other hand, focuses on specific organizations and an internal network that restricts data content and can block certain transactions. Private blockchains are more like traditional databases with centralized networks. The main concept of block- chain, however, revolves around a separate aspect – transaction immutability, or the fact that transactions cannot be deleted off the ledger. As this is the central feature of blockchain, it means that all security questions and risks need to be posed while factoring in the immutability of the ledger of transactions. Once the data is entered, it is permanent. The data itself is still open to possible corruption before it is entered into the system, making blockchain a good option for logging data, but only if the sources are fully audited and adhere to ethical standards. «While blockchain certifies a movement, it does not certify the truthfulness of the information. Responsibility for the content shared on the blockchain lies with the business that adds the information into the system», says Lorenzo Bertelli, Prada Group’s Head of Marketing and Corporate Social Responsibility. As many aspects of the wider fashion supply chain are fragmented, the possibility of full control over a brand’s supply chain may be an impossible feat until all stakeholders and producers adhere to universal regulations.
Whether to go private or public? Mr. Toni Belloni
One sector of the fashion industry – luxury goods – is already harnessing blockchain to track its production, which has remained largely ethical and traceable since its inception. Issuing physical certificates of authenticity has been the standard practice for luxury goods but these can easily get lost or damaged. Some companies have moved their records online and keep databases of their products along with customer details. This would still leave them vulnerable to hacking – blockchain avoids this by making sure that authentication and accountability are the priority. Blockchain technology has been hailed as a solution for tackling the ever-confusing rabbit hole of fashion production and life cycle tracking. These systems work well with the traditional aspects of the industry that rely on their reputation being tied to the work they do, with high-quality items typically produced in Europe. «Most of the value of luxury goods is in the brand itself, the reputation for high-quality materials and craftsmanship it has built over decades or centuries. Technologies like blockchain ensure that the products sold are authentic and contribute to preserving the prosperity of luxury brands over time», notes Toni Belloni, Managing Director of LVMH. The business of counterfeit goods has become a serious issue for luxury brands that rely on their authenticity and dedication to quality to attract discerning customers. As social media has made these brands even more desirable, the counterfeit market has ramped up production to deliver luxury good lookalikes at a steep discount. According to the 2018 Global Brand Counterfeiting Report, luxury brands lost 30.3 billion US dollars worth of sales to online counterfeits alone.
Arianee blockchain technology and Aura blockchain – Mr. Pierre-Nicolas Hurstel
Arianee has used a public blockchain to help tackle the issue by giving brands the option of creating a digital passport that tracks the lifecycle of their item: from raw material all the way through to the customer, even after resale in an open-source format. To use Arianee’s technology, brands must apply to become a member, with the option to use software to create a tailored solution or to develop on the open source. «We come from an open-source vision, and we’ve created an open-source technology within a non-profit consortium. For a while, we thought that this would be enough to kickstart the project and that brands, integrators and developers would just embrace that and build on the open source. We found that in 2020, that was not enough. We built a software as a service for for-profit business. On top of this, we’ve developed and edited software that brands can now employ to use our technology at scale. The moment we did that, we saw an increase in traction from the brands», says Pierre-Nicolas Hurstel, CEO of Arianee. Arianee works with luxury watchmakers Breitling and Vacheron Constantin, as well as Audemars Piguet, MB&F, Roger Dubuis and Manufacture Royale, who have built up records of their timepieces and for whom the shift to blockchain is focused on the change to technology, rather than the problematic aspect of tracing their supply chain. Working with a blockchain company like Arianee is the first step in making sure that luxury brands hold onto their status. Hurstel has said that working with resale sites is a way that Arianee can approach the market, which has grown in recent years. Resale is part of the circular economy. Hurstel also wants the products tracked using Arianee blockchain technology, to have the option of being linked to repair services that would extend the life cycle of these products. This aspect of using blockchain shows that it does not have to be used on new products only – it can also be applied retroactively, tracing back the ownership of prized items.
Information stored on the blockchain – Mr. Timothy Iwata Durie
While Arianee allows for open collaboration on the blockchain across the source code, other companies are experimenting with different options. Aura, the non-profit luxury fashion blockchain consortium from LVMH, aims to use blockchain to secure its authenticated products as the ultimate luxury. «One of the advantages of keeping control over the blockchain is the impact on energy consumption. Conventional public blockchains use decentralized data infrastructures all over the world and the proof of work consensus mechanism to validate data logged on the blockchain. They are much more energy-consuming and there is a lack of transparency on 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 fully maintain its own data and adhere to the strictest standards of customer privacy. Information stored on the blockchain cannot be changed, tampered or hacked», says Timothy Iwata Durie, Global Innovation Director of Cartier.
The blockchain software also comes with benefits – tracking a product’s lifecycle is one way to make sure that companies are building up good practices and expanding on them. As the demand for auditing ramps up, so too does the market for bypassing them. The growing problem of factories around the world altering their auditing or not following ethical production standards shows that technologies like digital passports, that accompany the physical product, could help consumers in recognizing the highest levels of good company practices. Luxury purchases are now frequently seen as investments with increasing and depreciating value over time, making authenticity a key benchmark for assessing that value – especially for Gen Z consumers who could easily access apps to validate their purchases and prove their value. This also applies to Non-Fungible Tokens, or NFTs, that have been gaining popularity within the luxury market as another way of offering valuable, unique purchases to loyal customers. Paris Fashion Week is now offering an art NFT by Richard Haines for those accredit- ed. As NFT’s also exist on the blockchain, their certifications can co-exist alongside those of physical items. NFT’s also expand the reach of the fashion aesthetic – items no longer need to be pieces of clothing, but can also be art pieces, sculptures, or digital creations.
The rise of the blockchain NFT marketplace
With the fashion industry still unable or unwilling to address the need for immediate change and restructuring of the supply chain, digital fashion offers many solutions for how retailers, brands and shareholders can include digital garments in fashion, swapping out physical items used in displays for their highly realistic digital counterparts. Through blockchain, items are tracked across their life cycle and don’t run into the risk of being outsourced to third-party contractors, as with physical fashion. Creating an item’s signature means that every garment is authenticated and stored. The possibility of trying on a digital garment, as opposed to a physical one, also has benefits in the race for sustainability – trying on a realistic digital garment at home could reduce the number of returns that plague the industry. As the fashion world expands with new brands, consumers are unsure of what sizes work best for them. Digital garments would decrease the high number of returns that come from bracketing, where shoppers get an item in two sizes for a better idea of fit. According to the IMRG Returns Review for 2020, in the fashion sector menswear generates twenty-one percent returns while womenswear generates thirty-four percent returns, against an average returns rate of twenty-five percent (although this can be as high as forty-five percent).
The Dematerialised marketplace – Ms. Karina Nobbs
On The Dematerialised, marketplace creators can sell their pieces and have them authenticated through a blockchain system backed by Lukso, tracking them along the way. «As a concept, we’re trying to deconstruct and reeducate people to see that digital fashion is an alternative form to experience fashion. It’s democratized, it’s decentralized. Emerging research points to the notion that it is also less impactful on the environment, although this is still a grey area when you add in cryptocurrency and complicated or advanced artificial intelligence as a way of either serving the digital fashion or placing the digital fashion on you», says Karina Nobbs, co-founder of The Dematerialised. Games like Drest and other creators like Auroboros have shown that there is a market for digital-only garments that can be switched, traded, and owned just like collectable items, especially as demand for physical fashion waned during the pandemic. Many people still think that digital fashion is a field in its inception, an imitation of the real thing that can only be seen as real through its materiality. High-end, realistic digital garments – like the Fabricant’s digital-only Iridescence dress which sold as a tradeable, traceable piece of art for 9,500 US dollars and created a furore online for its quality – exist.
The art world has also moved into blockchain, with artists selling their pieces. Grimes – the singer, artist, and wife of Elon Musk – made 6 million US dollars in twenty minutes by selling her work online, proving that it would not be far-reaching to apply the cryptocurrency boom to the sale of collectable fashion pieces, as well as less traditional items to a group of fans already working and buying in the digital space. Another benefit of this use of the block- chain is that it is not exclusionary – prices can vary from one US dollar to 1 million US dollars. Zero-inventory models could be a way for fashion brands to get rid of excess environ- mental impact. With the advent of digitalization, some wonder why this move hasn’t come sooner. Providing examples, Karina shows that «using digital assets from a fashion show and putting them directly on an e-commerce site so that you can move towards a zero-inventory model, so that you only purchase what is actually in demand, is progress». With the development of technology allowing for realistic fabric creation and high-definition graphics, a zero-inventory model fronted by digital fashion seems like a logical way to show products to clientele while delivering on the climate change promise, a goal that many brands are still falling behind on.
Cryptocurrency and blockchain
It may seem alienating to people who want fashion to remain a discipline that prioritizes craftsmanship and artistry in their physical forms. What those people don’t realize is that the time and effort to build a digital garment can sometimes exceed that of a physical one, making it just as labor intensive as its physical counterpart. Watchmakers, like Franck Muller and Hublot, have started selling some of their watch pieces using Bitcoin as a way of catering to exclusive customers. Musicians and artists have also started to use cryptocurrencies as a way of keeping fans loyal, offering them unique releases only accessible to those who have their currency. In Japan, this system works the same way with physical items – fans of popular girl groups buy CDs in the hundreds to get points that aggregate to one-off rewards, like concert tickets or access to their idols at idol cafes. Could this work the same way with fashion items that accrue value over time? Karina Nobbs notes, «one of the interesting things for the blockchain mechanism in digital fashion is that it allows creators to take a cut. This is going to be the same for music, it’s going to be the same for art – every time you sell a piece, the original creator gets a royalty fee». While the main use for blockchain impacts the supply chain and its sustainability, it could also offer an alternative that is good for business too.
The future of digital Fashion
Digital fashion could be a way for the younger generation to create new items, showcase their work and build-up businesses that are not dependent on existing fashion structures. The University of Creative Arts in Farnham, UK, has launched a Masters program in Digital Fashion, aimed at training the next generation of digital fashion creators. Another aspect of appeal for digital marketplaces comes from the digital archives of key brands within the industry. In the last ten years, the growth of the fashion museum exhibition has shown that there is a market for the archival collections and garments of legendary designers from the fashion world. Archivists from brands like Alexander McQueen are working closely with digital creators look- ing to promote and showcase the attention to detail of heritage brands. Karina Nobbs notes that interactive pieces work best. «In a post-pandemic era, brands could invest in in-store installations, or even VR experiences which have a digital fashion element to drive people back to stores and museums. Lots of people, when I talk to them, say, if I had gone to the Alexander McQueen exhibition or the Dior exhibition and had a try-on experience, I would have loved that. There’s a lot of places that we can go with this in the future». For now, the future of The Dematerialised fashion marketplace seems to be going from strength to strength. The Dematerialised launched their open beta in September 2021, opening their marketplace to all types of NFT products. While selling NFT’s may not be a new proposition, the idea behind The Dematerialised focuses on authentication first, making every creator a valued part of the pro- cess. Without the innovations behind blockchain and its applications in fashion, the future for digital retail may have looked different. As the pandemic has resulted in the shift to online, digitalization can bring a quicker retail model, supported by blockchain systems like Lukso, that focus on giving creativity its due while also being fully traceable.
Why data becomes paramount – Mr. John Graham-Cumming
As blockchain permanently displays user data, depending on the level of the transaction and the type of participation, privacy matters. While Cloudflare’s activity may be seen as a background to the day-to-day running of supply chains and services, problems are surrounding the monumental shift to online work and online systems. As most of the fashion industry’s data is stored on online cloud systems, and more to come with the adoption of blockchain across further areas of the supply chain, the management of the data involved is the challenge the industry is facing. «Sometimes, privacy is seen as something that is driven by compliance needs and that it’s a necessary evil. But things have changed and privacy is becoming something that consumers are worried about and something that companies are going to need to realize is part of the landscape now», says John Graham-Cumming, CTO of Cloudflare. Coupled with the quick detection of incidents and vendor management systems provided by security companies like OneTrust, data becomes not only safer, but a tool for better business practices that can be more reliable and provide value to business leaders.
Legal issues with blockchain and data – Mr. Blake Brannon
Even as blockchain aims to traverse borders using data from multiple sources, data laws may not allow a wide adoption of the technology. Data laws are becoming stricter and the same will apply for stakeholders, with many data transfers coming under scrutiny from countries with differing data laws. In 2018, California was the first to create a state stat- ute to enhance the privacy rights and consumer protection of its residents (CCPA). On the November ballot of this year, they approved a second version (CPRA) that will go into effect in 2023. It is not unreasonable to assume that there will be a federal law at some point soon in the U.S. In Europe, there was a disruptive event last summer where the European Data Protection Board (EDPB) ruled that the Privacy Shield program that protects transfers of data from Europe to the U.S. was invalid. It was a simple way to say that its citizens of business no longer trust data transfers with the U.S. The EDPB is planning to put out further guidelines and information on what safety protections they would need to approve in order to trust data transfers. Blake Brannon, CTO of OneTrust, knows that «even companies that store data and data centers that are physically in certain countries are still American. Apple or Amazon – who are the top cloud service providers – are still American companies». As the data sources have been deemed unreliable, this proves to be a problem in the adoption of blockchain, which tracks the item using data across different regions. These issues, posed by the relatively unregulated market of access to data, mean that the regulations need to be put in place now, advancing the conversation towards more reliable ways of both storing and transferring data across borders. Other factors also need to be considered in the conversation around the accessibility of the internet – as many users, in the words of Tim Cook, pay for services and online information with their data, as they cannot afford to do so otherwise. Could this also become a way that companies gain data from their customers that will end up being re-sold? For poorer countries, free access to the internet is a bene- fit that cannot come at the cost of ruining the progress within those countries. The issue of security is one that is focused mainly on Western countries, as those with the highest level of access to information about privacy issues, especially in popular culture, with the development of security-focused products. In all areas and at the highest levels, the people should be guiding privacy policy, focusing on a flexible architecture that can allow for the re-engineering of existing products and systems. This would allow blockchain to act properly, tracing items across borders instead of hitting dead spots where data can’t be accessed.
While retail companies, for everything other than luxury goods, have yet to leverage the type of value associated with security and blockchain systems in a real way, these security features could soon become an essential part of making users feel safe to divulge their data and fulfill the ever-growing demand across platforms. Blockchain allows for a personal bread- crumb trail on every item a consumer buys, making it a source of data that can streamline the industry as well as facilitate an easier way of proving authenticity. On the supply chain side, this security component is a no-brainer, especially as brands are looking to transparency as a way of certifying that they value a sustainable model of production. Bringing the tracking technology of the blockchain to the fashion system would allow for the gaps that have stalled the conversation around sustainability to be filled.
Blockchain
The technology focuses on distributed ledger technology, which means that all data is shared, instantly accessible for participants and synchronized across a peer-to-peer network. As all transactions are recorded chronologically, this shifts the transactions from a fragmented, untraceable model into a chain in which all participants are aware of the transactions that came before.
