Blockchain expert Girish Bajaj discusses the benefits and challenges of the new-age technology for Indian luxury and discusses the best ways of adopting it.
One of the biggest concerns of the luxury market is counterfeits. It negatively affects a company’s reputation and consumer sentiment. To counter the problem, many luxury giants, including LVMH, are investing in blockchain technology. It minimizes the number of frauds and maximizes efficiency, security and transparency.
What is blockchain technology
A blockchain is a digital public ledger that records and stores transactions/data in a decentralised and cryptographically secure system while providing the required information of all the participants and of all the digital transactions that have ever been executed. Blockchain technology records each undertaking and shares it across the network, with the participants/nodes.
Every participant/node in the public/private network can validate the transactions through a consensus mechanism. The system generates an identical
copy of the ledger to which the encrypted transactions can be added any time. The changes made to the ledger are also reflected in all the copies of all the participants in a few seconds/minutes.
Series of blocks
The block is an integrated part of the blockchain. After a transaction is completed, its record is stored in the blockchain, making any unauthorised changes or malicious tampering impossible. Each block of transactions is interconnected with the previous blocks with a hash function. To hack any block, a hacker would have to hack to the very first block. Currently, no computer has such a high computation power to hack all the blocks.
This disruptive technology is perfect for luxury companies that provide ownership, authenticity, verification and provenance information of their goods.
Currently, Bitcoin’s blockchain is the most trusted immutable data store.
Blockchain and luxury
Blockchain helps the luxury sector in three ways:
1. To verify the authenticity of its high-priced goods
2. To trace a product’s origin and
3. To eliminate counterfeits
LVMH, one of the world’s most reputed luxury conglomerates, has launched its own blockchain platform called Aura. Louis Vuitton and Parfums Christian Dior are among the first brands on the platform. The mother company will gradually extend the technology to its other labels as well.
Blockchain for luxury consumers
Through blockchain, consumers can not just identify an authentic product, but also learn about its design, the raw materials’ supply chain and product care and
warranties. AURA is a permissioned version of the Ethereum blockchain, built using Quorum, which is developed by JPMorgan. “To begin with, AURA will provide proof of authenticity of luxury items and trace their origins from raw materials to point of sale and beyond to used-goods markets. The next phase of
the platform will explore the protection of creative intellectual property, exclusive
offers and events for each brand’s customers as well as anti-ad fraud,” said an LVMH spokesperson in a press release.
In the diamond industry, Tracr, an industry-focussed distributed traceability platform was developed for the industry by De Beers. Tracr is the first organisation that can securely track a diamond across the diamond value chain – from mine to cutter and polisher through to the jeweller. It is an open-source blockchain platform, a collaboratively produced, shared freely, published transparently, and developed to be a community good rather than the property or business of a single company or person. Tracr allows users to keep ownership of their data and share it selectively, while still ensuring immutable traceability.
On the Tracr blockchain platform, a unique Global Diamond ID records a diamond’s features such as its carat, colour, certification number and the diamond’s history, ownership and origin. The programme then verifies the said
data at each stage of the diamond’s movement from the mine to the retailer.
Christie’s, one of the most reputed global art auction houses, made history by selling 42 artworks of the highly prestigious The Barney A. Ebsworth Collection of 20th Century American Modern art. This auction was in excess of $300 million
value and all the details of the auctions were recorded on a permissioned (private) blockchain of the Ethereum blockchain, managed by Artory. This was the first global art auction of this magnitude, which was recorded on the blockchain.
Artory’s blockchain records the transactions, throughout the life cycle of an artwork, which can be accessed by only those who are permitted into the system. It provides potential art buyers with a secure digital record of the history of each artwork, digital certificates generated each time it gets auctioned/sold.
Richard Entrup, Chief Information Officer at Christie’s said, “The introduction of blockchain into such a significant sale has opened a new collecting audience to the benefits of blockchain technology in the art space and sets the stage for more developments in the future. The Ebsworth Collection has been the ideal pilot for exploring this exciting innovation, given the rich history and provenance of the artworks in the collection and the exceptional prices achieved for major blue-chip artists, including Edward Hopper and Willem de Kooning. Christie’s is pleased to have introduced this exciting technology to our clients as the first step towards broader adoption of blockchain innovations for the art market.”
Adopting blockchain technology and challenges
Blockchain is in its early stages of adoption in India and many companies are currently implementing a proof of concepts and/or pilot projects. For a smooth implementation process, the key company employees should know their industry and customers well and identify the problems they would like blockchain to resolve. Next comes the action checklist and the implementation timeline along with figuring out the cost of implementation, the right resource to do the job, blockchain training for employees and most importantly, the return on investment.
The Mack Institute came out with a flow chart for a systematic process to help enterprises understand and make an informed decision. The cost to implement blockchain is project-specific and costs anywhere between $70,000 and $700,000+, depending on the brand’s requirements. Blockchain platforms such as Hyperledger, Ethereum, Corda, and Quorum are open technologies, hence cost-effective. But one must also account for operational expenses and upgrades.
I recommend adopting the technology in phases. Focus on one specific use case, go ahead with the proof of concept (poc), test it and monitor it well, identify the pain points, and post the analysis, implement it and roll it out with a few customers and gradually expand it.
According to Gartner, enterprises will generate business value estimated at $176 billion by 2025 and will grow rapidly to $3.1 trillion by 2030. “But product managers should prepare for rapid evolution, early obsolescence, a shifting competitive landscape, future consolidation of offerings and the potential failure
of early-stage technologies/functionality in the blockchain platform market,” said
Adrian Lee, senior research director at GartnerForecast: Blockchain Business
Value, Worldwide 2017-2030.