Are NFTs out, or does luxury still need them?

After much consideration, you’ve decided to drop a pretty penny and add a remarkable luxury item to your life. You are not alone.

From fine jewelry to cosmetics, the luxury goods industry continues to dominate and break global sales records. So if the industry is already reaching new heights in almost every business sector, what’s the point of adding blockchain-based non-fungible tokens (NFTs) to the mix?

One of the main drivers of this influx of attention towards luxury goods is younger generations, with millennials and Gen Z customers estimated to make up 60% of the luxury market by 2025. Similarly, the public makes up a majority of cryptocurrency investments and digital asset utilization also skews younger. Many luxury brands are already taking note of this crossover appeal, with power players such as Balenciaga and Philipp Plein embracing crypto and other Web3 developments, such as NFTs and the Metaverse.

Despite digital assets gaining attention through serious brand recognition and star power, many customers and companies remain skeptical of these new and unpredictable technologies, especially now that the entire market is crashing. NFT giants that dominated crypto’s heyday have now fallen significantly from grace. Landmark events like NFT.NYC have been dismissed as hollow fundraisers and once-reigning NFT exchange OpenSea finds itself caught up in a fraud and counterfeiting scandal.

With all this in mind, it is still a sustainable way to move forward. Digital assets and NFT technology can add to the luxury experience, but the approach to implementation should be used to enhance the product and experience, not serve as a substitute for it.

The current state of luxury NFTs

Elite brands with resources to spare are venturing into Web3, although most of these interactions are either flashy NFT partnerships or the onboarding of crypto as a payment method. Attempts at more artful collaboration, such as the first Metaverse Fashion Week, were met with gripes about the difficult technology and overt corporatization that cast a bland shadow over the entire event. The sinister perception of NFTs also makes brand-sanctioned NFT drops by billion-dollar companies perceived as another way to extort money.

If it seems like collectibles and half-baked collaborations are all NFTs have to offer the luxury industry, there are more significant developments flying under the radar. Projects like the Aura Blockchain Consortium, backed by luxury conglomerates including LVMH, Prada Group and Richemont, provide a real tool to combat a major problem in luxury goods: counterfeits.

RFID tags and digital authentication have long been introduced to combat counterfeiting, but NFT technology is a viable asset for creating an immutable tracking tool from fabrication to purchase. In addition to enabling comprehensive guarantees of authenticity for their purchase, Aura allows brands to build a personal relationship with their clientele and extend their product’s lifecycle.

Improve future experiences

NFTs as an authenticity tool can greatly enhance the experience of luxury consumption, especially in the resale and vintage markets. Interest in vintage and pre-owned luxury popularity has increased rapidly, especially among younger and environmentally conscious shoppers. Picture browsing online consignment sites like The RealReal or Vestiaire Collective and being confident that the pieces you’re buying are genuine through an NFT authentication.

In luxury supply chain and manufacturing, NFTs as tracking agents can be incredibly beneficial for companies and designers. This expansion will be particularly valuable for hard luxury jewelry and precious metals companies, which may be vulnerable to exploitative acquisitions. In practice, suppliers could issue NFTs to prove that their precious materials such as diamonds and gemstones were not acquired from conflict zones or unregulated sources.

NFT-backed transparency in supply chains and material sourcing will not only appeal to brands, but also to customers – customers who greatly prioritize sustainability and superior quality when considering making a luxury purchase. In addition, NFT technology can be customized to ensure quality control, create an interactive customer experience that immerses them in a brand’s story, and VIP benefits for high-value customers.

Returning to NFT collaborations, one way to develop luxury partnerships in the NFT art space would be to cultivate communities from their origins. Mega brands like Gucci are constantly engaging with Web3-savvy audiences on Discord, cementing them as authentic players in NFTs and digital assets.

Interacting with these communities authentically and not as another untapped source of revenue will gain greater appeal for the brand as a whole, not just for future collaborations or drops. One-off NFT stunts and gimmicks are no longer the attention drivers they used to be, and can make a company appear like a fraud trying to siphon clicks and dollars away from more prominent and innovative projects.

As the luxury industry continues to make inroads into blockchain, NFTs could be the perfect tool to bridge these gaps. To ensure these bridges are built to last, brands should take a two-pronged approach: Engage meaningfully with communities and adapt technologies to improve the product that customers already love. Ultimately, NFTs should complement and act as a functional bonus to the product, heritage and design that drives the brand, not the other way around.

Written by Eliaz Gabay, CEO of Yvel and co-founder of INFS.io