Blockchain will transform the future of luxury. This is how

After losing an estimated $98 billion (RMB 672.4 billion) in a single year to counterfeiting, the luxury industry is embracing a tech-forward crusade to veto the imitation market. The sector may not be able to stop the production and sale of replicas, but it can make it easier for genuine luxury buyers to validate the real thing. For example, the next time you buy a legitimate luxury bag, chances are it will come with its own verifiable and traceable digital identity.

How blockchain technology works for tangible luxury goods

LVMH, Prada, Mercedes-Benz, OTB, Richemont and more are fervently implementing blockchain technology into their businesses thanks to its efficiency in tracking and trading luxury goods.

Brands and owners can track various aspects of a luxury product’s life cycle using the technology’s database mechanism. These include authenticity, origin, warranty, repairs and even ownership history. “We have already taken 20 million units on the blockchain” says Daniella Ott, secretary general of the Aura Blockchain Consortium, which in 2021 was among the competitors LVMH, Prada, OTB and Richemont. The association promotes the use of a single global blockchain solution open to all luxury houses, and several are joining in, such as the independent Swiss watchmaker H. Moser & Cie.

Luxury, Swiss independent watchmaker H. Moser & Cie. joined the Aura Blockchain Consortium in December 2022. Photo: Aura Blockchain Consortium

“For a handbag, when a brand joins the Aura Consortium and takes our software license, we identify an anchor with them. The anchor is the connection between a product and the blockchain,” Ott continues. Each item is lined with either an RFID (Radio Frequency Identification) or NFC (Near Field Communication) chip, which can then be scanned by authorized parties to reveal the story. The ‘anchor’ also varies in type depending on the physical nature of the product. “For Prada gold, we used a QR code on a separate piece of paper ,” she explains.

Achieve transparency and trust with blockchain

For luxury, authenticity is often the main goal. But brands are also using blockchain to increase transparency and trust. “Today’s consumers want to know their purchases are responsibly sourced and increasingly expect proof of this, rather than just verbal assurances,” observes Jason McIntosh, CEO of B2B blockchain solution Tracr.

Proving ethical sourcing is key to maintaining the reputation of the natural diamond industry. One of Tracr’s clients, world-leading diamond company De Beers, “has committed to providing the origin and impact of every diamond they discover and sell by 2030. Tracr will play a central role in their efforts to achieve this,” McIntosh outlines.

His company uses a combination of blockchain technology, artificial intelligence and advanced privacy to track the journey of each diamond – from the mine it was taken from, to the next stages in the value chain. This includes the cutting and polishing processes. “In the case of a polished diamond, the data record contains the entire story, including the provenance of the rough diamond from which it came,” adds McIntosh.

Such capacity is crucial, for brands, it all comes down to their credentials. Trust can only be achieved if the data on the digital ledger system is valid and protected against interference. McIntosh dissects the process: “Transactions (on the blockchain) are recorded only once and can never be changed, even by the user who uploaded them in the first place. This means that no participant can change or tamper with data once it is recorded on the blockchain, making the data immutable.”

Achieving sustainability and circularity in the luxury industry with blockchain

In 2020, King Charles, Prince of Wales, launched the Sustainable Markets Initiative Fashion Task Force (FTF). The group is now working to build a digital ID system that will inform consumers about the sustainability credentials of their garments. This system will allow key players in the fashion value chain — including manufacturers, brands, retailers, dealers and recyclers — to ensure transparency and traceability of the products they sell.

“The fashion industry is an incredibly creative and economically powerful world. But if it is to survive – and indeed thrive – in the future, it must use technology to put sustainability at the heart of its operating models,” Federico Marchetti, Chairman of FTF and Founder of Yoox Net -A-Porter Group , claims. “This is what consumers are demanding, and it’s what the planet desperately needs.”

The Aura Blockchain Consortium, a partner in this coalition, is leveraging its technology to help members of the FTF achieve their sustainability goals. To simplify the supply chain tracking process, Aura’s blockchain technology “allows brands and also their suppliers to write data into the blockchain, without the need for coding knowledge,” notes Ott.

Circularity is another important point of contact. In 2021, the global luxury resale market was valued at US$32.61 billion (RMB 223 billion). By 2026, it is likely to reach $51.77 billion (RMB 354 billion). Blockchain technology’s distributed ledger (or record-keeping) system makes it easier for luxury brands to encourage easy, ethical resale of their products.

High-end watch brand Vacheron Constantin uses Arianee, a blockchain solution, to register its watches and provide buyers with a digital passport that can be transferred between owners. The process creates an anonymous link between consumer and brand. It also enables investors to insure the product, declare it lost or stolen, and share or prove ownership. “Brands can also program a royalty clause into the smart contract of the blockchain,” explains Ott, of the Aura Blockchain Consortium. “When one person sells a luxury product to another, the brand can earn a commission.”

Vacheron Constantin supplies all its watches with Arianee’s blockchain-based digital certificate. Photo: Vacheron Constantin

While blockchain brings new solutions for authentication and transparency, applying it to different value chains will not be easy. But the rewards are significant. Change is coming, and what will perhaps be most interesting is how the customer experience develops as these processes are normalized in the industry. The emotional relationship at the heart of luxury – between a brand and its followers – will be marked and transformed by the implications of this technology.