Luxury goods and blockchain
The luxury goods market faces various problems, such as counterfeiting, supply chain fraud, unethical sourcing, and difficulties in verifying the authenticity of items. Another issue is that investment in luxury goods has been reserved only for the wealthiest part of society. Blockchain and tokenization solutions can solve all of these problems. Although these are fairly new applications in the investment world, hundreds of companies have already taken advantage of this type of solution. Let's elaborate on this topic.
What issues does blockchain technology solve?
Blockchain technology makes it possible to increase operational efficiency in many-sided exchanges, improving product traceability, tracking transaction details, and providing consumers with authentic information about the origin of luxury products.
Whether it's fashion brands, art, vintage designer handbags, or luxury spirits, innovative blockchain technology provides easier and more accessible data management and safer access to investments in luxury goods. The implementation of immutable, decentralised ledgers helps to more easily track goods produced through the entire supply chain, which in turn allows the identification of counterfeit or adulterated goods.
Counterfeiting is one of the biggest threats that exposes brands to massive losses. The size and scope of the counterfeit luxury goods industry are growing aggressively and is only directly affecting lower profits for brands, but deceiving customers with fake alternatives, thereby damaging brand reputation and reducing overall sales.
Many luxury brands have started using blockchain technology to track the origin of products and materials and guarantee the authenticity of products. For example, Israel's Yvel (home of fine jewellery) has expanded into the world of financial products by launching INFS (Independent Non-Fungible Security). INFS is a trading platform that combines blockchain technology with real, customizable guarantees in the form of unique, gemstone-embellished 24-carat gold coins. Yvel CEO - Eliaz Gabay described it in these words: "INFS is our vision for the evolution of how blockchain financial products can serve investors in any company or project."
In addition to counterfeits, fraud in the supply chain, unethical sourcing, and difficulties in verifying used or resale items are further problems. Thanks to blockchain, brands can also confirm if the raw materials they use are from legitimate, fair sources. For each luxury item, brands can create custom NFTs that can be verified using mobile apps that scan a barcode or other type of unique signature. Custom NFTs can also be linked to IoT sensors that can help track an item through the supply chain process and subsequent verification process.
Blockchains are driving greater transparency and efficiency in supply chains, which builds consumer trust and increases brand revenue. Some brands are not just focusing on counterfeits. They are also focusing on ethical and sustainable sourcing.
There are numerous initiatives used to track new luxury and fashion products. For example, De Beers has applied blockchain solutions by launching the Tracr platform, which it uses to track every diamond it sells. As well as eliminating the main problem of counterfeit diamonds, the Tracr platform can help identify and exclude 'blood diamonds' mined in conflict zones.
A good example is the Aura Blockchain Consortium, the first global blockchain created specifically for luxury products created by Louis Vuitton Moët Hennessy, Prada, and Cartier on 20 April 2021. The idea is simple: luxury product companies assign unique digital identifiers during production. This allows customers to trace the full history of the product they are interested in, from the creation process to distribution to in-store purchase.
Furthermore, blockchain technology helps prevent money laundering as a result of purchasing luxury products. Many people use luxury brands to show off their status, but they also see this way of investing as a good method to hide money earned through criminal activity or avoid taxes. When such embezzlement comes to light, it can be a stumbling block for governments and tax authorities, as well as for the reputation of luxury brands themselves.
Investments – passive income
Blockchain not only provides innovative solutions for the security and authenticity of luxury goods but also offers numerous opportunities for profit.
Cryptocurrencies and tokenization
The most well-known use of blockchain is a new financial tool - cryptocurrency, but blockchain technology extends beyond just issuing virtual money. It can also streamline the process of investing in luxury goods through tokenization. How can tokenization be used to support luxury goods projects? Before blockchain technology, investing in luxury goods required vast resources and was limited to only the wealthiest. Tokenization is a way to solve this issue, as it allows everyone to own a stake in luxury.
The term tokenization refers to a form of digitalization that involves transferring value into the digital world. Blockchain technology is used to create a cryptocurrency, which provides security for assets. It allows assets to be traded online. Paper contracts confirm the purchase of shares in a company or real estate that we are familiar with so far. In the digital world, a smart contract has replaced the paper contract. Incorporating traditional paper-based solutions into the digital realm streamlines and speeds up many processes, and it is cheaper and much more efficient.
Tokenizing luxury goods means making digital versions of expensive products in the form of tokens or ownership shares. That allows anyone to invest in luxury without the need for a large amount of capital. Creators can create a token corresponding to one product or divide ownership into multiple tokens. You can use tokens to represent virtually anything. You can name it – cars, clothing, art, or alcohol. Anything is possible. Many of us have dreamed of a luxury car like a Lamborghini, Ferrari, or Rolls-Royce but couldn't afford it. What if it turned out that you did not need millions in your bank account to own such a beauty? It is the tokenization of cars that helps solve this issue. These tokens represent a portion of the value of luxury cars sold by companies selling exclusive cars.
It is also a popular option to tokenize art. The paintings of prominent painters, sculptures and other works of art have been one of the most important investment sectors, at least in terms of value. The same is true for the tokenization of collectable spirits (wines, whiskies, cognacs, etc.). Tokens make it easier to invest in a project by sharing, for example, the value of bottles or collections. Otherwise, we would not be able to afford a bottle of investment whisky, such as Macallan, Dalmore, or Glenfiddich. Tokenization allows us to buy 'shares' of the bottle. The mechanism is very similar: the luxury good is sold in the form of digital tokens, and a return on investment follows.
Many luxury brands are launching asset-backed NFTs, which are increasingly being used to verify the authenticity of luxury products. In addition, many luxury brands are starting to release collectible NFTs unrelated to actual items. Owning an NFT provides access to a luxury good and an investment. It is also a ticket to various elite events like fashion shows and whisky testing, which are only available to club members.
Companies are outdoing themselves with ideas for original NFTs. For example, in 2022, Adidas with Prada hired digital artist Zach Liberman to create the Prada Re-Source NFT project. The project invited ordinary people from all over the world to submit photos, which would later be combined to create a composite NFT. The NFT eventually sold for 30 ETH, which at the time was worth more than $97,000.
Another example is well-known watchmaker Jacob & Co., who created a digital NFT version of its SF24 Tourbillon watch, which sold for $100,000 on the ArtGralis NFT market. Instead of showing cities, the watch displayed cryptocurrencies.
The luxury goods industry has also penetrated the metaverse – versions of luxury items are sold in virtual worlds. Experts predict that the market for luxury items in the metaverse could reach a staggering $56 billion by 2030.
The metaverse offers incredible new opportunities. For example, Decentraland held its first-ever virtual fashion week. Exhibitors included luxury brands Dolce & Gabbana, Selfridges, and Tommy Hilfiger. Sales included both NFTs worn inside Decentraland NFTs that could be exchanged for similar or identical physical, real-world items that could only be purchased with cryptocurrency. Some projects use the metaverse to hold art exhibitions, sell virtual items or serve exclusive liquor in their lounges or bars.
Summary – blockchain is a breakthrough for the luxury industry
The use of blockchain technology in the luxury world and the tokenization of cars, art, fashion, and alcohol are just the beginning. More assets are queuing up to become part of the digital world. The tokenization of luxury goods is the future of investing. While there are still elements of the ecosystem that need to be fine-tuned, opening up the market to new, less wealthy investors, will make investing much more accessible and, therefore, popular. As a result, much more money will be invested in the luxury market.