02 December 2020

'Beyond proof of concept' - blockchain gains traction in the luxury sector

Blockchain concept

Lawyers are gearing up to advise on blockchain as adoption accelerates among top brands

The luxury sector is next in line after currencies to reap the benefits of blockchain technology, a web seminar heard.

Although the technology is not a magic bullet and has been overhyped, it is already being deployed by leading brands to authenticate their supply chains, speakers at the event hosted by the Luxury Law Alliance in association with Bird & Bird confirmed.

The online event, chaired by Bird & Bird of counsel Frederick Mostert, featured Dr Henry Franks, chief software officer at PowerX Technology, Calogero Scibetta, head of business development at London blockchain startup Everledger, and Bird & Bird partners Jonathan Emmanuel and Martin Von Haller.

Mostert, who is president of the Luxury Law Alliance, which is affiliated with The Global Legal Post, highlighted the technology’s compatibility with the sector given its potential to “secure, track and trace supply chains, authenticate products and fight piracy and counterfeiting”. He gave examples of current implementation ranging from Kering, which uses blockchain to certify its watches, to pedigree chicken farms in China which electronically tag their birds for verification in the kitchens of top restaurants.

Franks defined blockchain as a digital database that is carefully constructed in such a way that no single person can unilaterally edit data once it is added. He said its power and disruptive potential stemmed from the fact that blockchain data is transparent and verifiable thereby allowing multiple organisations to safely collaborate.

One blockchain start-up that is already targeting the luxury market is London-based Everledger, which helps retailers verify the provenance of their products. It has partnered with suppliers of diamonds, coloured gemstones, wines and spirits and luxury apparel.

Scibetta gave the example of Alexander McQueen, which has created a digital twin for every item in its MCQ brand range.  “When you buy the product you register it to your MCQ account,” he said. “Thus you have a digital version of the asset, where its provenance can be proven.”

He said authenticating products each step from the manufacturer to consumer added significant value, with resale markets also benefiting from added credibility.

Another example of how luxury brands can apply blockchain technology was provided by Von Haller, who is co-founder of Copenhagen Hyperledger, an open-source collaborative project to advance cross-industry blockchain technologies. He said retailers could form consortiums to collectively market their products on their own e-commerce platforms cutting the “Amazons and Alibabas of the world” out of the equation entirely.

In this instance, the blockchain replaced the intermediary retailer with no company having sole control of the data, he said.

When it comes to negotiating contracts with blockchain suppliers, Emmanuel said there were no existing contractual templates; neither did many retailers understand how to proceed with safely procuring the technology, despite a growing appreciation of its potential.

“Brands looking to operate or participate in blockchain networks will often work with blockchain suppliers who provide the back-end blockchain technology and may also help develop the user-facing app that communicates with the blockchain technology,” he said.

“In such circumstances brands need to be careful to avoid tech lock-in so continuity of service can be guaranteed should things not work out with the incumbent. The user-facing app should be built so it can easily be used with a replacement supplier’s blockchain technology and data should be accessible in a non-proprietary format so that it can be transferred to the replacement supplier.”

As for the few well-publicised examples of security breaches, the panelists agreed that human error was most often to blame. Incorrectly inputted information – commonly referred to as the ‘garbage in, garbage out’ – or poor management of private keys are two commonly cited examples of this, they said.

Meanwhile, greater regulation of the technology is on its way. Mostert said that some industry sectors are coming to regard the technology as “beyond the proof of-concept stage”.

“We had similar wide-eyed libertarians at the advent of the internet,” added Von Haller, the reality being that blockchain will become “more regulated than you would ever dream of”.

Martin Von Haller is a speaker at a workshop hosted by Bird & Bird at tomorrow's Luxury Law Summit Americas which will explore the use of emerging technologies in the luxury sector. Click here to book a delegate place at the virtual summit or email jasmindersoor@globalcitymedia.com for further details.

Email your news and story ideas to: news@globallegalpost.com