Blockchain and the Fashion Industry

“ Chain ” by  Astro  is licensed under  CC BY 2.0

Chain” by Astro is licensed under CC BY 2.0

By:  Anna Radke, Olivera Medenica

After the financial and housing market crashed in 2008, consumers clamored for more transparency in their financial transactions. In early 2009, the bitcoin software client launched; the world's most successful cryptocurrency that was supposed to revolutionize the financial industry. The idea was to create a decentralized digital property that keeps track of who owns what. Today, however, it is not bitcoin, but blockchain that everyone is buzzing about – the underlying technology that aspires to be the biggest technological invention of the 21st century. Satoshi Nakamoto, the pseudonymous creator of bitcoin, saw other potential ways of using blockchain.  According to Nakamoto, “the [blockchain] design supports a tremendous variety of possible transaction types that I designed years ago. Escrow transactions, bonded contracts, third party arbitration, multiparty signatures, etc. If Bitcoin catches on in a big way, these are things that we'll want to explore in the future..."

Blockchain has sparked intense interest across industries from banking to fashion. A few months ago, it made its fashion debut during Shanghai Fashion Week (SFW). Babyghost, a young and trendy Chinese-New York label, teamed up with BitSE, a company specialized in blockchain, and VeChain project, an anti-counterfeiting application. The result of this partnership is a unique experience for fashion show attendees allowing clients to verify certain information related to collection pieces (e.g. where the garment is made) using blockchain technology and Near Field Communications (NFC) — a technology facilitating communication between devices when in close proximity.  In other words, Babyghost bridged the gap between fashion and digital in that clients, or consumers attending SFW, could check on an item’s history and authenticity through an app whose functionality is based on blockchain technology.  Fancy words for something fairly simple - think of your very own, fool-proof, pocket sleuth, that you can flash at a coveted piece of clothing and learn all about it.   A fashionista’s version of a sartorial background check.

Is blockchain the biggest thing since the Internet?

Initially perceived as a niche application, blockchain is now touted as a technological institution that will fundamentally change how we exchange value. Beyond its obvious applications in finance and cybersecurity, it may drastically transform the way society functions in other fields such as music or fashion because of its potential application to supply chains, intellectual property and even smart contracts.

Blockchain is neither an app, nor a company.  Blockchain expert, Bettina Warburg, during a recent TED talk, compared blockchain to Wikipedia given its smart fluidity.  Blockchain is a constantly updated database that stores many kinds of assets, including history of custodianship, or IP ownership.

Blockchain has been described as “the first native digital medium for value.”[1] Specifically, Blockchain enables users to transfer digital property to each other across expansive networks in a verifiable way.[2] Controlled by no single person, it is designed to prevent any party from revising or challenging the legitimacy of the records being exchanged.[3]

Blockchain is based on a simple idea, but built upon a complex technological framework. Its goal is to establish trust, accountability and transparency while streamlining business processes. It is a shared, decentralized, peer-to-peer database available on numerous devices (smartphones, tablets, computers) that securely stores money, music, art, scientific discoveries or intellectual property (records called blocks). It is basically a public registry of who owns what and who transacts what. The technology applies to almost anything that can be inserted into a database or spreadsheet.[4] Blockchain is claimed to be safe as the information is protected by a code, called a cryptograph, which is very difficult to break. It is estimated a person would need to control at least 51% of the computing power of the system’s users in order to tamper with it.[5]

The strength of blockchain, indeed, lies in its inherent security, which establishes trust directly among parties in a business operation, by removing the middlemen. Furthermore, blockchain has the potential to vastly reduce the cost and complexity of cross-enterprise business processes.

However, it also faces numerous challenges. For instance, blockchain technology is still unregulated. Therefore, its implementation becomes a risky procedure, especially due to the fact that it is costly to implement. On the one hand, blockchain offers great savings in transaction costs and time, on the other hand it requires a huge initial investment to make it operative. Moreover, despite blockchain’s encryption, there are still many cyber security concerns that need to be evaluated before entrusting information to blockchain databases.

Is blockchain the technology fashion industry was missing?

Blockchain presents unique opportunities for the fashion industry: sophisticated consumers want to make educated purchase decisions, designers and retailers fight with counterfeiting, people expect contracts to be executed more efficiently. Blockchain can provide them with solutions.

A. Supply Chain

Supply chain is a process of moving products from suppliers, through wholesale and retail, and eventually to customers. It requires transparency so that customers can make more informed purchases. Blockchain can bring more transparency to supply chains by providing information about the origin of the goods and by empowering governments to effectively request reliable data related to even the most distant supplier.[6] Blockchain stores information about the certification and origin of the goods. The database can contain data regarding ethical standards and authenticity. As shown during Shanghai Fashion Week, the data can be verified through a smartphone-readable QR-code or RFID tag embedded in the label of a dress or engraved into the interior of a shoe.[7] The technology can simplify the process of labeling, and we may soon be able to verify if the label on our new jacket stating it was made in Peru is accurate.

B. Intellectual Property

Intellectual Property needs to be monitored worldwide. Blockchain can serve as a ledger of each trademark registration filing, which could be organized not only domestically, but also on a global scale.[8] As Joseph Raczynski writes, “[l]everaging an algorithm identifying any likeness to the trademark, the system could then grant or dismiss it.”[9] Furthemore, blockchain is able to solve issues arising out of transferring intellectual property. For instance, a new startup, Ascribe, based on blockchain technology, lets artists upload their digital art, watermark it, and transfer it, from one person’s collection to another’.[10] Finally, blockchain can contribute to identifying counterfeits as it has the capacity to store information regarding unique numbers embedded within a custom chip, or a smart tag on clothing or accessories, which enables to track whether the item is authentic.

C. Smart Contracts

Blockchain could shift the dynamics in the fashion industry through so-called smart contracts as well. These are automatically executed agreements, with no human intervention.[11] For instance, entries into the ledger may consist of computer code that executes the terms and conditions of a contract between parties. The more sophisticated the code, the more automated, self-executing, and "smarter" the contract. For example, in licensing agreements, royalty payments could be directly transferred to all the parties upon satisfaction or pre-set requirements. However, experts still have doubts whether such contracts based on codes could replace lawyers (…thankfully!).[12]

The Internet is the digital medium of information, and blockchain is the digitial medium of value. That being said, and as Bettina Warburg pointedly highlights, blockchain is not the solution to everything. We will probably see both successes and failures of blockchain. The biggest concerns include power usage, adaptation to a new system, cost and privacy issues. For now, blockchain can serve as a versatile innovation in both economic and technological industries. We cannot predict its future, but undoubtedly, it is a technology that is worth getting to know, as it may very well spark a revolution across various industries.

[1] Don Tapscott & Alex Tapscott, The Impact of the Blockchain Goes Beyond Financial Services, Harvard Business Review, https://hbr.org/2016/05/the-impact-of-the-blockchain-goes-beyond-financial-services (May 10, 2016).

[2] Jutta Steiner, Blockchain Can Bring Transparency to Supply Chains, Business of Fashion, https://www.businessoffashion.com/community/voices/discussions/does-made-in-matter/op-ed-blockchain-can-bring-transparency-to-supply-chains (Jun. 19, 2015).

[3] Id.

[4] Joseph Raczynski, 20 No. 6 Wallstreetlawyer.com: Sec. Elec. Age NL 2.

[5] Losing to Win, Economist, http://www.economist.com/blogs/schumpeter/2014/06/bitcoin (Jun. 23, 2014, 20:26p.m.).

[6] Id.

[7] Id.

[8] Supra 1.

[9] Id.

[10] Supra 3.

[11] Kim S. Nash, Blockchain Cataylyst for Massive Change Across Industries, The Wall Street Journal, http://blogs.wsj.com/cio/2016/02/02/blockchain-catalyst-for-massive-change-across-industries/ (Feb. 2, 2016, 12:51a.m.).

[12] Josh Stark, Making Sense of Blockchain Smart Contracts, CoinDesk, http://www.coindesk.com/making-sense-smart-contracts/ (Jun. 4, 2016, 18:39p.m.).