by Lars Rensing CEO of Protokol
The concept of a secured identity on the blockchain is well-known within the Web3 community. But a blockchain-based passport for tangible products is nowhere near as firmly established, despite its distinct application to the persistent issue of luxury goods counterfeiting.
A luxury item is a high value item, such as a Rolex watch or Gucci handbag, but it also refers to items that are of moderate to high value, such as fine wines and cigars.
These can be counterfeited for a fraction of the initial cost. Not only does this counterfeiting hurt the brand, but the consumer is ultimately affected due to the lower quality of the counterfeited product.
Moreover, the effects of counterfeiting are not localised and harm the wider economy in a myriad of different ways.
Luxury brands are fighting a losing battle
Luxury brands have long been fighting a losing battle against counterfeiters for quite a while. Legal actions, governmental lobbying, and sophisticated authentication features have proven to be almost completely ineffective. According to the OECD, overall global counterfeiting cost around $1.77 Trillion in 2019.
Luxury goods counterfeiting, a subcategory, is expected to reach $1.5 trillion by 2025, unless new measures are introduced to offset these figures. It’s a huge market and most counterfeits originate in China, with the USA being the worst affected.
Counterfeiters are rarely caught and prosecuted; there’s little incentive for them to stop their practice, a fact which is quite frustrating to luxury brands.
And these are simply the historical issues of luxury goods counterfeiting, not to mention the new problems of 21st century supply chain management, where today’s consumers want traceability from start to finish.
They want to be able to know precise information, such as the time when a luxury good is being delivered to their doorstep, along with the carbon footprint of the wider delivery system it is a part of, along with high ethical standards from the entire brand.
Modern customers are environmentally conscious and look to minimise their overall carbon footprint. With rising energy prices, out of control oil and gas, and multiple ecological concerns, businesses also need to examine the environmental cost of their supply chain.
Governments have already started to clamp down on businesses who fail to comply with environmental standards. This trend will likely increase, which is another reason for business owners to take heed of blockchain-based product passports.
Enter the blockchain passport solution
To all the issues outlined above, blockchain provides an effective solution. The blockchain is merely a new kind of database where each item is uniquely identified. The way that a blockchain is designed as a database means that counterfeiting is incredibly difficult.
In the case of blockchain passports, every item is tied to a token on the blockchain. Simply put, this token acts as an immutable digital certificate that one can use to claim their luxury item, be it a designer handbag, collectible watch, imported cigar, wine, etc.
Blockchain passports show promise in being a simple and genius way to almost completely eradicate billions of dollars in global counterfeiting fraud. While there are some complexities involved with implementing a blockchain-layer into a supply chain system, there exist straightforward mechanisms and support for business owners to migrate their existing supply chains to a blockchain-based system that could remove the counterfeiting issues almost overnight, provided it is correctly implemented.
And it’s not just small and ambitious startups that are talking about blockchain passports for supply chain management. IBM recognised the benefits in 2019.
Many new start-ups have already realised the applicability of the blockchain to luxury goods. It eliminates existing problems and also provides the opportunity to cater to modern customer preferences. Modern customers want control, sustainability, transparency, and tradability. And millennials make up about 50% of the luxury goods market.
While blockchain passports allow you to authenticate and validate your luxury goods, there are many more benefits. For example, specialist tokenised luxury marketplaces will allow users to easily trade one luxury item for another.
Plus, the overall carbon footprint of blockchains is extremely low, despite some dubious claims stating the opposite, as it’s a hyper-efficient database. Case in point, Ethereum, a major proof-of-stake blockchain, recently underwent a 99.99% reduction in its carbon footprint.
Why should businesses care?
For clear reasons, the luxury goods sector is already migrating to blockchain-based product passports. But blockchain technology has applicability to all businesses with physical product stores, offering a more refined and secure database model.
Tokenisation protocols already exist where existing Shopify or WooCommerce databases can be converted simply over to a blockchain – one basically ties or converts a product to a token on a one-to-one basis, considering who has the token, or claims or redeems the physical product. Just like a real passport, each token is linked to one specific product, thus making counterfeiting more difficult.
And this is only the beginning.