Crypto is crashing but luxury brands see blockchain tech as way to save billions

By Rebecca Cairns, CNN Business

Counterfeits are a huge problem for high-end designers around the globe: luxury brands lost $98 billion worth of sales to counterfeits in 2017 alone.

These losses can damage both profit and reputation — which is why some brands are now turning to tech to protect their products, brand value and consumers.

Despite being competitors, luxury brand conglomerate LVMH (LVMHF) joined forces with Prada (PRDSY), and Cartier in April 2021 to establish the Aura Blockchain Consortium, a non-profit platform that creates a “digital twin” for designer products.

Blockchain is a digital ledger that cannot be edited, changed, or tampered with. It’s the same technology that underpins cryptocurrencies, which have seen their prices crash lately.

But it has many other applications — and Aura is using it to give luxury products a unique digital identifier that will help customers ensure their purchase is the real deal.

“Blockchain is such a fast-moving technology, and it’s really complex,” says Daniela Ott, the general secretary of Aura Blockchain Consortium. “What Aura is all about is making blockchain easy for luxury brands.”

To date, more than 20 brands are using Aura’s software, with over 17 million products registered on the platform, says Ott.

“These brands are competitors in every other aspect, but they are collaborating on this technology to move this ahead faster, in the most secure way,” she says.

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“Traceability and trust”

Creating a “digital twin” for physical products like shoes or handbags, Aura’s software compiles a ledger of information such as the material type and source, where and when it was made, and how many were produced.

Ott says this will give consumers a greater level of proof and protection by acting as a digital certificate of authentication that uses “bank level encryption” and is “impossible to fake” — foiling counterfeiters. Digital twins, which can be accessed via a webpage or mobile app, will provide more insight into the product’s origin, enhancing “traceability and trust” around sustainability and ethical issues for conscious consumers, she says.

Blockchain has its limitations, though — the information is only as reliable as the person inputting it, says Ott, and warns that “if a brand doesn’t have a good relationship with the supplier, blockchain will not help.”

Sustainability is a key concern for the consortium. As a private blockchain built from scratch, Aura says its platform uses less energy than public blockchains. The platform also gives brands control over what information they share and keeps brand and consumer data safe, says Ott.

Aura launched its cloud-based software in early 2022. Ott says its plug-in technology will allow brands to integrate the product into their existing operations with “zero blockchain knowledge.”

And more brands are getting on board. Designer streetwear group OTB became a founding member in October 2021, and last month, diamond and gem specialist Sarine Technologies joined the consortium too. Founding members contribute to development costs and have more say in governance, says Ott, while all members pay a licensing fee for the software services and each digital twin produced.

Counterfeit goods, like the ones pictured, cost designer brands billions every year — as well as damaging their reputations.

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On-trend tech

Other fashion brands are also using blockchain tools. Audemars Piguet and Vacheron Constantin have joined Paris-based open-source blockchain platform Arianee, while Karl Lagerfeld’s photographic archive is being authenticated on Lukso Network’s public blockchain.

Creating a digital identity could be increasingly important for second-hand luxury resellers, a rapidly growing market. Online platforms like Hardly Ever Worn It and Vestiaire Collective need to authenticate products before they sell them — which is a multi-step process involving both digital and physical checks, says Victoire Boyer Chammard, global head of authentication at Vestiaire Collective.

“Counterfeiting has existed for decades and is constantly advancing,” says Chammard. Vestiaire’s team of 60 authenticators check digital documentation, including photos, before examining each item. AI and blockchain could help to fast-track the digital authentication process, says Chammard, adding that this would aid the human authenticators rather than replace them.

“We would still require an expert to conduct a physical examination to verify all of the digital data,” she says, adding that if luxury brands use the same technology, it would help resellers easily access and use the information.

Blockchain could also be useful beyond fashion, says Ott: luxury sectors including art, cosmetics, perfume and furniture could benefit. In the future, Ott says the ledger could also hold information on product maintenance and upkeep, helping to better determine a product’s value for resell.

The most recent addition to the Aura consortium is German car manufacturer Mercedes-Benz, which joined as a founding member and plans to use the platform to explore different aspects of digital branding, such as creating NFTs (non-fungible tokens) for in-car digital art experiences.

“Our measure of success is to onboard every luxury brand,” says Ott.