Home Blockchain Blockchain is no silver bullet against the black market – Financial Times

Blockchain is no silver bullet against the black market – Financial Times

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LVMH is set to launch a blockchain-based system to authenticate goods and satisfy the trend for conscious consumerism by giving customers the “life story” of their products.

The French multinational said it would soon launch its Aura initiative, which it calls “the first global luxury blockchain”, although no specific dates were shared. LVMH will start using Aura with the Louis Vuitton and Parfums Christian Dior brands, it said, before rolling it out to its other houses and offering it to rivals.

During manufacturing, each product will be given a unique digital code that is recorded on the Aura ledger. When a customer makes a purchase, they will in theory be able to access an online certificate that provides an entire history of their product including its origin, components, environmental and ethical information, and care instructions. The idea is that it will replace clunky and slow paper-based documentation.

Many industries are looking at the possibility of using blockchain, the distributed ledger system that underpins bitcoin and other cryptocurrencies. The idea is that because blockchains are immutable and decentralised, the data stored on them is trustworthy and secure. In theory, the technology should help conscientious customers understand the provenance of their purchase and know it is genuine.

But blockchain cannot detect whether a set of data is false: rather, it makes sure that once data has been recorded, it cannot be tampered with. Moreover, additional technology is needed to link the product purchased to the record of it on the blockchain. So while it might be an opportunity for jewellers to promote responsible supply chains, blockchain is no silver bullet.

“Louis Vuitton offers a new service to its clients by unveiling the story behind their products,” said LVMH when it announced the project at the Paris VivaTech conference in May. “Every step of the item’s lifecycle is registered, enabling a new and transparent storytelling.” The company declined to comment for this article.

The hope in the jewellery sector is that blockchain will give increasingly scrupulous customers a full product history quickly and efficiently.

“Conscious consumerism is a mass movement under way across a number of different . . . markets, not just luxury goods,” says Leanne Kemp, founder and chief executive of Everledger, a London-based company that uses blockchain to track and authenticate the origins of diamonds and other valuable products. The company works with certification houses to create unique digital thumbprints of diamonds, which are then written on to the Everledger blockchain.

It is particularly important for luxury companies and their customers to prove the provenance of their products. This is not just because they cost so much, but also due to the fact that some products, such as diamonds and gold, have been associated with unethical practices.

“Tracking the supply chain generally is a hot topic,” says Rosie Burbidge, an intellectual property partner who specialises in blockchain at law firm Gunnercooke. “For LVMH in their jewellery that uses diamonds, being able to prove that those diamonds are conflict-free and haven’t been used in some sort of terrorist funding is really important.”

€1.9bn


The amount the jewellery and watches sector loses in revenue each year thanks to counterfeit

But apart from helping to provide conscientious customers with a “life story” of their purchases — and, for the more sceptical observer, providing brands with good PR — blockchain is also seen by some as a way to combat counterfeiting that is rife in the luxury goods industry.

The EU Intellectual Property Office estimates that the jewellery and watches sector loses €1.9bn in revenue each year thanks to counterfeit products. This year it launched the Anti-Counterfeiting Blockathon Forum to test and develop blockchain-based solutions for what it called the “global plague” of counterfeiting.

“The problem LVMH will be trying to solve is a problem for their customers — how to prove that a specific object originated in their factory and providing a chain of title which, in the event of a dispute or suspicion of fraud, a user or investigators can straightforwardly audit,” says Preston Byrne, a specialist in cryptography and an attorney at Connecticut-based Byrne & Storm law firm.

Aura, which was developed alongside blockchain design firm Consensys and Microsoft, is not the only blockchain system developed specifically for the luxury goods industry. IBM is leading a consortium of diamond and jewellery companies with a blockchain project called TrustChain, while watch company Vacheron Constantin, De Beers Group and Tiffany & Co have all launched their own blockchain initiatives to prove the provenance of their goods.

While blockchain technology allows you to check information has not been altered, it cannot ensure the integrity of the information recorded in the first place. Furthermore, because it is immutable, if false information is put on to a blockchain, it will remain there in perpetuity. In other words, the technology has a “garbage in, garbage out” problem.

“You can falsify whatever you want and put it in there — just because it is on a blockchain that doesn’t make it right,” says Tim Swanson, founder of US-based tech advisory firm Post Oak Labs. “The blockchain has no ability to filter for nonsense.”

It is unclear why luxury houses need blockchain technology. They could give customers a product “life story” using a more straightforward tracking system that includes measures to keep the information safe, for example through standard encryption.

Blockchain also cannot link the physical product to the one recorded on the ledger. Ms Kemp says other technology, such as artificial intelligence, is needed to achieve a fully digitised supply chain and to create “digital twins” of the physical products. These would then act as a reference point against which to check the blockchain information.

Perhaps, by encouraging a focus on the provenance of items and looking at the best ways to tackle counterfeiting, blockchain will help in the search for solutions to these challenges in the luxury goods sector. But it might be that the technology is just another chance for brands to boast, as LVMH does, that “innovation is our obsession”.

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