Blockchain Technology in the Fashion Industry
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Blockchain Technology in the Fashion Industry

The specificity of the fashion industry lies in the social nature of the consumption of fashion products, which results in such phenomena as the rapid change in consumer preferences and segmentation in supply chains. The supply chain is a system that includes manufacturers, suppliers, logistics companies, retailers, various regulatory organizations and end users of products.

Fashion industry products are clothes, shoes and various accessories. The specificity of fashion products is such that the adherence to fashion trends or specific brands has a great influence on demand. A distinctive feature of fashion products is the high price, which narrows the circle of potential consumers and determines their bias towards the quality of goods and the speed with which they can get them. The speed of receiving goods depends on a properly built chain supplies. A typical delivery process looks like this: suppliers provide raw materials for production to manufacturers, the manufacturer uses these materials to produce fashion products, then the goods are delivered through a network of logistics companies to retail stores where end consumers purchase products.

Management of information and financial flows in the supply chain is carried out on the basis of concluded agreements and is controlled by international and local laws, compliance with which is carried out by regulatory organizations. This is where the concept of “institutional mediator” comes into play.These are structures such as customs authorities, control, supervision and licensing authorities and tax inspections. These include financial institutions (banks), information service companies and advertising companies. Currently, these intermediaries in the supply chain provide trust (institutional) between the rest of the participants. This happens through the provision of services to ensure the transfer of value between participants in the supply chain. For example, banks ensure the exchange of funds, customs authorities ensure the formation of various regulatory documents. But as you know, the increase in intermediaries in the system of commodity-money relations entails an increase in the final cost of products for the consumer. 

Based on this, we can conclude that technically expressed trust (provided with the help of technologies, not institutional intermediaries) will reduce the cost of maintaining trust. This raises the question of choosing technologies to ensure trust and technical interaction (information exchange) between participants in the supply chain. The classical approach to organizing information management systems in supply chain companies is centralized enterprise resource planning (ERP) systems. In the case of using ERP systems, the issue should be considered in terms of trust in the way information is managed, which is used by each individual participant in the supply chain. With this approach, there is a risk of changing information accidentally or intentionally unilaterally. There is also a risk that an infrastructure problem with the ERP service of one member will affect the business processes of other members of the chain. For example, it could be a hardware failure, scheduled maintenance, or a sudden software bug.

Problems in supply chains can be classified as systemic and dependent on the chosen information processing solution. Given the centralized nature of the ERP systems used, there are several obvious problems:

– a reduced level of trust between companies participating in the supply chain;

– the insecurity of information from changes by any party to the process;

– incompatibility of information processing systems in terms of integration;

– the risk of obtaining important business information by companies competitors in the industry.

From the point of view of the final consumer of fashion goods, we note that in the process of supplying goods, important information can be hidden – accidentally or intentionally. When making a purchase decision, the buyer evaluates important information for him, for example, the composition of the materials of the product. And if there is an asymmetry in the information between the buyer and, for example, the manufacturer, then there is a risk for the buyer to get a negative experience from interacting with the product. Such a negative experience can be expressed as a feeling of discomfort or manifestation of physical reactions, for example, allergies to the materials used. Thus, the absence, inaccuracy or insufficient level of information about the characteristics of the product increases the risk of negative consequences of the use of this product by the buyer.

Supply chain participants assess these risks and can take steps to mitigate them. Such measures include the use of technical means to eliminate any information asymmetries perceived by buyers and the adoption of measures to reduce these risks by transparently recording all transactions in the supply chain related to the product. However, at present, there is insufficient research on methods for ensuring technically expressed trust in the systems of interaction between participants in the supply chain in the fashion industry, which in practice leads to the use of an empirical approach in their design and entails the implementation of inefficient solutions. This determines the relevance of the search for approaches to ensure technically expressed trust in the systems of interaction between participants in the supply chain.

How is Blockchain Transforming the Fashion Industry

With the help of blockchain technology, it is possible to verify information about goods based on the transparency of all transactions in the supply chain. This opens up new opportunities for end users who previously had difficulty accessing such information. Blockchain properties – traceability, reliability and consensus – will allow end users to gain knowledge about the origin of goods in the context of such aspects as the reliability of origin and originality of the product. Thanks to this, it is possible to reduce the financial, social, physical and production risks perceived by the consumer. Consider how the properties of blockchain technology affect the level of trust in the supply chain:

– Traceability provides information about the composition and origin of goods, which reduces the financial and physical risks for the consumer. This is achieved due to the fact that the buyer knows exactly the composition and origin of the materials of the fashion product. The financial risk is that the buyer may overpay for a product that is made from materials with an unverified origin, this is especially important in the context of fashion products. A physical risk may arise if the manufacturer has used materials of inadequate quality, which may cause, for example, an allergy in the consumer. Accurate information about the origin will help to avoid this.
 
– Reliability allows maintaining the integrity of information about the origin of goods, which reduces social and production risks. Social risk refers to the possibility of purchasing counterfeit products, which is unacceptable for fashion buyers. One of the methods of combating counterfeiting is to provide information about the origin of goods based on blockchain technology, which does not allow falsifying product data. In this aspect, the manufacturer of fashion products also bears the production risk, but the use of blockchain will reduce this risk due to the reliability of the transmitted data.
 
– Consensus in the blockchain network increases the reliability of the data provided and reduces functional risk.Due to the fact that algorithms are used in the blockchain network of nodes to achieve consensus between all participants, it becomes possible to dynamically change the number of participants in the supply chain and thereby reduce dependence on a particular partner. This leads to a reduction in functional risk for the entire supply chain, which will continue to function even with short-term failures in communication between partners.

It is possible to build a conceptual model of the system of interaction between participants in the fashion supply chain, based on the blockchain. The conceptual model consists of four layers within which various functions are supported. At the bottom level, there is a layer of data sources from various sensors and physical processes. For example, during the production process, it is possible to obtain various information about the production method and the materials used. During the delivery of goods, it is possible to obtain information about the delivery time and storage conditions of the goods. Various GPS sensors and RFID infrastructure, or barcode scanners act as registrars of such information.Thus, the absence, inaccuracy or insufficient level of information about the characteristics of the product increases the risk of negative consequences of the use of this product by the buyer.

Supply chain participants assess these risks and can take steps to mitigate them. Such measures include the use of technical means to eliminate any information asymmetries perceived by buyers and the adoption of measures to reduce these risks by transparently recording all transactions in the supply chain related to the product. However, at present, there is insufficient research on methods for ensuring technically expressed trust in the systems of interaction between participants in the supply chain in the fashion industry, which in practice leads to the use of an empirical approach in their design and entails the implementation of inefficient solutions. This determines the relevance of the search for approaches to ensure technically expressed trust in the systems of interaction between participants in the supply chain.

The third level contains functions to support interaction between participants in the supply chain. An important function in the process of interaction is the identification of the participant in the interaction to ensure the confidentiality of important business information. At this level, it is possible to implement the functions of smart contracts, for example, monitoring and quality control, as well as automatic formation of logistics routes. Also, an important function of smart contracts can be called the automation of the process of implementing monetary transactions to fulfill all the conditions of the agreement between the participants and transfer important information about the experience of using products by end consumers to the manufacturer.

The upper business level accumulates various types of business activity at enterprises participating in the supply chain. Each such participant is able to control and manage product quality using blockchain and smart contracts. Enterprises make purchasing and production decisions based on the proposals contained in smart contracts, thus increasing their efficiency and profits.

Using the conceptual model of the system of interaction between participants in the supply chain, we will present a scenario for using blockchain technology to provide technically expressed trust in the system of interaction between participants in the supply chain of fashion goods.

At the stage of production of fashionable goods, the manufacturer records information such as the composition of the supply, materials, production date, and customer order parameters in the distributed registry block. This block is recorded in the block chain, which is available to all subsequent participants in the supply chain. Further, the goods are physically accumulated in the warehouses of logistics companies, while all logistics operations are reflected in new blocks of the blockchain. For example, this may be information about the dates of receipt, shipment, customs operations and the passage of mandatory certifications by products. At this stage, it is possible to use smart contract technology to automate such a function as conducting a payment transaction for goods to a supplier when pre-approved conditions are met.

Then fashion products are delivered to local warehouses of retail chains. This fact is reflected in the blocks of the blockchain, generating information on the composition of the supply and product balances, on the conformity of product quality. Here it is possible to carry out mutual settlements between counterparties using smart contracts. At the last stage, fashion products enter the retail store, where they are sold to the final consumer. At the same time, information about all actions with the goods in the block chain is recorded. For example, information about the customer's review of the product and his wishes, as well as the actions of the consumer with the product, for example, the implementation of the return with an indication of the reasons.

The presented scenario of using blockchain technology in the process of supplying fashionable clothes allows you to visually see how the information accumulated during the movement of goods is formed and used. Due to the fact that this information is reliably protected from unauthorized modification, it becomes possible to automate some business functions based on smart contracts. This may be the automation of financial transactions or warehouse accounting. It is also worth noting the availability of feedback data from consumers to manufacturers of fashion products. Thanks to this, the manufacturer can analyze and make adjustments to the production process of goods or the choice of materials for manufacturing. Thus, the end consumer will be able to receive a more suitable product, which will increase the value of the manufacturer in his eyes.

Blockchain in the Fashion Industry: Real Cases

Fashion Meets the Blockchain: How Blockchain Can Solve Fashion's Woes

Aura

In 2021, LVMH, Prada Group and Cartier, the iconic jewelry brand from the Richemont portfolio, united in the field of emerging technologies, announcing the emergence of the Aura Blockchain Consortium, “the world’s first blockchain platform for the luxury industry.” The goal is to offer a "secure digital format" to help guarantee the authenticity and traceability of products.

Aura provides consumers with "direct access to purchase history and certificates of authenticity." As the partner companies – working on the platform with Microsoft and ConsenSys – explain in the release, a consumer audience can easily track a product's life cycle, from conception to market launch, with hard data making up the entire chain.
In fact, the project was hatched for several years. The initiative belongs to the LVMH group, which officially presented the idea in 2019. Even then, the luxury giant announced its desire to open a platform "directly for all luxury brands." Now the first step towards solving the tasks set has been taken.

By joining forces with other luxury brands, Aura's founders pave the way for transparency and the ability to track a product's entire historical trajectory, noted LVMH associate director Tony Belloni. “I hope that other players in the sector will join the consortium,” Belloni was quoted in the release.

LVMH-owned brands Bulgari, Hublot and Louis Vuitton, as well as Cartier and Prada, are already on the platform, negotiations are underway with other brands of the founding groups, and discussions are underway with independent labels. The Aura consortium is ready to welcome other players in the luxury industry into its ranks, "no matter how big they are, what segment of the industry they belong to, and what their geographic coordinates are."

You can read about how Boosty Labs is developing the Aura blockchain here.

Fashion DAO

The Fashion DAO is a platform for fashion brands and apparel creators looking to break into the Web3 arena. In 2022, it was created by the joint efforts of NFT Tech, International Blockchain Consulting (IBC) Group, and fashion design platform Faith Tribe.

The Fashion DAO has given fashion houses and fashion designers the opportunity to tokenize their creativity and reach a wider audience through Web3 technologies. The platform is focused on the untapped fashion market and combines all the functions of similar Web3 platforms: white paper creation, tokenomics, attracting venture capital companies (VC) at an early stage and deploying trading on decentralized (DEX) and centralized exchanges, etc.

Fashion & NFT 

Fashionable digital tokens are becoming more and more popular. Brands such as Gucci, Balenciaga, Dolce & Gabbana are already releasing clothes, accessories and shoes in the NFT format.

So far, such items exist only in the form of non-fungible tokens, but with the development and promotion of projects such as Meta and Web 3.0, they may also appear in augmented reality. Digital fashion NFTs include clothing, accessories, shoes, jewelry and more. All of these can be worn virtually and in gaming ecosystems. In addition, NFTs are used for investing, collecting, decorating avatars, playing AR, and as “filters” for photos and videos. Avatars that users can dress up to their liking, digital wardrobes with clothes from the world's best brands – this is how the future of the fashion industry is seen today.

Over time, NFT tokens are transforming into wearable technology, and Gucci digital sneakers can be “put on” not only in VR, but also in AR, as well as in the real world.

With further development, this, and possibly other segments of the economy will become waste-free. The cost of some exclusive silk dress will no longer be tied to the cost of its production, as clothing becomes digital. This will entail the transition of the fashion industry to the principle of wear-to-earn. The stronger the demand for trendy NFT tokens grows, the more popular the wear-to-earn principle will become. Global fashion brands will have to compete for the attention of the audience, building a new model for promoting their product. The “reward” for users will be exclusive models of clothing and accessories, rare or artificially popularized items, as well as money in the form of tokens. Already, brands such as Balenciaga are looking back at the most popular youth projects, such as Fortnite. This online game and similar products have a huge impact on the perception of fashion in society and the future of the industry.

An example of the effective implementation of the wear-to-earn principle is the Dolce&Gabbana “D&G Family” collection. This is a public NFT system on the UNXD site, which will give participants the opportunity to receive exclusive physical clothing through the “drop” of tokens. In today's world, there is no question of whether to “digitize” physical clothing. Tokens are already being used. They allow you to get a digital copy of a piece of clothing or jewelry for your avatar in projects such as Decentraland, or enter the designer's online lobby. This future has already arrived. That is why tokens will not just enter the fashion industry, but will completely transform it. And wearable technology will allow you to transfer the result to the real world. 

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WRITTEN BY

Viktor Ihnatiuk

Founder at Boosty Labs, SNO Growth Lead at Storj Labs

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