Blockchain & Birkins: Digital Defense Against Luxury Fakes

Authenticating the validity of luxury goods is currently quite challenging for the uninitiated. According to Bain and Company, the global luxury goods market reached value of $378 billion (USD) annually in 2022, growing at a compound annual growth rate of 6.4% from 2020 to 2030. Despite economic uncertainty, the market saw a growth rate of 9-11% in the first quarter of 2023. By 2030, Bain and Company predict the market will reach $581 billion (about $1,800 per person in the US) (USD) annually. 

The proposed solution involves creating a distributed ledger that stores information about goods' manufacturing, shipping, handling, and sales history. The distributed nature of the blockchain ensures that the data is immutable and tamper-proof, providing a high level of trust in the authenticity of the product. The implementation of smart contracts allows for automatic verification of the goods, ensuring that the product is authentic from origin to original sale to each resale down the line. The solution is scalable, allowing for the integration of additional participants in the supply chain to increase transparency and enhance trust. 

A potential pricing model for operating a luxury goods marketplace is such that only writes to the blockchain would incur a fee of 1% of the sale, while all reads would be free. This pricing model provides a fair and cost-effective way for companies, brands, and consumers to onboard while ensuring that the costs are aligned with the value derived from the blockchain. By leveraging blockchain technology, companies can implement a reliable and cost-effective method for validating the authenticity of luxury goods, promoting consumer confidence and trust in the industry. The market potential for such a solution is significant, given the size of the luxury goods market and the increasing demand for authentication solutions. By participating in a marketplace for authenticity, with security and transparency being the key tenets, companies can differentiate themselves in a highly competitive market and capture a share of the growing luxury goods market. 

As impressive as the previous numbers are, a 2019 Harvard Business Review article estimated that the market for fake and counterfeit goods is $4.5 trillion (USD) annually with fake luxury goods making up 60% to 70% of that amount. Specifically, the annual market for luxury counterfeit goods is $2.9 trillion (USD). The global market for counterfeit luxury goods is almost eight times larger than the market for authentic luxury goods. These numbers beg the question: are consumers only looking for the status given them by luxury goods or are they unable to validate the authenticity of their purchases? 

The current state of the art for validating luxury goods is not consumer-friendly, which leads to confusion and the purchase of counterfeit goods consumption. For example, to authenticate a piece of artwork Thomas Kinkade Studios recommends that consumers “look for a certificate of verified provenance, study the signature, touch, sniff, and weigh (the artwork), and contact a reputable independent appraiser.” All of these, save for the latter, would be easy for a counterfeiter to duplicate. Luxury handbags present similar problems. Luxury-shops.com recommends that the purchaser “(look for) poor stitching, inaccurate or misplaced logos, fake identification stamps, authenticity cards, label, and different colored threads.” These methods are problematic to a layman, especially when looking to purchase from the secondary market. 

The past few years have seen some luxury goods manufacturers create their own blockchains. Prada Group, LVMH, and Cartier founded the Aura Blockchain Consortium in 2021. Sam Miller founded the Fine Art Ledger in 2018 “to simplify art authentication, cataloging, and information storage for art collectors.” A 2023 paper, Physical NFTs: Digital Future of NFTs, from the Liechtenstein Crypto assets Exchange (LCX) defined physical NFTs which are “real-world items authorized using blockchain technologies.” These are all great starts, however they fail to address the larger luxury goods market, could invite potential forgery, and are not simple enough for most consumers to partake in. For example, Aura focuses on business to business and currently does not have an offering that allows consumers to sign up, have their assets listed, and then transact as part of the blockchain. The Fine Art Ledger allows consumers to sign up for a one-time payment subscription, get mailed NFC tags, and begin the process of “tagging” their art through a mobile app. This experience can leave a gap in the provenance and authenticity of a piece of artwork.   

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Part 2: Blockchain & Birkins: Digital Defense Against Luxury Fakes Cont