[New Wave] Why Are Fashion Companies and ESG Management Firms Entering the NFT Business?

The ‘Aura’ blockchain, jointly developed by Microsoft and ConsenSys, was created to authenticate luxury brands' genuine products. Currently, Bulgari, Cartier, Hublot, Louis Vuitton, Christian Dior, and Prada are using this blockchain, and other luxury brands are considering participation. Participating companies pay an annual license fee and transaction-based commissions.

Luxury companies are highly sensitive to counterfeit products. In the past, luxury brands issued paper quality certificates. However, recently, as seen in the Aura blockchain consortium case, these are being replaced with non-fungible tokens (NFTs). Why is that?

When quality certificates are replaced with NFTs, the NFT records information such as the product's unique identification number, materials used, which factory produced it and how, and where, when, and to whom it was sold. The actual product embeds an RFID or QR code containing the identification number, allowing anyone to easily verify authenticity anytime and anywhere with a smartphone.

Because the information is stored on the blockchain, unlike paper certificates, there is no risk of loss or damage. That’s not all. Just as a registered deed records sales history, luxury NFTs keep a history of who sold to whom and when, preventing counterfeit products from circulating in the secondhand market. Additionally, when celebrities donate their luxury items at charity events, this record remains in the NFT, enabling the creation of secondhand items that can be more valuable than new products.

Swiss luxury watchmaker Breitling has also created NFTs based on the ‘Arianee’ blockchain for authentication, and Japan’s leading automaker Toyota is researching the use of NFTs to prevent fraudulent listings in the used car market. Each vehicle’s NFT will display vehicle information, traffic violations, manufacturing history, and more.

The apparel industry is no exception. In a European consumer survey conducted by IBM, 75% of respondents expressed concern about the large amount of waste related to the fashion industry, and 64% said they are more likely to purchase clothing that can prove sustainability through advanced technology. Here, ‘sustainability’ means the ability to continue without destroying the natural environment, implying that the entire process?from production and distribution to disposal?must not harm the environment.

In November 2020, IBM and Kaya & Kato, a textile company manufacturing uniforms and workwear, announced the development of a blockchain for the fashion industry with support from the German Federal Ministry for Economic Affairs. By using blockchain and NFTs to record and track clothing supply chain information in an immutable form, suppliers and consumers can transparently share information about raw materials, origins, processing facilities, and each production and distribution stage, enabling verification of whether purchased products negatively impact the environment.

Now, NFTs are being applied not only to digital goods but also to various products made in the real world. They are creating new business opportunities that were previously impossible. The expanding applications of NFTs are so diverse that it is fascinating to watch how far their limits will go.

/Seungjoo Kim, Professor, Department of Cyber Defense, Korea University

This content was produced with the assistance of AI translation services.