You don’t need to be a savant to see that entirely new economies are being built before our eyes. And we know historic ones can crumble in the time it takes to blink.
Influencers have sidestepped traditional media to build an industry that will be worth $15 billion by 2022. This puts it on track to overtake print advertising before 2025, despite being worth less than a billion a decade prior. Uber upended transportation to become worth $60 billion at the time of this article – most of which has been gained in just seven years. And Shopify’s share price has increased a hundred fold in the last two years alone, which it achieved by moving from a customer base of hobbyists and boutiques to running online commerce for household names in apparel, footwear, and accessories who needed a strong foothold in digital, fast.
These examples are not offshoots of traditional economies, or experiments with an uncertain future – they are today’s mainstream. To quote Professor Brian Armstrong, “the digital economy will, soon, become the ordinary economy”. In fact, “soon” is probably not soon enough given the accelerating effect of the pandemic on cross-industry digitisation.
But there are two essential things to understand about those examples. And they tell us a lot about digital economies in general.
First: true digital economies are genuinely different from what came before them. Rather than just being bigger, faster, or better, they instead create completely new business models. Or they unlock novel and unique systems of value creation and exchange that simply did not exist before. As an example, Uber’s food delivery business is now worth more than its taxi business. Neither could have existed a decade ago.
Second: new digital economies rely on step-changes in technology. Each of these examples was made possible by a cornerstone technical development of the Web 2.0 era – the big bang of the so-called “interactive internet”. Without those developments, these companies and the economies they have spawned would have been inconceivable.
Without social media, there would be no influencers. Without Google Maps, no Uber. Without democratic, scalable digital payment gateways, storefronts, and marketplaces, eCommerce would not be as dominant as it now is.
Amazon, Uber, and Instagram might be the household names, but the real culture shocks came when the technologies underneath them were born. And it has been the technologies, more so than the companies, that have allowed new ecosystems, solutions, and interconnected platforms to propagate and change our world.
It should come as no surprise, then, that six of the world’s top seven companies grew by accretion from being product or service-oriented to being the owners and overseers of these kinds of tech-centric ecosystems. But new digital economies could threaten that continued dominance. Because each of those ecosystems is centrally owned and controlled. And as we’re about to see, the age of centralisation could be coming to an end.
Not fashion done digitally. Digital fashion.
Even more than other industries, fashion has a preoccupation with what’s coming next. Brand and retail businesses may be late to actually adopt new technologies, but the industry’s aesthetic and commercial sensibilities have always been fixed on the horizon. Fashion has also been wrestling with digitisation since long before COVID; the pandemic has simply kicked things into a higher gear.
But as well as pursuing speed and efficiency improvements to compete with fast fashion, the fashion industry has also built a long wish list of new digital models it wants to pursue but hasn’t yet found the right way to tackle. Retailers want a share of the secondary market. Luxury companies want to find ways of substantiating scarcity and exclusivity, and rewarding their high value customers. Retailers and direct to consumer brands want to create new customer experiences through new and existing channels, and they want to do it at scale. Feted fashion houses want to get a handle on counterfeiting. And the world is clamouring for fashion to better understand and control its supply chains.
Crucially, brands and retailers – across every segment, not just luxury – are seeking to become “universes in their own right,” offering consumers newer and more meaningful experiences that go far beyond commodity products, creating new opportunities for engagement with their audiences, and building new business models where every interaction becomes a touchpoint with a unified brand experience.
Unlike the vanguards of the digital economy we have pointed to so far, though, fashion has not yet seen the shift in technology it’s going to need to deliver on that vision. From downstream customer experience to product provenance, the industry has instead built out a patchwork of different platforms for particular use cases. But a fundamental problem remains: fashion’s core products are still physical, and while they can be digitised, that cannot be done in a way that allow those digital entities to persist across platforms, and to then used to build new applications and experiences. It will be difficult – perhaps impossible – for fashion to embrace this idea by forcing together the different centralised technology frameworks it has relied on so far.
In attempting to stake its claim to a share of the new digital economy, fashion is, in essence, attempting to build Uber before Google Maps existed, when the two are inseparable.
But if traditional technology is not up to the task, what is? Fabian Vogelsteller believes he has the answer. And there is reason to believe him.
From DeFi to fashion’s decentralised destiny?
For a lot of businesses, blockchain is still a fringe technology. Or they feel it’s too closely tied to cryptocurrency and decentralised finance (“DeFi”) to stand on its own. But there is a possibility that it could be just the tectonic technology shift the fashion industry needs to stake its claim in the new digital economy – with the right minds behind it. And a little luck.
When it comes to blockchain, Vogelsteller is something close to royalty. A member of the Ethereum Foundation, his work on the ERC20 standard helped overturn the world of startup fundraising and digital currency overnight. By proposing a protocol that allowed new tokens to be issued on the Ethereum blockchain (arguably the second poster child for public blockchains after Bitcoin) and then used by other applications, Vogelsteller ushered in the Initial Coin Offering (“ICO”) boom. This heady period saw new companies rush to revolutionise everything from software architecture to the property rental market – by asking investors to buy into functional tokens in advance, in the hope they’d appreciate in value when the application eventually launched.
But Vogelsteller’s work with Ethereum had larger implications than these financial ones. The Ethereum blockchain can also run code using the Ethereum Virtual Machine (or EVM), which allows users to build self-executing smart contracts to automate the transfer of value, run decentralised applications and much more – all of which built on the core concept of tokenisation to add functionality and provide the foundation for completely novel business models and micro-economies. A simple cryptocurrency this was not.
And if that all sounds complicated, well, it is. Much of the Ethereum blockchain’s value has been cordoned off for all but seasoned developers and end users who were willing to wrestle with exchanges, mnemonic keys, and hot wallets. But it also opened the door to completely new avenues of big business, and the corporate world took notice. Eyebrows were raised in the investing community when an ERC20 ICO raised more money than many traditional IPOs from the same year, and today several of the largest digital currencies by market capitalisation are – or began life as – Ethereum tokens. And mega-corporations are already holding cryptocurrency as a treasury reserve asset – literally banking on decentralisation being a major part of our fiscal future.
The same principles, though, clearly also have tangible applications outside DeFi. And where his previous standard triggered something of a financial insurgency, Vogelsteller – along with Co-Founder Marjorie Hernandez – is introducing another that aims to build on the interoperability and ecosystem potential of Ethereum to become something completely different: the consumer-friendly face of blockchain for the fashion and lifestyle industries: LUKSO.
The vision is bold. It proposes a phygital (inseparable digital and physical) identity for every product, allowing any garment or lifestyle accessory to have a digital life independent of any single system. Using a digital token as their counterparts on the LUKSO blockchain, products can then be overseen, experienced, transacted, and interacted with across different solutions and within different processes – centralised and decentralised. This is intended to allow for unprecedented interoperability between different systems, applications and website platforms – enabling any application to house and interact with those digital tokens and the physical items they represent.
Rather than being a platform in its own right, LUKSO is being positioned as the foundation on which specific use cases and applications will be built – all of which rely on products having a single, incorruptible, interoperable digital identity that’s backed by the integrity of a universal blockchain and smart (contract) standards.
It’s a very big idea, basically. And one with a lot of moving parts.
But it’s not a speculative one; the specific needs are already evident. From item-level traceability to secondary markets and circular economies. From rewarding loyalty to creating a viable value system around virtual fashion and VR or videogame cosmetic items. The future of fashion painted in publications like this one, and by analysts and prognosticators worldwide, has already crystallised the requirement for an ecosystem, where ownership and interaction can transcend traditional technology boundaries.
All of which means that a big idea could be downright essential to realising a lot of opportunities – near and longer-term – in the new digital economy.
The business case for blockchain.
So what are those opportunities, and how far forward do we need to look for the first of them to be available? The short answer is: no further than this afternoon.
By far the most commonly-suggested applications of blockchain principles have been product provenance and authenticity. Multiple pilots and proofs of concept are already ongoing, and the software, hardware, and standards that power them are proven. It’s possible to issue a token that represents a physical product, and use that token to track the journey of that product from raw material to point of sale, with huge implications for sustainability.
The same approach could also give brands and intellectual property owners the ability to substantiate scarcity – letting luxury customers verify that only a limited quantity of a particular brand collaboration were produced, for example, rather than asking them to believe a production number printed on a paper certificate.
This switch from an informal trust-based economy to a systematised one with genuine, provable transparency and traceability has already begun. And according to PWC it’s going to add $1.76 trillion to the global economy in the next decade.
Approaches to bringing this value to life vary, but a key distinction between them is that many are multi-entity, multi-platform projects that rely on traditional API integrations rather than universal, item-level interoperability. This is an issue that LUKSO is looking to avoid, with open standards that can connect to any identification system such as NFC chips, or QR codes. To demonstrate this, LUKSO also built its own NFC tags. These come in two varieties – suitable for both soft, washable garments and rigid products – and are intended to encode each product’s identity in an open form, so it can be used in different systems, from the supply chain and onwards, as far the secondary resale market, or into recycling and reuse.
And again, the business case for change here is clear: the global trade in counterfeit luxury products alone is estimated to be $1.2 trillion, and an unbreakable bond between physical product and digital identity could slash this almost instantly.
Even this value, though, pales in comparison to the money the luxury sector could be leaving on the table by not engaging with its digital-native customers and brand advocates in new ways pre and post-sale.
New statistics suggest that 61% of the luxury market will be composed of Millennials and Generation Z shoppers within the next five years. And in individual brands’ cases that watermark has already been passed; Saint Laurent has transacted with Millennials for at least 65% of its business over the last few years, and is acknowledged as a leader because of its ability to “integrate digital connection and the in-store experience”.
This was true pre-COVID, when in-store sales accounted for the bulk of luxury business, but in the midst of the pandemic (and afterwards) the shift towards digital is going to drive the trend for “experiential luxury” to new heights. And how much higher could Saint Laurent and other brands under the Kering umbrella aim if each product could carry its unique, verifiable, digital identity past the point of sale – and even interact with a customer’s own unique digital identity?
This is the second pillar of the LUKSO vision: sovereign, self-governed digital public identities for people, companies and up-and-coming creators that are portable, able to move between different systems, and that can be identified on different brand and retail ecosystems. Connect these with the digital identities of the products themselves, and a huge possibility space opens. Consider rewards that exist both inside and outside the brand ecosystem: discounts and digital experiences for high-value shoppers through the company’s own eCommerce and social channels, but also unique experiences for verifying product ownership and status in an airport lounge, a restaurant, or anywhere else that brand value or cultural cachet offer a tangible benefit.
And the vision gets even wilder when we consider that bridging product identities and individual identities with a token standard could be the spark for completely novel economies – ones we cannot even envision today. A decentralised, token-based economy could reward emerging designers, fund micro-brands, cheerlead influencers and streamers, fuel the trade in virtual fashions, and much more. Rather than being digital currencies in the traditional sense, these would be cultural currencies – completely unfettered to the pound, Euro, or dollar, and imbued with value by the communities that trade them.
For some (perhaps many) brands this is going to sound like several steps too far. But it’s not a purely abstract vision; a Highsnobiety report on cultural credibility defines that large, growing, Millennial / Gen Z market as “a cohort who are not necessarily on the hunt for product, but are spectators in search of inspiration, community, and identity builders”.
In a traditional economy, shoppers who are not looking for products would be, for all intents and purposes, ignored, but the same report draws a direct correlation between digital communities, digital engagement, and revenue growth. Which is a roundabout way of saying that parts of the brand and lifestyle equation that would historically have been seen as ancillary to the core business of fashion – selling clothes – are now driving the business of fashion.
And that is clearest evidence yet that fashion already has one foot in the new digital economy. It just lacks the right technology to drag the other foot forward.
Why Web 3.0 can’t wait.
Fashion and luxury, as we’ve defined, have a clear and pressing requirement for new models of value, new customer experiences, and new upstream and downstream workflows. But it seems unlikely that these are going to be created by architecting new platforms and then retroactively slotting digital products and people’s digital identities into them.
Instead, the Web 3.0 future of fashion – from immediate applications to unpredictable new sources – could hinge on products being created with interoperable digital identities already attached. And these would be backed by a composable backbone that could give brands, products, and people permanence, continuity, and community in a world that’s less predictable than it’s ever been.
So, as a brand or retailer, it could be time to look at blockchain less like a potential bet on a vague possibility, and more as a possible foundation upon which your digital future could be built. And the time to stake your claim could be now.
About the Partner: LUKSO is a blockchain platform specifically created for the lifestyle industry, providing a decentralised innovation and trust infrastructure for fashion brands, start-ups and customers. It offers the foundation for new forms of automated economic interactions and sustainable ownership management.
