For supply-chain partners, blockchain technology promises an immutable record of provenance, as products pass from hand to hand. And which industry stands to benefit more from that capability than luxury goods?
Jewelry and other big-ticket items are distinguished not just by price, but by uniqueness. Determining the origin, location, condition and ownership of each individual piece is therefore essential.
Purveyors of diamonds such as Tiffany & Co. are placing supply-chain transparency at the core of their business model. With the spotlight increasingly trained on conflict diamonds from countries engaged in war and human rights abuses, the ability to trace a single diamond all the way to the mine becomes more than a marketing gimmick.
Blockchain creates a ledger that resides on multiple computers and records every single transaction involved in the movement of product from origin to ultimate buyer. In the case of unique items such as jewelry and fine art, it can also be used to trace ownership throughout their lifetimes.
“Every time there’s a chance to have a one-to-one relationship between the physical and digital world, it’s a good case for a supply-chain traceability solution,” says Eric Piscini, chief executive officer of blockchain platform developer Citizens Reserve.
One might assume that the diamond industry has long had a reliable means of tracing product throughout the supply chain and beyond. But transactions are customarily recorded separately by buyer and seller, with no guarantee that the details jibe.
“The same diamond moves around the world and is recorded in different places,” says Piscini. “No one can link information in the various databases, because people don’t trust each other.
“When moving to a blockchain world, they agree to a single version of the truth because no one’s the owner of the information,” he continues. “They share it in real time, so you always know where the diamond is.”
There’s also the question of authenticity. The art world in particular is plagued by forgeries and counterfeits; blockchain can help to identify the authentic object as it move through the supply chain or changes ownership.
From a humanitarian standpoint, no aspect of the luxury blockchain is more important than stopping the flow of conflict diamonds and other precious minerals that show up in any number of high-tech products. Recent years have seen the passage of multiple laws and regulations in the U.S. and elsewhere, requiring manufacturers to disclose the presence of minerals from strife-torn countries such as the Democratic Republic of Congo. (Not all mines in the DRC are involved in the production of conflict minerals, so it becomes even more essential that manufacturers be able to fix the precise source of their raw materials.)
The trick lies in getting everyone involved in the supply chain to use the same platform, Piscini says. Otherwise the relevant information remains just as walled off as before. Still, there’s a strong incentive for all parties to cooperate on the same blockchain, given the importance of tracking high-value items.
“The sooner you create an environment of trust, the more consumers are willing to pay a premium for goods and services,” Piscini says. For example, producers of “organic” beef need to ensure a certain level of quality in order to justify a higher price tag.
In theory, when it comes to premium food products, a particular steak could be scanned at the restaurant, documenting its origin back to the cow, and providing specifics on type of feed, vaccinations and drugs. “All of that is available today,” says Piscini, “but it’s completely fragmented.”
Even more critical in the food sector is the ability of blockchain to provide a record of origin on which suppliers can draw in the event of contaminated product. In the absence of such specifics, the producer could end up recalling far more of the item in question than is necessary to address the crisis.
The strong case for adoption notwithstanding, suppliers of high-priced goods have yet to fully embrace blockchain technology. Muddling the issue is the question of whether it requires the issuance of virtual coins or tokens, either to finance an initiative or provide incentives to supply-chain partners to register all of their transactions on a shared blockchain.
Piscini believes tokens are an important means of prolonging the life of the platform, long after the vendor who created it is gone. But others are proceeding with blockchain projects that require no “mining” of coins or tokens at all. They’re concerned that a bursting of the bubble created by overvaluation of Bitcoin and similar virtual currencies could end up eroding the credibility of blockchain.
A continuing obstacle to the widespread acceptance of blockchain is a lack of understanding of the technology. Piscini envisions the eventual launch of a blockchain application whose underlying fundamentals aren’t known to the user. All that’s visible, he says, would be the business benefits.
The biggest challenge to blockchain today, Piscini says, lies in convincing all parties to share a common platform. “You’ve got to find enough people to work on privacy, scalability and performance. At the end of the day, you create a network effect, a single source of the truth. That requires letting go of our old mindset about how business works. And that’s big leap for a lot of people.”