Fashion Blockchain Startups — A Survey of Players In The Field, Q1 2018
In the world of computer hackers, the leading publication of the last several years is known as PoC||GTFO, which is an abbreviation of the full title, The International Journal of Proof-of-Concept or Get The F — Out. When analyzing blockchain startups, particularly the ones proposing to raise operating capital through the sale of digital tokens, this is probably the best policy to follow.
In a recent article on Bitcoin.com titled “46% of Last Year’s ICOs Have Failed Already,” cryptocurrency analyst Kai Sedgwick writes, “a digital graveyard, complete with metaphorical tumbleweed, characterizes the crop of 2017 that decided to take the money and run. Many raised zero; some raised a couple of thousand dollars; and a handful raised over $10 million. In each case, the end result was the same though: no MVP, no alpha release, and no contribution to the decentralized web for the betterment of humanity.” So, it is in this context which we must analyze the plans of several groups attempting to sell blockchain technology services to the fashion industry.
“The future is already here — it’s just not very evenly distributed.” — William Gibson
The Jarlgaard Experiment
In May of last year, London-based designer Martine Jarlgaard presented garments made from organic British alpaca at the Copenhagen Fashion Summit. The garments were accompanied by tags bearing a printed QR code, which could be scanned with a mobile phone to pull up a full history of the supply chain behind each garment, even including names and profile photos of the specific alpacas whose coats were sheared, batched, and spun to make each individual sweater. There is a video about at least part of the process, as well as a case study available. Provenance, the company which enabled the supply chain tracking with their transparency platform, frames this as “the first garment ever tracked with blockchain technology.” Jarlgaard was supported in doing this through collaboration with London College of Fashion’s Fashion Innovation Agency, Neliana Fuenmayor’s A Transparent Company consultancy, Provenance, and a host of other supporting individuals and organizations. Proof of concept to be sure, but really this has not yet been proven in terms of scalability. Jarlgaard’s trial was an academic exercise, and Provenance seems to be focused more on the food space than fashion. Many questions remain, including the key question for the supply chain application of blockchain technology: do consumers actually want this much information? Even if consumers turn out to not want this much information, despite varying levels of outward transparency fashion businesses will want this level of detail because it is no longer acceptable to most fashion companies that their supply chain should be opaque to themselves.
Blockchain + Smart Contracts
There are big sensationalized headlines about blockchain, but it’s really just accounting software, and you have to combine it with other technologies to do anything interesting. In a supply chain model, blockchain offers unparalleled efficiency in tracking process, and then the new smart contract technology sits on top of that and issues compensation when a process is completed. Together they automate a lot of things that right now take up a great deal of time and energy in any industry. Smart contracts enable automated verified transaction of complex agreements. So, if a brand sells to 150 wholesale accounts and half of them have custom contracts every season, it’s suddenly a much smaller headache to track all of that compliance information when you introduce blockchain-enabled smart contracts. By taking many of the human factors out of tracking the supply, production, and distribution chains, we can eliminate massive waste in all of those areas. No more creative accounting, no more fake data, everything is above board all the time.
Singapore-based VeChain, the enterprise-focused company behind one of the top 20 cryptocurrencies by market cap, VEN, has been exhibiting blockchain applications tied to the fashion industry as early as 2016, which in the blockchain applications timeline is fairly far back. The business-friendly Ethereum blockchain was only launched in July of 2015. Ethereum is the system on which all of the startups surveyed for this article are building their technologies, and VeChain just announced a major advancement in their Ethereum-based enterprise applications related to secure sharing of confidential information, called Distributed Data Vending (DDV).
“The world will be blockchainified in the next ten years, one way or another.” — Fabian Vogelsteller, CTO at Lukso
The Consortium Is Key
Businesses are putting a lot of trust into blockchain applications because of their perceived infallibility. You might hear that the data entered in a blockchain cannot be altered, but that is only partially true. There is a big difference between public and private blockchains. Think of a poker game, and that there are 52 cards in a deck. The blockchain would tell you if there were suddenly 53 cards in play. But if the blockchain network you’re using is proprietary and processing is not distributed it’s more like the dealer is the only one with that information, so the house can cheat or a malicious actor could break into the single node and wreak havoc.
All of the fashion blockchain start-ups are building their own separate blockchains, which is counterproductive. A single blockchain can help store something on the order of a record for every grain of sand on the world’s largest beach, and sharing a blockchain allows technologies to work together more efficiently. A startup called Group Project in Los Angeles aims to tackle the counterfeiting issues in the fashion industry by verifying authenticity of luxury goods on a blockchain. This is basically the same approach as Provenance, but Group Project’s solution involves a patent and trademark pending “Crypto-Tag” chip which talks to smart phones, but only through their proprietary mobile app. This is a walled garden without the accountability of distributed computing across a network of nodes with disparate ownership. The reason people put any level of trust in the Bitcoin and Ethereum cryptocurrencies is distributed verification of the cryptography. If one company is trying to hold the top of the hill and not let other players interact, it negates the benefits of using a blockchain at all.
At the opposite end of the proprietary spectrum is Berlin-based Lukso. Husband and wife team Fabian Vogelsteller (CTO) and Marjorie Hernandez (CEO), along with American investor Lorie Karnath, launched their fashion blockchain startup company Lukso at Fashiontech Berlin during the Premium trade fair in January. Vogelsteller has been involved with the Ethereum blockchain since its beginning. He created the Ethereum-Wallet, and in the spirit of Proof-of-Concept, you can see a lot of code being contributed to that project by him over time on the code repository GitHub where the Ethereum backbone technology is being collaboratively developed. Lukso is intended to be a platform for many companies to build blockchain applications on top of, making those projects interoperable, leading to a larger network, and greater viability for trust in that network. The Internet itself is a network of shared resources and shared platforms. Look at the biggest nodes of the Internet. Sites like Wikipedia, Google, and Amazon in context with each other are just highly efficient resource hubs. Out of all of the fashion blockchain proposals shown to date, Lukso makes the most sense right now, because it is the most simple. It’s just a blockchain with technical support, but it could enable all of the other proposed projects. As Hernandez puts it, “the platform offers a common data structure without central authority, representing a network that’s run by its participants.” Their LYX token is the currency of the Lukso blockchain, and is based on Ethereum, the more versatile successor technology to Bitcoin (which dates back to 2009 and is too primitive to be compatible with smart contracts). Lukso’s main obstacle at the moment, an obstacle they share with almost everyone else in the field, is widespread adoption of their standard by large fashion brands. Where some in the space are looking to manufacturers to drive demand, Lukso hopes to onboard partners like LVMH and Kering into a consortium to get the ball rolling.
Hernandez and Vogelsteller are very excited about the possibilities of where blockchain-based applications can go for the fashion business in the future. They talk intently about pushing the question of ownership. As goods get cheaper and cheaper, what is value? “It’s more about access than ownership,” says Vogelsteller. Hernandez brings up the idea of “digital twins,” proposing a blockchain-enforced luxury authentication used so that “you can only wear your Celine bag in the virtual reality game if you actually have one.” Will companies have to pay Lukso to participate? “All the technology we are building will be open source,” asserts Hernandez. And that’s at the core of what they seem to be trying to do. “You suddenly can create compatibility across brands, across industries, across all players,” ads Vogelsteller. The network is the point of their project, and perhaps the point of all blockchain applications with long term viability, as it’s about the ecosystem. They are following the idea that the future is not about one company owning everything, it’s about everyone owning a part.
Lukso has their public ICO (Initial Coin Offering) with a $20–50M goal slated for Q2 of 2018, around May or June, but there is an unusual spin on it. They propose to do the first ever refundable ICO. The money collected as they sell off the first 20% of LYX tokens will only be released to them in escrow-protected tranches as they further development of the platform and onboard consortium members to strengthen the network. They say backers will be at least partially reimbursed if the company fails, which is likely unique in the history of blockchain startups. This has never been done before, so there are logistical and legal concerns that need to be settled before the ICO. “For us it is very important to be ethical. There is a lot of hype around ICOs,” states Hernandez.
Tech consulting giant SAP doesn’t yet have a major fashion client experimenting with it, but they have a large jewelry retailer client looking at source tracking, to assure customers that they are not purchasing jewelry sourced from conflict zones. In the future, this might be achieved using a molecular fingerprint. At a private event hosted by Agentic, Bruno Scarselli, CEO of Scarselli Diamonds, has stated that they are already developing molecular marking technology.
Lori Mitchell-Keller, SAP’s Global General Manager for Consumer Industries, says SAP’s current major blockchain innovation clients are focused on pharmaceuticals and the “cold chain.” There are regulations requiring drug companies and pharmacies to be able to prove that certain drugs were constantly stored at a certain temperature, so temperature sensors inside sealed containers will write their temperature logs to a blockchain as legal evidence of compliance. Asked how long until fashion will be ready for this sort of thing, Mitchell-Keller responded that “the tech itself is so much in its early stages,” but added that the World Economic Forum suggests that in 10 years 10% of the world GDP will be stored in blockchains. “I think the more upscale brands are going to use the technology faster than department stores,” and in regards to the immediate value of transparency for business, “upscale brands want to use this technology to charge upscale prices.” “I don’t know that you’re going to have every company on the same blockchain, but for it to work we need some standards,” indicating also that universal standards for metadata are a major stumbling block that still exists. SAP’s Leonardo brand offers innovation services in seven core sectors: analytics, machine learning, internet of things, design thinking, big data, data intelligence, and… blockchain.
“Providing product information will become the baseline, and not providing it will be a red flag.” — Bruce Thompson, Founder of Brightlabel
Building The Companion Tools
Technologist and public policy expert Bruce Thompson’s Brightlabel is not a blockchain startup per se, they are a digital labeling platform. This is sort of like the nutritional information found on packaged foods, but for fashion products. “Blockchain technology would take up all of our time, so we are partnering to bring the data,” says Thompson, describing working with third-party validation through certification authorities, supply chain mapping, and other means, and clarifying “we are not focused on content origination.” Brightlabel is potentially looking for a blockchain partner, but it isn’t essential for their business. They’re talking to a number of brands, putting together prototypes, and basically still in beta with the platform. As one of their first large projects, Brightlabel is working with Lenzing to educate consumers about the renewable nature of their Tencel material, which is made from tree pulp sourced from tree plantations, where they capture 99% of the material used in what is essentially a highly sustainable closed loop production process. In the blockchain space, Thompson identifies what he calls the upstream and the downstream applications. The upstream is the risk mitigation that comes from understanding your supply chain, and the downstream is protecting your brand by being able to say and show with certainty what you stand for.
Out of all the startups in the fashion blockchain space, the biggest question mark is Loomia. They were reached out to for an interview, but were unable to comment, likely related to their reportedly imminent ICO. In a post on Medium, ICO analyst Tommy Wilkinson lists Loomia at the top of his rundown of the “The 7 Golden ICO’s to shine in Q1, 2018.” He describes it as “a sleeping giant,” pointing to the company’s established track record with developing next generation wearables and experiments in the realm of the so-called Internet of Things. Loomia is developing tech around sewn-in sensors which will let clothing send usage metrics back to the brands, particularly of interest in athletic-wear. They say they’re going to pay consumers for this information, but we haven’t seen this sort of thing tested in the long term yet, and there are definite privacy concerns with the devices tracking a customer’s every move out in the world. Recognizing also that Loomia’s technology development is being led by the well-known fashiontech engineer Madison Maxey, this company is definitely developing interesting pieces of the future. What remains to be seen is if their proposed blockchain-enabled usage data application will be too complicated for consumers to maintain.
An existential threat to blockchain technology is the arrival of quantum computers. Unlike regular computers that use zeroes and ones to do all their calculations, quantum computers are based on principles of quantum physics and higher math, and make calculations with three variables instead of two. Companies like IBM and Microsoft have built primitive working prototype quantum computers which are already showing startling capabilities. It has been assumed for a long time that strong encryption couldn’t be broken in millions of years of supercomputer time, but quantum computers take shortcuts normal computers cannot, and can potentially solve the cryptographic puzzles blockchains are built upon in far less time, breaking the lock essentially.
Nathana Sharma, a principal at Crypto-Lotus, a cryptocurrency hedge fund, reviews this threat in an article on SignularityHub, concluding “to be clear, quantum computing threatens all computer security systems that rely on public key cryptography, not just blockchain. All security systems, including blockchain systems, need to consider post-quantum cryptography to maintain data security for their systems. But the easiest and most efficient route may be to replace traditional systems with blockchain systems that implement quantum-resistant cryptography.” Quantum computers are very good at solving certain types of problems, and very bad at solving certain other types of problems, so the silver lining is that new quantum-resistant blockchains can be built with this in mind, and the fashion industry does not currently have a vulnerable standard platform.
Business as usual in the fashion industry — everyone wants their own little empire — so a unified blockchain standard looks unlikely for the foreseeable future. Ten years out, you’ll see cotton growth tracked in the field by satellites being logged into a blockchain, followed by harvest data from tractors, followed by the time it took to drive a particular bale to the gin, and all the way up to who bought that T-shirt in a vintage shop and how many hours has it been worn by each user. But it’s not tomorrow yet, and a blockchain is only part of the solution. The number of systems that have to be built to support a total blockchain solution for the fashion industry is mind-boggling.
Blockchain is an exciting new technology with a great deal of potential to make the world more safe and efficient, but we have a long way to go until it is a mature technology. All bets here are high risk at the moment, and the biggest winners in this space are most likely not even on the field yet.