Your Crash Course in NFTs and the Luxury Fashion Market
Your Crash Course in NFTs and the Luxury Fashion Market
Education is one of our core pillars here at Lux Second Chance. Okay, well maybe it isn’t, but staying up to date on the latest innovations and newsworthy investments has never been more important in this fast-paced digital age! We almost can’t keep up! Which brings us to today’s educational programming: NFTs and the Luxury Fashion Market 101.
If you’re like us, we’ll need to take things sloooowww and start at step one before we even dive into what the heck this has to do with luxury fashion. Consider this your crash course in NFTs as it relates to our number one love: fashion.
What is a NFT?
NFT stands for Non-Fungible Token, a cryptographic asset created through blockchain technology. It allows for the exchange of value through a medium that cannot be replicated [1].
To put it simply, The Verge explains, “‘Non-fungible’ more or less means that it’s unique and can’t be replaced with something else. For example, a bitcoin is fungible — trade one for another bitcoin, and you’ll have exactly the same thing. A one-of-a-kind trading card, however, is non-fungible. If you traded it for a different card, you’d have something completely different” [2].
NFTs are often traded in the metaverse and paid for by cryptocurrency.
What is a blockchain?
All NFTs are controlled and accounted for on a blockchain distributed ledger, similar to cryptocurrencies like bitcoin and dogecoin. According to Investopia, “Blockchain is a type of shared database that differs from a typical database in the way that it stores information; blockchains store data in blocks that are then linked together via cryptography. As new data comes in, it is entered into a fresh block. Once the block is filled with data, it is chained onto the previous block, which makes the data chained together in chronological order. Different types of information can be stored on a blockchain, but the most common use so far has been as a ledger for transactions. In Bitcoin’s case, blockchain is used in a decentralized way so that no single person or group has control—rather, all users collectively retain control. Decentralized blockchains are immutable, which means that the data entered is irreversible. For Bitcoin, this means that transactions are permanently recorded and viewable to anyone.” [3]
So what does this blockchain have to do with luxury fashion?
In May 2019, top luxury brand LVMH Moët Hennessy Louis Vuitton, owner of some of the world’s biggest fashion brands such as Fendi, Dior, and Givenchy, were the first fashion company to make moves on leveraging blockchain-based tokens as a means of ensuring an item’s authenticity [1]. Blockchain technology acts as a ledger of all previous transactions on an item, which means you know exactly where it is coming from, if anyone had it before you, and that it is a legitimate product. All this information is irreversible, permanently recorded, and viewable to anyone, so it cannot be tampered with.
Enter the first blockchain company built specifically for luxury fashion: Aura. According to an article in Forbes, “Aura is a blockchain system that allows consumers to track the origins and lifecycle of their purchases. Having researched this topic at the Fashion Institute of Technology, a strong argument can be made that this knowledge is considered the most important to consumers in a customer-centric world. Another thing worth mentioning is how these fashion brands are able to protect the integrity of their intellectual property. Top brands leveraging NFTs back up their designs legally.”
NFTs also provide the opportunity to offer one of a kind, irreplaceable items to luxury customers. In 2021, Gucci introduced product offerings such as one of a kind sneakers as an NFT. Even luxury watch brands are promoting NFT auctions within the available platforms [1].
Currently, the best example of an NFT is when it is sold as a twin (digital product) of a physical one. This has been a common route that fashion brands have taken, especially because it still satisfies the physical need of a customer, while still adding the prestige and uniqueness of an NFT.
So what exists already?
Thanks to the COVID-19 pandemic, the efforts to digitize in the fashion industry (and many other industries) has gone into hyperdrive.
Ralph Lauren recently partnered with South Korean social network and avatar simulation app, Zepeto, to create a virtual fashion collection and give users the opportunity to dress their avatars in exclusive products, shop a virtual Ralph Lauren store, and change their “skins”. Similarly, Gucci has created digital assets for gaming platforms, Roadblocks, Pokemon GO, and Animal Crossing [4].
As this is brand new territory for fashion brands, they have to collaborate with outside firms and digital designers to craft their pieces into digital assets. For example, Dolce & Gabbana worked with UNXD to create their digital collection while Rebecca Minkoff collaborated with Dematerialize to work with their designer and take the products from design all the way to the blockchain [4].
These are the efforts luxury fashion brands are taking to enhance their virtual world (or metaverse) branding–something that was not even slightly important ten years ago–all while taking in a completely new revenue stream. Especially as these digital assets are a small, tiny fraction of what it costs to create the physical one, and yet they are able to sell them at comparable pricing. It’s mind-blowing, really.
Who would buy these non-tangible items?
You’re probably thinking what we’re thinking; what’s the point of owning a digital Chanel handbag? Well–like any good Chanel handbag–it’s an *investment*. NFT buyers are interested in the investment potential of their virtual fashion items. Depending on the NFT, more so in the digital art world, NFTs can sometimes be traded for well over double their original “price”.
Currently NFT shoppers are early adopters of this new technology. It’s hard to guarantee exactly what will come of the NFT industry, but many believe it is the new frontier and it’s here to stay.
As an article in Forbes points out, “The reality is that increased adoption tends to take on a life of its own, and NFTs are currently in the early stages of becoming a major part of our lives.” Tal Lifshitz, a partner and co-chair of the cryptocurrency, digital asset, and blockchain group at Miami-based Kozyak Tropin & Throckmorton (KTT) goes on to explain, “Increased adoption means exponentially increased value and utility,” said Lifshitz. “If you’re the only person who owns a cell phone, it’s useless. If two people own cell phones, there’s some value. If billions of people have cell phones, you need a cell phone. That’s the impact of increased adoption. That’s the potential future of NFTs.”
Reasons for Brands to Proceed with Caution
The metaverse is not regulated like the real world. Even though blockchain technology looks to provide full transparency and authentication to purchases, digital artists are finding their way into the counterfeit industry [4].
Trademark and copyright issues are still not regulated in the world of metaverse. For example, in 2021 digital artist Mason Rothshield launched the Metabirkin, a digital piece that depicts multiple versions of the beloved Hermes Birkin bag. The metabirkin isn’t a handbag, but rather just a form of digital art. These designs were available for purchase on OpenSea [4].
Obviously Hermes has a registered trademark protecting the design, the name, and even the silhouette of the Birkin bag from imitators. However, trademarks on physical characteristics doesn’t mean that it will cover or apply on digital assets. This is a non-regulated gray area for both brands and digital creators [4].
In the virtual world, it is difficult to determine right and wrong. Many have argued that Hermés is just angry they didn't think of it first. The metaverse is currently projected to become a one trillion dollar industry, so it might be in the brand's best interest to come to an agreement with Rothchild or team up with another artist, rather than shutting down the project entirely. One thing is for sure, and that is that luxury brands will need to keep an eye on the digital sphere to grow [6].
These threats are on top of the potential of cyber hacks and the other possible risks that are inherently involved in cyber security as opposed to real world tangible items.
The future is now, and luxury brands are quickly picking up their feet to jump onto the metabandwagon (yes, we just made that up) before it’s too late.
For now, you will find us with the other luddites and “old school” fashionistas shopping physical fashion items at luxsecondchance.com. Happy shopping!
Sources:
- Joseph DeAcetis, “How The NFT Boom And Luxury Fashion Brands Are Aiming For Success”, Forbes, September 20, 2021. https://www.forbes.com/sites/josephdeacetis/2021/09/20/how-the-nft-boom-and-luxury-fashion-brands-are-aiming-for-success/?sh=557f013c596d
- Mitchell Clark, “NFTs, explained”, The Verge, August 18, 2021, https://www.theverge.com/22310188/nft-explainer-what-is-blockchain-crypto-art-faq
- Adam Hayes, “Blockchain Explained”, Investopedia, February 16, 2022. https://www.investopedia.com/terms/b/blockchain.asp
- “Are the Metaverse and NFT the future of luxury brands?”, Fashion Brief, January 5, 2022. https://www.youtube.com/watch?v=MSathEB3Y9M
- Robert Farrington, “Why Big Brands Are Spending Millions On NFTs”, Forbes, December 25, 2021 https://www.forbes.com/sites/robertfarrington/2021/12/25/why-big-brands-are-spending-millions-on-nfts/?sh=f649aa161176
- Tora Northman, “The Metabirkin vs. Hermes Saga Continues’’, Highsnobiety, February 10, 2022. https://www.highsnobiety.com/p/hermes-metabirkin-nft/
