Blockchain and fashion: Implications for supply chain management, ethical sourcing and anti-counterfeiting

Blockchain is one of the most hyped technologies of 2018, with much of the attention driven by virtualcurrencies like bitcoin. However, the virtual currency hype has obscured blockchain technology’s manybroader applications. In the fashion industry, for example, blockchain technology has the potential torevolutionize supply chain management (including ethical sourcing) and anti-counterfeiting initiatives.

Background

A blockchain, in general terms, is a digital, distributed ledgertechnology on which transactions are anonymously recorded.The transaction ledger is maintained simultaneously across anetwork of unrelated computers or servers called nodes. Theledger contains a continuous and complete record (the chain)of all transactions performed, which are grouped into blocks.A block is only added to the ledger chain if all of the nodes inthe network reach consensus on the next valid block to beadded to the chain. When a new block is added to the chain,it is time-stamped, and the transaction is irrevocable andirreversible.

With a distributed ledger, there is no single point of failure,and the chain is updated in real time as a transaction isapproved. Because blockchains use encryption and it is nearlyimpossible to alter their existing data illicitly, the ledger createsa trusted, immutable record, without the need for a centralintermediary. Thus, a blockchain is really a shared digitalledger technology that allows participants to securely transactdirectly, with accountability and a high resistance to malicioustampering.

A blockchain may be public and open (permissionless) likethe internet, or may be structured within a private group likean intranet (permissioned). The blockchain functionality thathas captured the attention of commercial actors, includingfashion retailers, are permissioned blockchains, because onlypreapproved participants may join them. The entities creatingthe permissioned blockchain agree on rules governing howentries are recorded and under what circumstances they canbe modified. Only authorized participants are given accessand are known within the network.

Blockchain’s application to the fashion industry

One of blockchain technology’s most promising applicationsis to supply chain and inventory management. Outside of thefashion world, blockchains are already being implementedin food supply chains. Currently, it is difficult to tracecontaminated food products back to the original source ofcontamination, leading to mass recalls and lengthy delays inresolving disease outbreaks caused by food contamination.But with a blockchain, each step in the supply chain canbe transparently and securely logged, enabling near instanttraceability of each bag of lettuce or package of hamburgersto its original source. In the near future, determining thesource of an outbreak arising from a tainted food will takeless time, and recalls will be limited only to affected products,saving lives and money.

Blockchains are also being deployed in the diamond industryto trace each gem back to its source, with the potential toeliminate diversion of conflict minerals into supply chainstouted as ethical and to provide consumer assurance.

Fashion supply chains are similarly opaque, involving sourcingof raw fibers and materials from farmers, fabrics and leathersfrom textile mills and tanneries, and garments from cut-and-sewand finishing factories. Distribution networks are vastand complex. Consumers lack visibility into how garmentsare produced and transported into local shops or vaste-commerce markets. Often, brands themselves do not havefull visibility into their own supply chains.

Blockchain technology, paired with radio frequencytechnologies or other tracking technologies, could enablethe transparent tracking of a garment’s production fromraw source materials to point-of-purchase. Proof of conceptof a blockchain’s efficacy in supply chain management wasdemonstrated last year at the Copenhagen fashion summit,where consumers could scan a code on the tags of garmentspresented by London-based designer Martine Jarlgaard, andview a full history of the supply chain behind each garment,including the specific alpacas whose coats were used toproduce every sweater in the line. While this degree ofvisibility may appear to be an extreme example of local,sustainable and ethical production and consumption trends,it is nonetheless reasonable to assume brands will meetconsumers’ increasing calls for ethical and sustainable fashion.Blockchain can help them do so faster and more cheaply.

The supply chain transparency enabled by blockchaintechnology also has enormous potential to facilitate brandowners’ efforts to combat counterfeit and diverted gray marketgoods. When a physical-digital link is created betweenan authentic product and a blockchain ledger, the provenanceand chain of custody of that product is instantly traceable.Counterfeit goods, in contrast, lack such a physical-digital linkand will be easy to detect.

Similarly, the transparency and immutability of transactionsrecorded on a blockchain could show the exact point ofdiversion of authentic product from an authorized distributionnetwork. This degree of visibility stands to provide brandowners with enormous advantages in combating counterfeitand gray market goods, including evidentiary advantagesas it is conceivable that blockchain ledgers could serve ascompelling evidence in civil and criminal court proceedings.

Blockchain technology is nascent, and the questionsof whether and how it will be successfully scaled anddeployed in the fashion industry will be determined in thefuture. However, the future is coming quickly, and industryparticipants should be prepared.