SHANGHAI — As chief information officer of Louis Vuitton China, when Sunny Lu heard about an unbreakable encrypted code used for virtual currencies such as Bitcoin, his first thought was that this kind of technology could be a key anticounterfeiting tool for the luxury goods industry.
Fast forward a few years and Lu is the cofounder of BitSe, a blockchain technology research firm, and VeChain — the name is a shortening of “verification chain” — a cloud product management platform built on blockchain. He’s now trying to sell a multitude of industries, from wine and spirits to car manufacturers and luxury fashion brands, on the utilities of the technology.
The wider world still has a rather rudimentary understanding of blockchain outside of its fintech usage, but it essentially refers to digital building blocks of information that are stored on a cloud and secured using cryptography — making it a useful technology for all kinds of industries.
For example, in the luxury sector, these digital records could be used to authenticate legitimate products, manage supply chains, track customer relationships and improve service. By putting unique IDs on the blockchain and embedding each product with a near field communication chip, radio frequency identification tag or QR code, blockchain technology provides an opportunity for enterprises to create, manage, maintain and update shared data. This data could include where a leather bag was made, by whom and from what, who now owns it and who owned it in the past.
“In terms of the luxury fashion industry, we have a customer who is making amazing progress, but I can’t disclose the brand name,” Lu said.
“We put a chipset into a limited number of their bags, 1,600 for the first collection. We put the unique ID into the chipset, no other information, just the ID, and that ID is registered on our blockchain. All of the data is on the cloud and also protected by the blockchain. For the end user, you can use a smartphone with NFC [near field communications] reader and you can read the ID and verify on the VeChain.”
Counterfeiting and consumer trust are particularly pertinent issues in China, where an abundance of the former has led to a lack of the latter. According to a survey conducted by J. Walter Thompson, 98 percent of Chinese Millennials worry about whether their purchases may be counterfeit, showing the huge value to be unlocked by high-tech security measures.
Secoo is a Chinese e-commerce platform focused on high-end merchandise, from fashion and accessories to artworks. Its products are sourced from direct brand partnerships, as well as links with “trusted Secoo suppliers,” according to Eric Chan, chief executive officer of Secoo Luxe.
“Authenticity is crucial for us. Authenticity is a key issue for China right now, it’s all about trust. Particularly when you are talking about high-priced products, then customers always have the concern about whether they are getting an authentic product. For us it’s about trust between our customers and us,” he said.
Launched nine years ago, Secoo has gone about building trust with an authentication team of more than 60 people, who mainly work out of a high-tech lab in Beijing. According to Han Chao, head of Secoo’s authentication department, their multistep authentication process first involves a human check by a trained appraiser, then products are run through machines that read the composite make up of the metals, for example, to see whether these line up with the composition of those used by the brand in question.
Since 2015, Han Chao’s lab has also been working with blockchain technologies, as brands begin to incorporate them into products.
“Although the blockchain technology can help a lot and is very useful in the authentication process, it will not replace all the technologies we are using now,” Han said. “It’s one of the most important technologies, but it won’t be the only one. Having said that, the anticounterfeit approaches we are starting to use give a signal to the market that the brand side and the manufacturers are doing more and more in the anticounterfeiting area and that will help the whole market become more pure.”
There are still those who are skeptical about the potential for blockchain as a game changer for anticounterfeiting in China and elsewhere. Joe Simone, director of SIPS, an intellectual-property boutique-consulting firm based in Hong Kong, is one who doesn’t see that blockchain will be taken up widely enough to put a major dent in the counterfeit goods market, valued last year as a half-trillion dollar global business by the Organization for Economic Cooperation and Development and the European Union’s Intellectual Property Office.
“There are technologies out there now that are fine, but people don’t want to be bothered to have all the components or even the finished product, have the code attached, put it into a database and have it monitored,” Simone said.
“In terms of industry-wide adoption, it’s just going to be too hard. There’s always a chance that online trade will get much more sophisticated such that there’ll be real commercial need to track everything just because it works better for everybody. But no, I don’t see it happening because companies are operating on a rudimentary level.”
Lu agrees that the costs associated with blockchain technology can be prohibitive for early movers, but is adamant that the next few years will see those costs lowered as more and more companies jump on the bandwagon.
“Maybe over the next five or ten years blockchain will be everywhere, like the Internet. We use Internet every day, but we don’t care about the infrastructure protocol of the Internet. I think blockchain will be just like the Internet — everyone will be using it and not even thinking about it,” Lu said.
A recently released report from IBM, whose cloud computing division is one of the world’s biggest drivers of blockchain technology, also predicts a widespread uptake in the next few years: “By 2018, we expect substantial momentum in blockchain implementations for consumer products and retail companies globally. By 2020, we expect that nearly two-thirds of the retail and consumer goods industries will have blockchains in full production,” the study said.
The Chinese government is so bullish on blockchain technology that it included it, alongside artificial intelligence, as technological innovations to push in the country’s latest five-year economic plan, which was released in December and covers the period from 2016 to 202o. According to Lu, this outlook is not limited to China but is being seen worldwide.
“The world is starting to embrace this technology, the big brands are more eager than before to show they are innovative by embracing this technology and doing everything they can to protect their product and give more value to their clients,” he said.