The Blockchain Revolution!
In the second part of the series on blockchain technology, Samir Alam explores how businesses can use blockchain technology to change the game.
Explaining how businesses can use blockchain technology to their benefit
Last month, we discussed blockchain technology and its impact on the fashion and apparel business. From inventory tracking to provenance ensuring transparency, the potential of blockchain technology to revolutionise the value chain is clear. In this issue, we are taking things one step further. We will be discussing how blockchain can actually be deployed across the apparel and textile business, with examples and use-cases. But first, let’s quickly refresh ourselves with the basic understanding of blockchain technology and what makes it unique.
Blockchain technology is best explained through how it actually operates in practice. Blockchain is defined as a digital ledger in which transactions between parties are recorded and distributed across a network. In other words, blockchain is an encrypted, decentralised, distributed, and public digital ledger which records transactions across many computers in a network, so that the record can’t be changed without the alteration of all subsequent records, or without the collusion of majority of the network. Now, how is this relevant to a business?
Imagine the following scenario: a supplier and a manufacturer need to update their account balances when they engage in a transaction of goods, services, and money between each other. To ensure that this transaction is precise and secure, a significant amount of time and cost is spent by the banking and accounts systems to ensure coordination, synchronisation, messaging and checking. The middlemen between these two parties are typically banks, which ensure that money is securely passed between them with no mistakes or misuse, for example, one manufacturer with only USD 1000 promising two suppliers USD 1000 each. This wouldn’t occur in the current system because the banks wouldn’t permit double transactions on the single amount. But, this service comes at a cost.
THE MIDDLE END
This cost is paid to middlemen in the financial system who secure and protect the interests of the many parties. On the most macro scale, it is the government which oversees these regulations. The cost of this service is represented in banking and accounting costs for each party in their internal expenses. But with blockchain, the reliance on third party middlemen and the associated costs are no longer an issue. The entire network of parties shares a single ledger where all transactions are encrypted and recorded. This allows each party to access their own information as well as to simplify the coordination and validation efforts, which ensure that financial security in trade is always unified and singular.
Blockchain technology allows a decentralised system to record transactions and build them into information blocks. Each block is a set of transactions, as well as a coded signature of the block preceding it. This is a special code, known as a hash code, which is unique to each block and is dependent on the contents of each block. So, if someone was to alter the contents of the block, the hash code would automatically be different, and not match the original. This ensures that it is nearly impossible to change the contents of any block in the chain without having to change all the blocks that precede the altered block. The effort required to do so requires an unrealistically large amount of computer power and, as a result, makes blockchain the most secure way to record and validate information.
CHAIN OF ACTION
Blockchain is still in its early stages across the world. But, according to the World Economic Forum, over 10 per cent of the world’s GDP will be stored in blockchain value by 2028. The fashion and apparel industry is yet to adopt blockchain in any unified system, with dozens of different players employing the technology for a variety of different purposes. However, as a trend,
we can easily determine that the core value of blockchain to any business is currently proven in the following areas: financial transactions, inventory tracking, data and information gathering, ethical value chain transparency, and intellectual property protection.
BELOW ARE A FEW WAYS IN WHICH BUSINESSES CAN EXPLORE AND IMPLEMENT BLOCKCHAIN TECHNOLOGY:
Efficient Payments and Financial Transactions: The apparel and textile industry engages in the largest and most complex value chain, with dozens of players, from farmers to designers, from logistics providers and manufacturers. Hundreds of transactions take place per piece of clothing. This translates to hundreds of billions of transactions every year between millions of parties across the global industry. With the use of a unified or even bilateral blockchain solution, businesses can drastically reduce their costs. With the use of blockchain-based digital currency systems such as Ethereum, businesses can transact across borders in a secure and cost-effective way. With payment systems being accessible in developing countries through blockchain services like Binkabi, the reach, convenience and cost effectiveness is unparalleled. Combined with the ability to use blockchain based ‘smart contracts’, businesses can be assured that their payments will not fall peril to false commodities or delays in delivery, which can otherwise render their capital immobile at great cost. Inventory Tracking and Ethical Value Chain:
In today’s apparel market, it is more important than ever to be a part of sustainable and ethical sourcing and production systems. For businesses, the cost of investing in these changes can be offset by their ability to publicly prove their ethical and transparent practices. However, this becomes an issue of trust between the business and the consumer. However, if we look at innovations developed by London designer Martine Jarlgaard and blockchain
WITH BLOCKCHAIN BASED ‘SMART LABELS’, CONSUMERS CAN EASILY SCAN AND CONFIRM THE STORY BEHIND EACH PIECE OF APPAREL.
company Provenance in the form of ‘smart labels’, we can see how this problem can be turned into an advantage. With blockchain based ‘smart labels’, consumers can easily scan and confirm the story behind each piece of apparel - from raw material sources to production process. The amount of sharable information is only limited by the businesses themselves. This degree of transparency is extremely important in today’s high-margin, luxury and lifestyle goods segment, which is very sensitive to social progressiveness and eco-sustainable thinking. PROTECTION FROM COUNTERFEIT GOODS: A number of major fashion businesses are built on an established brand value and high-quality intellectual property. With globalised trade, it has become nearly impossible to effectively eradicate counterfeit items in the market. With blockchain technology, this process can be made simple and easy. With the combined use of RFID chips (Radio-Frequency Identification) and blockchain networks, businesses can easily and cheaply ensure that their products can’t be counterfeited. While the essential designs and styles may be mimicked in low-quality reproductions, consumers can easily detect when they are being sold a counterfeit. For those cases where consumers themselves tend to opt for the cheaper counterfeit product, they can easily be discovered by their peers, which disincentives purchasing counterfeit goods at all. With the increasing affordability of RFID chips and the easily networked validation of blockchain, anyone with a cell phone can inspect a piece of apparel and determine if it is genuine or counterfeit. This step alone can save the apparel and textile industry USD 450 billion annually.
As blockchain technology is further explored and tested, we are certain that core value solutions for the apparel and textile industry will emerge. Already, major international technology and businesses giants like IBM and Walmart are partnering to test out this technology across large systems. For fashion and apparel, the core consensus appears to be the need for a unified blockchain system that can be trusted across borders. Currently, various businesses are developing their own smaller networks and inviting their vendors and partners to connect with it. But for a true value to emerge, these systems need to expand beyond borders and connect the global network of apparel stakeholders to truly achieve their full potential.