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.

Apparel - - Contents -

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.

BUILD­ING BLOCKS

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.

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