A blockchain is essentially a digital ledger. Anyone with permission to access the ledger can make changes and add information. These changes are called blocks and they are added to the chain

A blockchain is essentially a digital ledger. Anyone with permission to access the ledger can make changes and add information. These changes are called 'blocks' and they are added to the 'chain'

Blockchain is the big buzzword in business circles at the moment, and a string of blockchains is evolving to disrupt the sourcing and retail landscape. But what is blockchain, how do these chains work and can they really revolutionise the fashion industry? Here we take a closer look.

"We have reached a tipping point. People are starting to realise they can run their businesses smarter and more efficiently."

This is the way Stephen Lamar, executive vice president of the American Apparel & Footwear Association (AAFA) explains the excitement behind blockchain. The nascent technology is quickly becoming a byword for a new, tech-led industrial revolution – one that's expected to see a slew of cryptocurrencies like Bitcoin or Litecoin monetise the future of what some describe as 'B2B databases on steroids'.

"When you first started hearing of cryptos and blockchains you thought 'that is not going anywhere and it's not a real thing'," Lamar muses. "Now it's apparent that these things are real things." 

Essentially, blockchains are computer networks running in an open-source (everyone can view and collaborate on them), decentralised (no middlemen) fashion. The network or software or protocol can be leveraged to support digital coin purchases or peer-to-peer record-keeping transactions such as logging a garment's certificate of origin or fabric composition.

Because each transaction is encrypted, incorruptible records or "distributed ledgers" can be created to help firms scale up and grow in new directions. To profit from these services, blockchain users sign so-called smart contracts and pay for them using the network's proprietary

A blockchain is essentially a digital ledger. Anyone with permission to access the ledger can make changes and add information. These changes are called 'blocks' and they are added to the 'chain'

cyptocurrency.

Devery, Nucleus target fashion firms

Enter Devery and Nucleus Vision, two fledgling blockchains looking to disrupt the textiles and apparel sourcing and retail universe. The firms recently completed their initial coin offerings or ICOs (a funding exercise similar to an IPO) and issued their Eve and nCash digital coins respectively.

The moves come as blockchain gains traction with fashion companies such as LL Bean, which struck a venture with blockchain start-up Loomia to track product usage (like temperature or wearability) to improve its product line up. Applied DNA and Cotton USA also teamed for a cotton traceability push.

Devery, which reportedly raised its first, $10m ICO target in 16 seconds, works as a supply chain transparency engine, allowing clothiers to secure distribution, tackle counterfeit and trace their products' origin and real-time location.

"If the supplier doesn't honour the distribution terms or there is some sort of illegitimate step in the supply chain, it can be flagged and recorded in the blockchain," Devery's retail and supply chain advisor Alex Trottier tells just-style by phone from Berlin, which he notes is quickly becoming a blockchain hub alongside Singapore.

The firm's toolset allows brands to assign a unique signature to their products, shielding them against counterfeit and allowing customers to verify their authenticity and track its development timeline.

"This is something that consumers demand today," Trottier says. "People want to understand where their products are coming from."

Magic from wider visibility

By storing a product's DNA on the blockchain, product logistics as well as export and import processes also become easier to carry out, he adds.

"You understand the steps a product took (say from its assembly factory in Shenzhen, China to its packaging in Kuala Lumpur or sales floor arrival in New York) and the certifications [or trade permits] required along the way," he explains. "Governments are going to get onboard of this and will probably incorporate it into their customs systems. It is going to make clothes trading a lot easier."

Blockchain will also power metadata.

"This is key to product supply because you often have many SKUs (stock-keeping units) and products to integrate into the manufacturing chain," says Trottier. "By storing all the metadata into the blockchain, you have frictionless transactions."

Metadata is also poised to challenge product lifecycle management or PLM systems, according to Trottier.

"If you have 1,000 products from several suppliers, you can see what they are, if certified organic or fair trade"

"It's going to be a lot easier to do just-in-time delivery or integrate products within your ecommerce site and mainframe computers and stores," he explains. "If you have 1,000 products from several suppliers and you are integrating them into your site, you can see what they are, if certified organic or fair trade, etc."

Traceability and transparency

Greater supply chain visibility also helps nurture sustainable fashion, enabling consumers to know whether a garment was made without sweatshop labour or in an environmentally friendly way.

"It's all about traceability and transparency of products moving through the supply chain and understanding their story, like knowing who grew the cotton that's in your T-shirt," says an insider at Provenance, a firm that helps fashion brands provide verified information about the materials, processes and people behind a garment using blockchain. "As a consumer, you can then make more responsible choices about what you buy and invest in products that pay their supply chain actors fairly."

Blockchain "has the potential to help eradicate slavery and negative practices down the supply chain as well as corruption."

New ways to seduce shoppers, boost sales

Retailers can also benefit from new ways to engage with customers and win their loyalty.

"Today, marketing is super competitive, especially in clothing, so it's crucial for manufacturers and retailers to find ways to engage with their consumers and educate them about where their products come from," adds Trottier. "Having these product certifications will help them stand out."

Devery can benefit the apparel industry most although future, multi-industry cases are also being explored. While he won't reveal any customers, Trottier says "our first target will be clothing brands, sporting goods and eyewear labels. Fashion in general has the greatest demand for our product."

However the company faces a rising tide of rivals including other start-ups Blockverify.io (a blockchain based anti-counterfeit solution) or Waltonchain, but Trottier says Devery has "the most open and broader" verification platform.

"There are many people targeting specific product niches like organics or recycled goods but we are trying to be broader and build the best platform with a very experienced software engineering and retail team and visionaries."

Personalised marketing will also get a boost from blockchain, says Nucleus Vision's marketing advisor Martin Dudley.  

The firm, which garnered $40m from its ICO, has built an internet of things (IoT) based system to help retailers identify their customers to bolster targeted marketing and sales.  

Founded at Harvard University, the network matches proprietary (ion-based) IoT sensors with mobile phones to greet a retailer's customers when they walk into a store and invite them to take part of their loyalty programme or take a survey. Customers gain nCash tokens for their time. They can trade them for rewards or discounts or eventually sell them in the cryptocurrency markets.

By mining this data, retailers can predict future customer behaviour, creating a more personalised shopping experience that improves customer satisfaction

Using the catchphrase "Do you know who entered your store? We do," Nucleus provides insights into customer behaviour that were not previously possible, such as the ability to track visits, aisles browsed and paths taken in-store, as well as favourite products and brands, the company says in its white paper. By mining this data, retailers can predict future customer behaviour, creating a more personalised shopping experience that improves customer satisfaction.

'We'll give you coins'

For instance, "we can tell you that for the next 20 minutes, we will give you 50 nCash coins if you go ahead and buy shoes," Dudley explains, adding that the customer's information is then stored on the blockchain.

In another potential game changer, the software allows retailers to share customer information with each other, enabling them to quickly gather key attributes about previously unidentified shoppers visiting their stores. Participating merchants also receive nCash tokens for cooperating.

Nucleus, which has venture capitalist and prominent bitcoin investor Tim Draper as a main backer, has partnered with Vodafone, Reliance Communications and Idea Cellular to more easily connect to mobile devices. The partnerships will initially allow Nucleus to access 500m customers in India, according to Dudley, who claims the tie-ups will give it an edge against rivals.

Dudley, previously a marketing director at Levi Strauss, says Nucleus could help boost retailers' in-store purchases by 1% to 2%, lifting fortunes in a cut-throat market.

"Every time a customer comes in, ensuring he comes out with a package is a big challenge," he says, adding that the network is showing encouraging results in a pilot phase with several brands including Louis Philippe and Van Heusen. Nucleus also lists Gap and Tommy Hilfiger as potential customers.

"15% to 20% of people visiting a store typically walk out with a purchase. If you can increase that by 1% to 2% it has a dramatic impact on a company's top line," Dudley boasts.

Eventually, Nucleus aims to enhance the shopping experience for 2.6 trillion walk-in customers that visit 91m physical stores globally, its white paper reads.

Anti-counterfeit benefits

Retail consultant Jerry Inman sees blockchain benefiting the luxury industry most, mainly by helping it tackle its $340bn counterfeits headache.

"The big game changer is that with blockchain you know a product is authorised and real. "If your brand has authorised the production of 50 crocodile bags retailing at $52,000 and there are 52 in the market, you can identify who made the other two," he explains.

Through greater customer visibility, brands will engage in greater segmentation and offer cross-marketing services to key customers. Citing an example, LVMH could offer its beauty and fashion customers free champagne bottles for meeting certain spending thresholds or belonging to a certain "tribe" or purchasing group.

Inman also expects a rising number of retailers will begin embracing cryptocurrencies.

Amazon, others seen embracing cryptos

E-tailer Overstock, for example, already accepts 40 different coins including Bitcoin and Litecoin, while online marketplace OpenBazaar – which only accepts crypto payments – has added Bitcoin Cash to its fold.

The actions came amid rising rumours that Amazon will eventually accept cryptos with Ripple as a possible first candidate. Starbucks and Dunkin Donuts have also floated the idea of swiping Bitcoin, though the coin's upcoming lightning network update (which will boost transactions speeds and cut fees) seems to be delaying any decisions.

While he has not – yet – heard of any large retailer looking to launch a cryptocurrency, Lamar says "everything is moving so fast that if you call me next week, I might have something else to say." He adds, however, that apparel firms are exploring how to incorporate supply chain payment processes into the blockchain.

"They are looking at how they can pay suppliers and vendors more efficiently, in addition to using blockchain for the documentary [visibility] part," he notes.

Knowledge gap, regulation, Ponzi schemes

Like all industries, blockchain has its challenges.

The biggest roadblock stems from a lack of blockchain understanding that could slow adoption, experts say.

"People need to learn about it, which is one of the reasons we will have our blockchain conference," says Lamar. "A lot of people know what it means but don't know how to use it or are afraid of integrating it into their legacy systems. Some firms may hold back and wait to see if others can test it successfully. They don't want to be the guinea pig."

Regulation is also a big concern. While US officials say most near-term regulation will centre on ensuring ICOs don't dupe investors, fears stemming from an aggressive crypto ban in China are spooking investors about potential bans in other countries.  

Meanwhile, the failure of big Ponzi schemes such as Bitconnect, a cryptocurrency that promised big returns for 'hodlers' [crypto lingo describing investors who hold coins for long-term gains] but collapsed earlier this year amid a major fraud crackdown, continues to weigh on markets.

Lamar says regulation would be welcome but it must not strangle the embryonic industry, which many claim will revolutionise the future of money for humans and even machines, which could eventually trade value through cryptocurrencies.

"Whenever a new tech comes out a lot of regulators have to figure out how to get their arms around it and protect people," Lamar says. "In some cases, the instinct is correct and sometimes it's not. As these new tools and systems get regulated, they have to do so in a manner that allows good stuff to flourish and prevents the bad guys from abusing it."

Inman adds that legitimacy is a big obstacle to wider adoption.

"There are going to be so many spring-ups so the key will be who is legitimate, who can be trusted? Financial institutions [such as JP Morgan's Bitcoin bubble claims or Bank of America and others banks' credit-card crypto purchase bans] have come out against blockchain and cryptocurrencies and there will be future regulatory uncertainty."

Pack and go?

Another concern is the possibility that blockchain networks and their main crypto holders could go rogue, leaving investors with huge losses or, if they begin fighting about the platform's future (such as with Bitcoin and Bitcoin Cash, a spin off of Bitcoin born among developer arguments that the former is too slow and expensive to use), depress its market value.

While founders' pack-and-go risks exist, Provenance blockchain engineer Thibaut Schaeffer says some projects "try to structure themselves in a way that reduces that risk, by having a non-profit foundation oversee development, or incorporate governance rules to hold founders accountable," as has been the case with Ethereum, the world's biggest B2B blockchain.

Many of the network platforms emerging from the ICO boom run as software on blockchain infrastructures provided by Ethereum or leading big blockchain-backbone providers such as Neo, Ada Cardano or Stellar Lumens.

Asked how investors can avoid ICO scams, Schaeffer says they must become more educated about the technology, while network governance mechanisms should also improve.

Echoing Lamar, however, he says "excessive regulation could hinder innovation."

Whatever happens, Trottier insists blockchain is here to stay. "The industry will prevail no matter what," he enthuses. "Blockchain is bigger than anything we've seen before. The technology is really quite big and is altering society. It's not about the money or the value of coins, it's about deploying this new technology that can be amazing if used properly."