atchmakers of all sizes and at every price position - the likes of Breitling, Vacheron Constantin, Audemars Piguet, Louis Erard and Louis Moinet - offer digital authenticity and ownership certificates for some (if not all) their models as a replacement for paper. These non-fungible tokens (NFTs) are tamper-proof, cannot be edited or changed, and their integrity is guaranteed by blockchain. NFTs serve to identify the watch’s owner and, if the watch is resold, transfer ownership in complete transparency. Additionally, they are a means for brands to stay in touch with the customer after the sale.
The main purpose of these NFTs is therefore to provide failsafe traceability and extend brands’ communities, particularly in the ever-growing market for certified pre-owned watches. Each NFT contains a host of information about the watch, including specifications, service history, changes of owner and, why not, its carbon footprint. Surely nothing but benefits for the end customer and for the brand.
Business or art?
More and more brands are embracing this technology, while the amount of related content and services grows. Chronoswiss, Czapek and TAG Heuer provide NFT authenticity certificates. Jacob & Co. throws in lunch with the CEO, combining the digital world with the real world. Bulgari‘s interest in NFTs goes back several years. The Italian luxury giant has introduced two “digital twins” for particular models. It also commissioned multimedia artist Refik Anadol, who uses artificial intelligence in his work, to create the Serpenti Metamorphosis digital installation. It will be minted into an NFT and sold to raise money for charity.
These initiatives have no commercial agenda, insists Massimo Paloni, Chief Operations and Innovation Officer at Bulgari: “We do not sell our NFTs. They cannot be separated from their physical counterpart. We see this as a tool to enhance the customer experience, by introducing an additional dimension that ties the physical and virtual worlds.” For example, the NFT connects the owner of the watch with its maker and gives access to exclusive information on the creative journey of the Octo Finissimo family, from the very first sketches to the latest edition. Traceability and security are, of course, an integral part of the NFT but, says Massimo Paloni, “that isn’t differentiating.”
- Bulgari commissioned multimedia artist Refik Anadol to create the Serpenti Metamorphosis digital installation.
Customer relations tool
Breitling, which recently launched a major project to develop the fully traceable watch (read our article), takes a similar approach to this technology, as Antonio Carriero, the brand’s Chief Digital and Technology Officer, explains: “It’s a means of engaging our customers. We have always considered blockchain as a way to bring luxury and digital together, as a customer relations tool. While the basic function of NFTs is to guarantee authenticity and ownership, they also provide transparent information on a watch’s life cycle and crucial traceability. This enables secure trading of watches on the secondary market. These are useful benefits for all customers, hence we now issue digital certificates with all our watches. Blockchain enriches the ownership experience and brings us closer to our customers.”
Bain & Company shares this view (more here). The consultancy firm sees NFTs as a new way for companies to deepen the connection with customers, and develop innovative loyalty and rewards programmes. A win-win situation. But these NFTs represent just a small part of the nascent Web3.
“The possibility to securely trade watches on the secondary market is a benefit for all customers.”
Massive investment in the metaverse
NFTs are the building blocks of what the metaverse could ultimately become: an immersive, 3D, real-time, digital space with its own currencies and shops where customers can browse and interact. McKinsey has taken a deep dive into the subject (more here), noting an upsurge in investments in 2022: “Corporations, venture capital and private equity have already invested more than $120 billion in the metaverse in the first five months of 2022, more than double the $57 billion invested in all of 2021. A large part of it is driven by Microsoft’s planned acquisition of Activision for $69 billion.” The consultancy firm even reports a potential economic value of up to $5 trillion by 2030, half of that from e-commerce.
The more optimistic observers see the metaverse (and NFTs) as a virtual panacea that will protect natural resources by replacing the consumption of physical goods with a virtual reality. Since 2011 Positive Luxury has been assisting businesses on their journey to sustainability. It describes the metaverse as offering luxury brands potentially limitless opportunities: “Commercially, the metaverse will be an entirely new avenue for selling digital goods – from clothes and accessories for users to dress their avatar in, to homeware for them to decorate their digital space with.” It is a world “unbound by traditional physical limitations.”
Will the dream of ultimate creativity with no impact on the physical world become a reality? Some are already looking to sell virtual watches to strap onto avatars’ wrists. Will there be a new source of profit that will encourage customers to buy more without depleting natural resources? From the point of view of sustainability and the environment, the situation is more complex than it may seem.
Consume more with no impact on natural resources? It’s not that simple.
Stoking an already power-hungry internet
Before any discussion of this emerging digital space, a reminder of how much energy the internet currently consumes worldwide. According to figures published by Green IT in its 2019 report on the global digital environmental footprint, there are 34 billion connected devices on the planet for 4.1 billion active users. Manufacturing these devices accounts for 4.2% of primary energy consumption and 3.8% of greenhouse gas emissions. Using them is responsible for 5.5% of global electricity consumption.
These are by no means negligeable amounts, and the direction technology is taking raises further issues. In the same report, Green IT estimates digital growth at 6% per year, which would double its global impact in a little over ten years. An immersive experience requires 90 images per second (versus 30 for conventional video) which can only be achieved with substantially more processing power and energy consumption. Intel says that providing the metaverse‘s digital spaces and services will need a thousand-fold increase in computing capability.
Intel says that providing the metaverse’s digital spaces and services will need a thousand-fold increase in computing capability.
Faced with this explosion in energy consumption, Ethereum, a major blockchain platform, has completed The Merge, an upgrade from proof-of-work to proof-of-stake. Under the proof-of-work system, miners located around the world, who are paid in cryptocurrency, use computers to solve complex mathematical equations that prove the authenticity of new transactions which are added to the blockchain. This consumes vast quantities of energy. The proof-of-stake model, in contrast, uses an algorithm to randomly select fewer miners to add the new blocks, thereby reducing energy consumption.
As the Financial Times notes, not all platforms have made the transition. Bitcoin, the most popular blockchain, continues to use proof-of-work, consuming more energy per year than a country the size of Norway. While proof-of-stake raises the question of centralised control, with fewer intermediaries verifying transactions when the premise of blockchain is to use a decentralised consensus mechanism, The Merge is good news for the future of Web3 energy use. Ethereum says the transition has reduced its electricity consumption by 99%.
Except energy use isn’t the only concern. The metaverse is accessed by means of headsets and various other hardware, which has to be manufactured. Given the rapid obsolescence of this type of device, problems soon mount up (literally), especially in view of the low recycling rate for these products. The Global E-waste Monitor 2020 reports that of the more than 50 million tonnes of electronic waste produced each year worldwide, less than 20% is recycled. Not to mention the perpetuating of a culture of overconsumption that is driving the planet to the brink of ecological disaster.
The bubble bursts
More than concern for our planet, market forces are responsible for bursting the NFT bubble. After the hugely hyped Bored Apes and the sale by Christie’s of Beeple’s Everydays: The First 5000 Days digital collage for $69 million, trading volumes for NFTs plunged from $17 billion in January 2022 to… $466 million at end September, a 97% wipeout due essentially to the crash in cryptocurrencies.
Meta (ex-Facebook), the biggest investor in the metaverse, having poured more than $13 billion into this new technology to date, reported a year-on-year decline in profit of -52% for the third quarter 2022. Over the same period, Meta’s stock fell from $352 to $144 and the company has shed 12,000 of its workforce. In practical terms, enthusiasm for the metaverse is still a long way from the anticipated frenzy: around two million users on two of the biggest platforms, Decentraland and Sandbox, and only 300,000 daily users for Meta’s Horizon Worlds. In a leaked memo to employees from Vishal Shah, Meta’s Vice President of Metaverse questioned Horizon’s quality and urged staff to use it more. Is this because there are still bugs to be ironed out or is this technology simply not relevant? It’s a question worth asking.
Market forces, more than concern for the planet, are responsible for bursting the NFT bubble.
What does all this tell us?
The most obvious takeaway is that NFT technology should not be seen as a pure speculative product, a means to make a fast buck, if it is to continue to exist in a world that cares increasingly about mindful consumption. Certain blockchain advocates are adding their voice to the chorus, hoping that the bursting of the NFT bubble will rid the market of hyper-speculators (a situation many have compared to the bursting of the dot-com bubble in the early 2000s).
The second takeaway is that we would be wise to judge any new technology in terms of the useful service it provides and, why not, its environmental impact. For watch brands cultivating their image, this could prove problematic: is commitment to the environment compatible with massive investments in Web3?
Antonio Carriero at Breitling thinks Ethereum’s Merge is proof that technology can be energy sufficient: “We’re looking to strike a balance between technology and the social and environmental integrity of our products. We work with a blockchain system that uses a proof-of-authority method, which is very similar to the proof-of-stake introduced by The Merge.”
At Bulgari, Massimo Paloni takes a cautious approach: “When it comes to innovation, only one out of 250 ideas will prove feasible and worth pursuing. The future will tell whether the metaverse was that idea. We’re testing, evaluating and will take the direction that aligns most closely with our core values.”
NFT technology should not be seen as a pure speculative product, a means to make a fast buck, if it is to continue to exist in a world that cares increasingly about mindful consumption.
Don’t be afraid to miss out
Fear of missing out on an opportunity is pushing many brands to enter this digital space nonetheless, and see what benefits there are to be gained. At the same time, Positive Luxury cites the difficulty of reconciling sustainability with becoming part of the metaverse. The need to establish more data centres has an environmental cost that adds to those already mentioned. Should we really be creating another layer of technology on top of the existing system, rather than aim for the energy sufficiency that can curb the environmental impact of doing business?
A community similar to the metaverse actually exists already in the three billion gamers worldwide; a segment that generates some $200 billion a year. Interestingly, many of those involved in developing these games have called for greater sustainability and pledged not to take part in the metaverse. Something brands could also consider.
As an industry making products for the very long term, there is no compelling reason why watch brands should rush headlong into this new technology, which could prove counterproductive. An alternative would be to select certain relevant functionalities. Watch brand Awake has shown how blockchain can serve to create environmental awareness. Each of its limited-edition Mission To Earth watches has a unique tamper-proof identifier embedded in its crystal (more here). Scanning it enables the watch’s owner to connect in real-time to International Space Station cameras and view Earth from space. This use of technology to promote environmental awareness in a way that also appeals to our imagination and emotions is distinct from the more basic aim of commercial development.
In its effort to show exemplarity and deliver meaning, the luxury industry could get over its fear of missing out and put its sustainability promises into practice by refusing to become part of the metaverse scramble. Having considered this innovation not in terms of productivity gains or financial profit, but from the perspective of environmental impact, overconsumption and disconnection from reality, it may not seem quite so essential after all.
Having considered the metaverse in terms of environmental impact, overconsumption and disconnection from reality, it may not seem quite so essential after all.