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Is the luxury watch industry ready for Blockchain?

GUEST COLUMN

août 2020


Is the luxury watch industry ready for Blockchain?

A new crop of start-up technology companies would have you believe so. But are the brands biting?

A

sk most lay people what they know about “blockchain technology,” and few will have much of an answer beyond “Bitcoin.” In fact, cryptocurrencies like Bitcoin are just one manifestation of how the promise of blockchain technology can offer interesting solutions to many of today’s problems that can be solved by items with unique digital signatures (like a currency should have, for example).

Blockchain technology can be thought of as providing an entirely unique digital item in a world where traditional logic suggests that digital things can be copied easily and readily. Tokens (in blockchain parlance) are those items, comprised of complicated, encrypted bits of data that are stored in distributed (versus single and local) digital ledgers.

Blockchain technology can be thought of as providing an entirely unique digital item in a world where traditional logic suggests that digital things can be copied easily and readily.

What does all that mean for the luxury watch industry?

Czapek & Cie has joined forces with Zurich-based startup Adresta to implement digital certificates that track the lifecycle of their timepieces.
Czapek & Cie has joined forces with Zurich-based startup Adresta to implement digital certificates that track the lifecycle of their timepieces.

The many promises of Blockchain

Over the last few years, I’ve had high-level discussions with a surprising number of companies that have the same exact goal: to sell blockchain tracing technology to luxury watch brands. So far, none of these business plans has taken off, as far as I know. In this essay, I’d like to generally discuss what promise blockchain technology has for the luxury watch industry, and then explore a few of the major hurdles that entrepreneurs in this space still need to overcome before the traditional watch industry, as it is now constituted, is more likely to embrace this technology.

The basic premise of blockchain technology’s compatibility with luxury watches is related to item origination. In theory, a completed wristwatch (or the parts thereof) would each be connected to a digitally unique blockchain token. Because there can be only one blockchain token, there can be only one actual item in the real world that is associated with that item. An authentic watch with a blockchain ledger entry associated with it can protect itself against a fake because only the real one would be connected to a real blockchain identifier.

This is potentially revolutionary technology because it means that, to determine if a timepiece is fake or not, special expertise is no longer needed. Rather, a device (some type of reading or scanning instrument) used to compare a blockchain token number against the blockchain ledger is all that is required to know if a watch is real, or not. Fakes would be deemed fake as a result of not being on the official ledger.

This is potentially revolutionary technology because it means that to determine if a timepiece is fake or not, special expertise is no longer needed.

Having unique identifiers connected with finished timepieces has appeal outside of just comparing real watches with fakes. When it comes to customer service, warranties, inventory tracking, and more, the unique numbers associated with each watch, combined with a tracking technology system, can help reduce loss, avoid misinformation, maximize logistic awareness and, in some ways, increase profitability.

In 2019, Vacheron Constantin announced it would use blockchain technology to produce forgery-proof digital certificates for its Les Collectionneurs timepieces.
In 2019, Vacheron Constantin announced it would use blockchain technology to produce forgery-proof digital certificates for its Les Collectionneurs timepieces.

Three major hurdles to implementation

Start-up companies in the heart of Switzerland’s watchmaking center are pushing for brands to incorporate all of these new tools into their production systems and workflows. But it isn’t happening very fast. Why?

In my experience, there are three major reasons why blockchain technology is having such a hard time being incorporated into the luxury watch manufacturing industry. The first obstacle is the perceived cost versus the rewards of using the technology. Blockchain companies interested in appealing to the watch industry enter conversations with watch brands with the assumption that brands have an immediate need for more tracking.

The reality is that, for the most part, watch brands already track their watches pretty well and have an excellent history of efficient manufacturing practices. Watches and parts don’t frequently get lost, and inefficiencies in areas such as customer service are less about poor tracking and more about insufficient human labor and infrastructure.

For the most part, watch brands already track their watches pretty well and have an excellent history of efficient manufacturing practices.

Then, there is the matter of fake watches. It is true the fake watches exist, but I’m not sure watch brands themselves feel the need to be able to identify them. While fake watches are in the market, there isn’t too much evidence to suggest that people actually intending to purchase a real watch actually end up getting a fake watch accidentally. In truth, most fake watch purchases are not displacing the authentic version of the same watch. Given this reality, watch brands don’t benefit much from having a slightly more effective means of determining the difference between a real and fake when it comes to its products in the market.

Anthony Marquié and Grégoire Rossier, authors of the “Only” watchmaking book series, are launching a new platform, WatchFID, which makes it possible to exchange vintage models using blockchain technology.
Anthony Marquié and Grégoire Rossier, authors of the “Only” watchmaking book series, are launching a new platform, WatchFID, which makes it possible to exchange vintage models using blockchain technology.

Electronics inside a mechanical watch?

To incorporate blockchain technology into its factories, watch brands have significant issues to consider, the most significant of which is how to actually place a physical identifier code or chip into watches. Where in the watch should the small chip go? How do you make sure that this part is not removed or destroyed? If you put a unique identifier chip (such as an NFC or RFID chip) in the watch case, does that protect someone from swapping the bracelet with something else? What about changing out the movement? Would full protection mean that multiple chips need to be placed in various parts of the watch? There are still no answers to this question.

Consider the matter of sheer cultural compatibility between modern electronic devices and traditional mechanical wrist watches. Are traditional watchmakers going to feel that their products are “pure enough” with some small electronics hidden inside of the watch somewhere? Perhaps the electronics are visible? How might that change the value of the products or the essence of each brand? While such questions may sound trivial, they are of vital importance to many of the Swiss watch industry’s oldest names.

The design of Hublot's Big Bang Meca-10 P2P was inspired by Bitcoin and, at its launch in 2018, could only be acquired with the cryptocurrency.
The design of Hublot’s Big Bang Meca-10 P2P was inspired by Bitcoin and, at its launch in 2018, could only be acquired with the cryptocurrency.

No immediate financial incentive for the brands

The second major problem behind the watch industry’s adoption of blockchain technology is related to who the startup companies are targeting in the first place (i.e., the watchmakers themselves). What I mean is that most of the start-up companies with “blockchain technology solutions” have watch brands and suppliers in mind as customers. I’ve already described why many watchmakers might feel that, while blockchain technology sounds interesting, it doesn’t offer immediate utility for their needs or revenues. Who might benefit from blockchain technology more in the wristwatch space? In my opinion, the consumer.

Who benefits the most by immediately being able to determine if a wristwatch is fake? The consumer. Who has the most to gain if their watch is going to be effectively tracked while away being serviced or repaired? The consumer. Blockchain technology also has the ability to append other data to a blockchain ledger entry. That means that, in addition to identifying a wristwatch, the unique numbers can easily be connected with database entries that contain information such as a wristwatch’s warranty details, service history, ownership/purchase history, etc. All of this information has the most utility to the people who buy and wear watches, not the people who make them.

All of this information has the most utility to the people who buy and wear watches, not the people who make them.

My point is that between watchmakers and watch owners, it is the owners who more immediately stand to gain from the benefits that come with timepieces that have associated blockchain ledger entries. That said, at this time, there are very few, if any, ways that timepiece consumers can actively take advantage of blockchain technology for their wristwatch collecting practices — outside a small number of brands that do have chips in their watches and allow them to be used for new-watch registration purposes.

The Flying Regulator Open Gear “Bitcoin Edition” by Chronoswiss
The Flying Regulator Open Gear “Bitcoin Edition” by Chronoswiss

A customer-first approach

That is a shame because, in all likelihood, blockchain technology adoption by brands will follow as a result of consumer trends and behavior. If the blockchain technology industry is serious about getting the watch industry to use its tech, then logic would suggest that approaching watch consumers first, then watchmakers second, might be the most effective strategy.

How might this work? Well, let’s say that watch collectors start using a popular database to store their watches on a blockchain ledger. To put the watches on the ledger, said watches would need to have unique identifiers, either in the form of visible symbols or a chip inside the watch. Perhaps with some of these technologies, consumers could place them onto or in a watch themselves. If the blockchain ledger database system becomes popular enough, then consumers would likely want watches with the chip technology built-in.

This could easily prompt competitive watch brands to include the technology in future products as a means of following consumer trends (and not because they feel it offers them some type of industrial or security advantage).

In all likelihood, blockchain technology adoption by brands will follow as a result of consumer trends and behavior.

The Breitling Top Time Limited Edition is the brand's first watch offered with a blockchain-based digital passport, in partnership with Arianee.
The Breitling Top Time Limited Edition is the brand’s first watch offered with a blockchain-based digital passport, in partnership with Arianee.

The “fingerprint problem”

The final reason the watch industry will have trouble adopting blockchain technology into wristwatches has been hinted at a few times in this essay, so far, but is not to be underestimated. I call it the “fingerprint problem.” The issue goes back to how the watch is connected to a number or data, which itself is connected to the blockchain ledger. This part of the puzzle is so important that the entire system collapses if an ideal solution is not determined.

There are a few dimensions to the fingerprint issue. Let’s begin with the issue of the inserted fingerprint. This is where some piece of technology is inserted into or on a watch that allows it to be digitally identifiable. The traditional form of this is a serial number which might be engraved into the back of a watch. More modern versions of this are codes that are engraved into a watch or chips that can be inserted into various parts of the watch (with limitations, of course, given that signals from those chips must move to instruments meant to read them).

The problem with inserted fingerprints like a serial number is that they can be easily removed and potentially reapplied elsewhere. If the authenticity of a watch is determined by the existence of a chip, why can’t a chip from a real watch be removed and put into a fake of the same type? Why can’t a chip or identifier be erased or damaged so that a stolen watch can have some manner of plausible deniability regarding its origin?

The problem with inserted fingerprints like a serial number is that they can be easily removed and potentially reapplied elsewhere.

The entire integrity of a blockchain tracking and security system hinges on the inalienability of that unique identifier code to the object being tracked. In the context of watches, there is currently no fingerprint-insertion technology (that I know of) that is durable enough to be firmly and unerringly associated with a watch in a way that prevents fraud or other types of manual dissociation between the blockchain ledger and the item itself.

The MasterBlock by Geneva-based startup Gvchiani is a limited-edition timepiece equipped with a certificate linked to the Blockchain issued by Cryptolex.
The MasterBlock by Geneva-based startup Gvchiani is a limited-edition timepiece equipped with a certificate linked to the Blockchain issued by Cryptolex.

The quest for a unique, sustainable identifier

Venturing further into the world of science fiction, we enter what all blockchain technologists would love when it comes to the watch industry. What if the watch itself had some type of natural fingerprint? Not one that needed to be inserted but, rather like a person’s fingerprint or other identifier, one that is related to something unique about the watch itself? The idea here is that a sensitive optical or other device would be able to measure something unique in any given timepiece, and then associate that unique signature with a blockchain ledger entry. Could this be possible? Maybe in the future, but not now.

Assume, for example, that you used an extremely high-powered camera to take a picture of a watch dial. The resolution might be so high that tiny differences in the shapes of dial parts or surface treatments would help separate two seemingly identical timepieces. Might this technology bridge the gap between the way the watch industry is now and its ability to immediately place wristwatches with associated blockchain ledger entries? It is at least theoretically possible.

But this theory runs into some snags. Let’s say a watch is damaged or changes cosmetically over time due to natural aging. The tiny visual identifiers that helped identify the watch might also change, meaning that normal wear and tear on a wrist watch could eliminate someone from being able to connect it with its blockchain ledger entry, entirely defeating the purpose of the system.

We are left with the fact that no good system exists today for connecting a unique identifier on a wristwatch with a blockchain ledger entry.

Moreover, watch dials, cases, movements, and other forms vary wildly. That means any system designed to look for optical differences between one production watch and another would have to be programmed by model type. No two visual reference programs to capture the fingerprint of a watch could be the same between different watch models. This implies that, without innovative technology, new software would need to be created for this special high-resolution camera system and optical scanner to scan each different watch. Doing so for each timepiece in existence would be impractical, to say the least.

The Franck Muller Vanguard Encrypto's dial includes a laser-etched QR code for a public wallet address that can be used to deposit Bitcoins and check the balance of the account.
The Franck Muller Vanguard Encrypto’s dial includes a laser-etched QR code for a public wallet address that can be used to deposit Bitcoins and check the balance of the account.

Added value or marketing gimmick?

The point is that developing a system to scan and register the unique fingerprints of watches produced without any special identifiers, that can connect them to a blockchain ledger, would be an almost impossible task because of the number of variables it would need to account for. We are left with the fact that no good system exists today for connecting a unique identifier on a wristwatch with a blockchain ledger entry. That includes both technology that is inserted into or on a watch and signatures related to any given watch’s unique manufacturing and construction properties. While solutions do exist for these needs, none of them stand up under scrutiny when considerations like fraud or negligence are taken into account.

Applause should be given to those watch brands that have already taken it upon themselves to incorporate blockchain technology into their products in ways they hope will add value to their consumers. Most of these brands seem to be doing so with the stated value proposition that the technology will help if a customer’s watch is stolen, and that it can help preserve value upon resale (so that the next owner respects that the watch is authentic). It is yet to be seen if consumers will find the technology interesting and valuable or whether, despite having a lot of potential utility, blockchain technology integration with luxury watches feels more like a marketing gimmick.

Blockchain technology inherently has a lot of value for a willing watch industry ready to make some changes in order to incorporate new and existing tracking technologies. The startup companies eager to sell blockchain services to the luxury timepiece industry aren’t wrong to think there’s great potential. But without further innovation and the ability to overcome a formidable list of problems, blockchain and watchmaking’s eventual romance might have to wait for a better opportunity in the future.

Blockchain technology inherently has a lot of value for a willing watch industry ready to make some changes in order to incorporate new and existing tracking technologies. But we aren’t there yet.

Ariel Adams is an internationally renowned expert on watch collecting and the timepiece industry. He is the founder of aBlogtoWatch, a published author, and a celebrated voice for the timepiece enthusiast and consumer.

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