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Is it too early for jewellery brands to dive into metaverse and NFTs?

28 november 2022

Metaverse, NFT and blockchain hype is still very much alive despite the recent cryptocurrency market crash, and major jewellery and luxury brands and companies are still eager to try out the new technology and enjoy lucrative opportunities it can (potentially) provide. The newer example of this trend is Tiffany & Co. that in August announced its decision to turn CryptoPunks NFTs into $50,000 custom-designed pendants. At the time of writing of this article, the NFTiff jewellery collection that was limited to 250 pendants, is sold out.

If you are not familiar with Non-Fungible Tokens, or NFTs, they are a type of digital asset held on a blockchain, much like any cryptocurrency, albeit different in nature. These assets can be a number of things ranging from digital art pieces and videogame items to documents and subscriptions. The aim of NFTs is to create ‘true digital objects’ – both transmittable and unique at the same time but essentially, they are a vehicle for a certain code, program or piece of digital information that can be traded, exchanged or sold on a blockchain.

Nevertheless, NFTs have become associated mostly with digital art, and a number of collections both garnered large sums of money at auctions and attracted worldwide media coverage. CryptoPunks NFT collection was ‘minted’ (put on a blockchain and sold) in June 2017 and was one of the first to emerge in a nascent NFT market. Items from this collection have since become some of the most sought-after NFTs. One of them, CryptoPunk #9476, recently sold for $483 000.

If you consider the rarity of these items and their sale prices, it is not surprising that Tiffany chose to collaborate with the project. The jewellery brand’s own executive vice president for product and communication, Alexandre Arnault, owns a #3167 CryptoPunk NFT, which is currently his profile picture on Twitter. He regularly posts digital renders of upcoming real-life pendants in production.

It seems like more and more jewellery brands are eager to pursue the new digital horizons. But there are a few issues.

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                             Image credit: opensea.io      

The distant metaverse

In this article we will not consider the artistic value of CryptoPunks and some other NFTs as it is an extremely hard thing to determine, but rather we will try to see what digital collectibles and metaverse can bring to the table in the jewellery industry. More specifically, do they add or reduce market value and benefit in short or long term?

NFT projects began with a handful of crypto enthusiasts who had an idea in mind to bring digital collectibles closer to their real-life counterparts, making it possible for digital artists to earn more by interacting directly with collectors who value uniqueness and ownership of one-of-a-kind items. If you combine this with the metaverse, a digital copy of our physical reality that some claim to be the future of the social network technology, the picture starts to look bright and lucrative. Everyone – from small niche artists to multi-billion dollar companies – can create digital collectibles, exchange, trade and sell them seamlessly throughout the web, virtually without the need of a physical product.

The issue is, the metaverse that we see now is not a particularly nice place to be in, and clearly the technology behind it is in the earliest stages of development. Even with the fast-paced progression of modern tech, it may take years to come up with a product that is accessible to a larger audience as well as desirable to regular users. For now though, it seems to be little more than a fun but a one-time-use-only gimmick.

Still, big jewellery companies are actively exploring the metaverse and its lucrative prospects for digital goods. In June, Bulgari introduced its brand-new digital world at VivaTech event, encouraging visitors to step into a metaphysical representation of Rome and a virtual Bulgari store, at the same time offering an opportunity to digitally ‘wear’ pieces from its first high jewellery NFT collection, Beyond Wonder. The question is: can a luxury goods giant LVMH (which Bulgari is a part of) develop its own complete and functional metaverse if a tech giant Facebook struggles with the task? And will customers, provided the tight competition of different kinds of metaverses, flock to them instead of their competitors?

The answer is maybe, if investments are feasible in current market conditions. Revenue in the digital media market is projected to reach $331.80 billion in 2022 and the uptrend may continue well into 2027 driven by the expansion of mobile internet access and increasing connection speeds, which leads to a steady growth in the demand for all types of digital media including digital music, e-publishing, video games and streaming services like Netflix. Although the USA is still leading the market, it is the Asian countries in particular that are demonstrating how increasing prosperity creates great demand for knowledge, culture, and entertainment. The market's largest segment is video games with a projected market volume of $197.00 billion in 2022.

Metaverse primarily appeals to millennials and younger generations of gamers who are typically more familiar with modern technology trends. But until this is a functional and familiar everyday technology, the role of a metaverse for jewellery brands may come down to simply a digital fitting room.

 

The failing NFTs

NFT market and media coverage were booming in late 2021 with trading volumes reaching an impressive peak of $17 billion as of January 2022. Media, celebrities and advertisers alike were speaking about digital collectibles and the metaverse. However, this trend didn’t last and the NFT market collapsed 97% over the recent months to just meager $466 million in September this year. There are a few reasons for this.

First NFT projects, conceived by crypto enthusiasts and cyber geeks, either started as a test ground for a new technology or were devoted to a noble cause of empowering digital artists. But the market has since dramatically transformed. Some NFTs that became popular now cost hundreds of thousands of U.S. dollars, and are frequently used to represent their owners’ social status and wealth. The overwhelming majority of collections however are not worth a penny. More than a few projects and individuals from the field have become associated with failed promises and straight-up fraud. And digital artists who were supposed to benefit from this new market and the opportunities it presents, instead had their art stolen and sold as NFTs.

Still, these facts did not stop Tiffany & Co. from jumping on an NFT hype train and concentrating exclusively on a luxurious side of things. Each of the 250 pendants inspired by CryptoPunks NFTs and made by Tiffany’s designers and jewelers, will be in 18k rose or yellow gold and will have at least 30 gemstones and/or diamonds. Only the owners of pieces from CryptoPunks collection were able to purchase these jewellery pieces. The price of each pendant, in line with the nature of the project, was 30 Ether cryptocurrency. In August, when the sale took place, this amounted to around $50 000. The same amount of Ether is now worth around $35 000.

The first mention of the project came from Alexandre Arnault on Twitter in April when he posted his #3167 CryptoPunk reimagined in rose gold, enamel and gemstones. It’s hard not to notice his own personal involvement in conceiving the NFTiff project. However, the issue here is not the fact that Tiffany chose CryptoPunks for collaboration – they could easily have made Bored Ape Yacht Club pendants instead, if Arnault owned one of those – but the reasoning and underlying motivation behind it all.

Expensive digital goods have the same psychological implications as any other luxury item. These items affirm the social status and wealth of the owner in the public realm. While it is relatively easy to reaffirm one’s social status in the real world by conventional luxury items like jewellery, watches, cars, there is virtually no functional metaverse to truly show off a hundred-thousand-dollar CryptoPunk image that a person owns. Of course, one can turn a rare NFT into their Twitter avatar but so can any other person on the web due to the nature of the current computer technology. An NFT is just a ‘box’ stored on a blockchain, but the picture inside that ‘box’ is what we associate an NFT art piece with.

That’s where Tiffany comes into play with a brilliant solution: now you can wear your rare NFT in the real world! One can probably see the issue with this reasoning: digital collectibles that are supposed to be a part of the metaverse, the new social dimension, are instead in need of a physical, real-world manifestation to reaffirm their value.

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                             Image credit: twitter.com     

The redundant blockchain

Blockchain is an underlying technology for cryptocurrency and NFT markets alike. It is set to revolutionize many fields of economy and our everyday life, making contracts and provenance checks on the web more reliable and virtually immune to tampering.

For example, De Beers Group launched its Tracr blockchain aimed at tracing diamond supply pipeline. According to the company, the platform brings together a range of leading technologies – including blockchain, artificial intelligence (AI), the Internet of Things and advanced security and privacy technologies – to track a diamond’s journey through the value chain. Some other companies in the industry, including the abovementioned LVMH, launched similar initiatives.

The blockchain is, indeed, immune to tampering, but there are a few points of failure. How do you prevent undesirable goods from entering the blockchain in the first place? Diamonds, for example, are mined throughout the world, collected, sorted and usually sold in lots. Kimberley Process Certification Scheme already exists to prevent conflict, undesirable diamonds to be mixed with lots of responsibly produced stones. True, blockchain and the AI combined with existing procedures will make it neigh impossible to tamper with sealed diamond lots traveling through the value chain, but this seems like a redundant system. However, there are also issues of phishing (hackers siphoning valuable data and passwords through social engineering) and hacking.

There is nothing wrong with redundant systems, they are usually there to reduce the risk of failure. But the truth is, not everything needs to be put onto a blockchain. Or, more specifically, this technology will be beneficial in some applications and not so much in others.

The NFTiff collection by Tiffany is not only about physical products. In addition to the custom pendant on a 18k gold chain, the final package (to be delivered in early 2023) includes minting a digital NFTiff on the Ethereum blockchain with a rendering of a specific pendant, a certificate of authenticity and a signature Tiffany & Co. packaging.

This means that on top of the original unique CryptoPunks NFTs, there are Tiffany’s own NFTs representing the pendants, and then there are jewellery pieces themselves. And don’t forget about physical certificates of authenticity. There is a whole slew of problems with this arrangement.

First, let us talk about ownership. According to Tiffany, holders of CryptoPunks NFTs have to keep both the original artwork and the NFTiff in their crypto wallet until jewellery pieces are redeemed. However, once done, nothing will stop holders from selling either of these items: the original CryptoPunk NFT, an NFTiff or a pendant separately to different owners. The question becomes: if there are several digital and physical assets disconnected from each other all the while representing the same thing, where is uniqueness in that? Why do you need a blockchain for a pendant with a physical certificate of authenticity disconnected from the web? This might be OK for a niche fan project but not for a multi-billion dollar company. Despite all of that, in his tweet on November 15 Arnault seemed to have been surprised when somebody offered to purchase his #1 NFTiff on OpenSea NFT market for 0.152 Ether ($1221).

Then, what if either of these assets is stolen? Metamask, a popular crypto wallet, can be hacked and users are susceptible to phishing. This is a problem in itself but if a physical pendant is gone, the buyer is left with only a NFTiff that is worth just a fraction of a price of both the jewellery piece and the original CryptoPunks NFT. It might still remain a consolation prize when the metaverse is finally upon us. But then, why do you need an NFTiff when you have an original CryptoPunk?

This leads us to the final question that is the value of disconnected assets representing virtually the same thing. And the answer is not looking good for NFTiff pendants and digital renders. They are just a copy inspired by CryptoPunks NFTs. There is no uniqueness. There is no brand identity.

 

Uniqueness is key

NFT technology is not a bad thing in principle. When done right, it can change the way we trace provenance of jewellery pieces and other types of unique artworks – both digital and physical. Moreover, NFT and jewellery markets have a lot in common: unique items are highly sought-after by patrons and collectors and the potential for luxury items in both is enormous. The potential however does not mean immediate profit.

Before the metaverse becomes a more habitable place, NFTs are little more than speculative assets and novelty items. Adding to the uncertainty is a rapid decline of NFT marketplaces plagued by subpar projects and rampant failures. Nevertheless, the resetting of the market may bring it back to its roots: a handful of enthusiasts making breakthroughs to empower the digital community.

The type of approach the jewellery industry might need in the metaverse is to pursue uniqueness and brand identity and only focus on technology that benefits these goals. One example is a mechanical watch by Bulgari that was unveiled in March. Each of the 10 copies of the watch is engraved with a unique QR code that links to an NFT and serves as a method of authentication. It also gives access to information regarding the history, concept, design, and manufacturing process of the watch. Hublot developed a solution that uses AI to recognize and certify the authenticity of their high-end watch pieces on the LVMH’s Aura blockchain.

NFTs and metaverse can become powerful tools that bring value to the jewellery industry, but in order to do that, they have to either vastly improve user experience or endorse uniqueness, preferably both. It remains to be seen when such tools become readily available and if jewellery companies can reliably use them to their advantage.

Until then, jumping on a metaverse hype train may not be worth the risk. 

Theodor Lisovoy for Rough&Polished