How Tokens & Tokenization Are Building Consumer Trust

April 17, 2024

You’ve likely travelled somewhere to find a street corner where goods are being sold, and asked yourself “Is that Gucci bag the real deal or is it a knockoff”? You’ll be pleased to know that retailers care if the items consumers are buying are authentic, and now with blockchain technology, you can be certain. Tokens and tokenization are revolutionizing traditional business by enabling better business practices that offer process efficiency and transparency for consumers. Read more about how tokenization is building trust

What is a Token and Why Should Brands and Consumers Care?

A token is a digital representation of an asset or utility on a blockchain or digital ledger. Tokens can represent various assets, such as cryptocurrencies (like Bitcoin or Ethereum), digital certificates, access rights, or loyalty points.

  • Tokens can be fungible or non-fungible (i.e. an NFT). Fungible tokens, like cryptocurrencies, are interchangeable and have equal value.
  • An NFT is a type of token that represents ownership or proof of authenticity of a unique digital or physical item. NFTs are indivisible and cannot be exchanged on a one-to-one basis like fungible tokens. Each NFT is distinct and has its own value.
    • NFTs are commonly used to tokenize digital art, collectibles, virtual real estate, in-game items, and other unique assets.
    • Ownership and transaction history of NFTs are recorded on a blockchain, providing transparency, immutability, and proof of ownership.

Asset tokenization refers to the process of recording the rights to a given asset into a digital token that can be held, sold, and traded on a blockchain. The resulting tokens represent ownership (or a stake in ownership) in the underlying asset. Tokenization, in the context of digitizing items like expensive handbags, watches, or sweaters, would involve creating a digital representation of the item that is held on the blockchain. Brands can now use tokens to create secure, authentic, and programmable digital twins of physical and digital products.

Why Does this Matter?

There are many benefits to creating tokens for items of value. When you look at that Gucci handbag on the corner and scan the QR code or tap a smartphone on products with embedded NFC chips, you’ll be able to tell if it’s the real deal. Blockchain, or decentralized technology, makes this possible. Brands can use tokens to boost customer loyalty, drive revenue, and prove authentication.

  • Digital Twins: By creating a digital twin (a second token offered when the physical item is purchased), brands can offer this to consumers as a value-added component, building loyalty.
  • Authenticity: Tokens prove authenticity, important for many high-ticket items. Web2 systems relied on centralized software platforms to track supply chain details. Web3 enables verifiable and tamper-resistant tracking of materials and goods.
  • Supply Chain: From manufacturing to distribution and sale, tokens can be used to track the entire lifecycle of an item. This transparency can help in ensuring ethical sourcing of materials, fair labor practices, and adherence to quality standards.
  • Secondary Markets: Tokens enable the creation of secondary markets for branded items, where customers can buy, sell, or trade pre-owned items securely. This can increase the longevity of the product lifecycle and provide additional revenue streams for the brand.
  • Theft: In case of theft or loss, the unique token associated with each purse can help in tracking and recovering the item. This can provide peace of mind to customers and act as a deterrent against theft.
  • Data Insights & Community Building: Tokenization allows brands to collect valuable data on customer preferences, purchasing behavior, and product usage. This data can be used to tailor marketing strategies, improve product design, and optimize inventory management. And more importantly, it can be used to build communities who have influence around product design and building brand fandom.

Here’s a basic overview of how this works:

  • Item Identification: Each item is uniquely identified within a digital system. This could involve assigning a serial number, barcode, QR code, or RFID tag to the item. Some luxury fashion brands as well as newer fashion brands are using RFID tags. One example is Gmoney, the CEO of 9dccc and Admit One, who is an entrepreneur, cultural thought leader, and educator. He developed the first crypto-native fashion house and lifestyle brand to exist on the blockchain.
  • Digitization: The physical characteristics of the item can be digitized using various methods. For example, photographs can be taken from different angles to capture its appearance, texture, and other relevant details. Additionally, specifications such as size, color, material, and any unique features can be recorded digitally.
  • Creation of a Digital Representation: Using the collected data, a digital representation of the item is created. This could be a digital image or a 3D model, depending on the nature of the item and the level of detail required.
  • Token Generation & Storage: In this context, a “token” could be a unique identifier associated with the digital representation of the item. This token serves as a reference point to access the digital information related to the item and is stored on chain. Some items are stored off chain and only the transaction involving the token are recorded on the blockchain for transparency and security.
  • Utilization: The token can be used to access information about the item whenever needed. For example, in an e-commerce platform, customers can use the token to view detailed information and images of the item before making a purchase decision.

Other brands like LVMH (Louis Vuitton Moet Hennessy) and Rakuten (the Japanese e-commerce giant) have been exploring the concept of tokenizing products, primarily through blockchain technology. And, there are numerous technology partners who can help brands support these efforts.

Visit D2 for similar articles and resources or join one of our in-person events to be part of the D2 community!

You May Also Like…