The Digital Future of Luxury: Minting Your Watch as an NFT

Product NFTs as a New Primitive for Luxury in Web3

14 min readMay 14, 2024

This article is a general overview into Digital Product Passport NFTs and the luxury industry at large. For a case study of how this is applied in the case of LVMH, please view my sister article, to be released soon.

Many thanks to Pierre-Nicolas Hurstel, CEO and Cofounder of Arianee Protocol and Phoebe Beigbeder, Cofounder of NFTParis and Consumer Investor at Greenfield Capital for conversations and insights. This article would not have been possible without it.

Cover Image: Breitling Digital Passport by Arianee. Source [5].

Introduction

From esoteric designs to exorbitant price tags, the luxury industry is no stranger to controversy. And as the new crypto economy churns millionaires by the day and sells NFTs for millions of dollars, this centuries-old industry seems to have found a new partner-in-crime — at least in terms of causing a stir.

In this article, we will present a comprehensive thesis on the future of luxury fashion in web3, from digital product passports, to enhanced loyalty programs, to wallets as a service. Starting with an exposition of the EU’s recent “Digital Product Passport” law, we will see what it means to live in a world where every luxury consumer item, from watches to handbags, has an on-chain digital identity as a Non-Fungible Token (NFT), and how this may represent a tipping point in blockchain adoption. Finally, I conclude with a reflection on NFTParis as a convention that brings to life all of these innovations, and an paradigmatic example of how to pioneer a new consumer economy.

Digital Product Passports: Blockchains as an Infrastructure for Authenticity

It all starts with a law. Recently, the European Union has announced that all fashion goods and other consumer products need to be fitted with “Digital Product Passports” (DPPs) by 2026 in order to improve supply-chain traceability, enhance product authenticity, and create a more sustainable consumer economy [1]. As its name suggests, a DPP is basically an “identity card” for each consumer product, printed as a QR code tag (or NFC chip) on each consumer product that can link to online information about the product’s supply chain details, provenance, and attest to its authenticity.

Although DPPs can be technically realized in many different ways, such as by reading directly to a centralized database, one of the most popular ways is to use a blockchain-based backend infrastructure to realize these DPPs [2]. There are several key advantages that blockchain-based solutions offer over database solutions:

Standardization and Interoperability: In a centralized database approach, companies need to design different schemas for their different products, resulting in a lack of interoperability and high overhead. Adopting a blockchain-based standard, such as the Ethereum ERC-721 standard for Non-Fungible Tokens (NFTs) allows for a simple, intuitive, and interoperable interface to implement DPPs.
Transactability and Ownership: There is not really a notion of ownership of DPPs using a centralized database, and it is almost difficult to track transactions of the products on secondary markets. Public blockchains, on the other hand, provide a mature ownership structure for users to “own” Digital Product Passports and trade goods on secondary markets. This is especially important for durable goods and luxury products such as designer handbags, shoes, and watches, which have mature second-hand markets.
Provenance and Authenticity: Public blockchains, through their immutable nature, provide a traceability that can be used to guarantee the authenticity of the product, as well as its use throughout the supply chain. Post sale, this provenance history and guarantee of authenticity also allows for a safer second-hand market, with the publicly viewable blockchain DPP allowing the buyer to digitally verify the authenticity and provenance of the product [3].

Take, for instance, Panerai, an Italian luxury watchmaker with over 160 years of history. Since October 2023, every Panerai watch sold globally is equipped with a blockchain-based Panerai Digital Passport — essentially an NFT of the physical watch. Recorded on this Panerai Digital Passport NFT is each watch’s unique product and ownership history, technical details, and tamper-proof authentication of the moment of purchase [4]. Every Panerai consumer can collect an NFT of their watch by simply scanning the watch’s serial number QR code, and all consumers that collect this NFT become eligible for an extended international warranty protection of 8 years [6].

This Panerai Digital Passport NFT is implemented on the backend by Arianee Protocol, which makes blockchain-based Digital Product Passports for durable goods using the popular Ethereum ERC-721 standard [7]. These ERC-721 DPPs adopt one of the most common standards for NFTs (Non-Fungible Tokens), and are thus able to be fully transactable and interoperable with any blockchain running the Ethereum Virtual Machine (EVM) and can benefit from the years of open-source infrastructure that the NFT community has built in streamlining transactions, marketplace infrastructure, and enforcing creator royalties. All this, as well as Arianee’s decentralized governance structure in conjunction with various brand partners [8], allows Arianee’s Digital Product Passport NFTs to stay true to the blockchain ethos of being disintermediated, transparent, and preserving privacy at its core.

Arianee Protocol is not the only technical route for luxury brands to create blockchain-based Digital Product Passports (DPPs). LVMH, the world’s largest luxury retailer, for example, has cofounded the Aura Consortium, a group that develops a luxury-focused blockchain solutions and standards, including for Digital Product Passports. Brands have the option to either create Product Passports on Aura’s permissioned blockchain, which offers more regulation and control for individual brands, or on a public blockchain, such as Etheruem, as Aura’s Multi-Token Minter (MTM) is also primarily based on the ERC-721 standard, and so is compatible with any public blockchain that runs on the Ethereum Virtual Machine (EVM) standard [9].

Product Passport NFTs as a Digital Primitive: Reinventing the Social Experience of Luxury

Product Passport NFTs are more than just on-chain “washer-tags” for our existing handbags. Instead, they represent a new digital primitive for digital luxury. Crucially, Digital Product Passports act as a digital link between the brand, the physical product, and the end consumer [10]. Their real power is in reimagining the social experience of luxury in an increasingly digital world. In this section, we will explore three specific use cases in which Product Passport NFTs act as a new primitive to enhance the luxury experience in web3: (1) token-based loyalty programs, (2) projecting metaverse “flex power”, and (3) wallets-as-a-service for mass adoption.

1 — Token-Based Loyalty Programs

The luxury industry is uniquely suited for a token-based loyalty program for two reasons: (1) because of the thriving secondary market, and (2) because luxury’s value proposition depends on a perception of exclusivity and social signaling. Token-based loyalty programs, anchored on Digital Product Passports, address exactly these two problems for luxury retail brands.

Consider, for example, the case of gifting and secondary sales of luxury handbags. Because of the widespread nature of second-hand sales, gifts, and transfers of these luxury products, traditionally it can be incredibly difficult to differentiate between the initial buyers of a product and the actual users of the product. If Bob buys a handbag for Alice as a birthday gift, it is difficult for the retailer to know that Alice is the end consumer, as the retailer would only know that Bob swiped the credit card.

With a Digital Product Passport, however, Alice can leverage the NFC chip inside of the handbag once Bob gives her the handbag. This can then open the retailer’s app, and allow the retailer to target Alice with loyalty programs around this handbag. If Alice sells this handbag to Charlotte on a second-hand market, she can just transfer the handbag’s Product Passport NFT to Charlotte, and the retail brand can now target Charlotte with the relevant loyalty programs.

IWC “Diamond Hand Club” NFT Loyalty Program. Source [11]

Swiss luxury watchmaker IWC Schaffhausen demonstrates how a novel loyalty program might look like, centered around Arianee Protocol’s Digital Product Passports [12]. To join the IWC “Diamond Hand Club,” a consumer simply needs to buy an IWC watch with a Product Passport NFT, which they can then activate by scanning a QR code. This will give them a certain amount of “points,” and users can gain points by participating in various online and offline loyalty events that IWC hosts. Based on the number of points that a user has, they are eligible to various member events, including watchmaking masterclasses, an exclusive meetup with the CEO of DC Studios, and a dedicated trophy.

IWC “Diamond Hand Club” Exclusive Experiences. Source [11]

Thus, IWC Schaffhausen’s “Diamond Hand Club” provides us with a glimpse of how Digital Product Passport NFTs can be used to bootstrap a wholly new consumer experience — one that enhances a brand’s sense of exclusivity and prestige targeted for a selection of dedicated “superfans”. In the future, it is easy to imagine that these “superfans” can self-organize events token-gated by an NFT of their luxury watch to create a new form of collector DAO (Decentralized Autonomous Organization).

2 — Projecting Metaverse “Flex Power”

Nonetheless, reimagined loyalty programs represent the first look of a new, digitized social luxury experience. Fundamentally, many luxury products derive their value from a “flex power,” creating a social signaling of prestige and clout. As online venues gain greater importance as social venues, there is an increasing demand for online “social flexing” — this is the idea of luxury in the metaverse.

Importantly, the “metaverse” defined here doesn’t necessarily need to be the cliché all-immersive digital world brought to you by brick-like goggles strapped to your forehead. It merely refers to an online venue or platform where users demonstrate complex social behavior — such as a social media platform (eg. Instagram), an online game world (eg. Roblox), or an online marketplace (eg. OpenSea). Product NFTs represent one of the best ways to amplify a brand’s social signaling power online, as the NFT essentially acts as an “ambassador” for the brand in the metaverse.

An early prototype of this type of token-powered “metaverse” is The Sandbox Game, which released Sandbox Alpha in 2021. This is an open game of User Generated Content, where users can buy plots of land (represented as ERC-721 NFTs) using SAND tokens. Once a user buys these plots of land, they’re able to create assets (represented as ERC-1155 tokens), and creating scripting logic to bind these games together. Thus, users are able to use a variety of on-chain primitives, such as NFTs and tokens, to create completely new virtual experiences.

Of course, it is not only individual users that are able to create tokens, resources, and games using The Sandbox’s platform. Over the past few years, The Sandbox has emerged as a major online social venue for major brands and pop culture icons, including Gucci, Adidas, Snoop Dogg, Deadmau5, and Steve Aoki [14]. For brands, The Sandbox represents an easy way to extend their social influence from web2 to web3 and experiment with a new form of digitization of the brand experience.

Product Passport NFTs have a natural synergy with metaverse platforms such as The Sandbox, as they represent asset primitives around which brands can build a metaverse experience using tools such as The Sandbox. For example, the Product NFT of my Gucci handbag may allow me to access special games, perks, and assets within the “metaverse booth” that Gucci has set up in Sandbo. Or, perhaps a Product NFT of an IWC watch will make me eligible to buy premium Sandbox land at a discounted price.

Indeed, the unique feature of Product Passport NFTs is that they are programmable digital assets with a real world link — one that can really combine the tangibility of a real-world luxury item with the infinite programmable possibility. And in turn, this will allow physical luxury items to extend their “flex power” into the digital social world.

3 — Wallets-as-a-Service

The growth of Product NFTs as a new digital primitive will likely also lead to an explosion in demand for Wallet-as-a-Service providers. After all, when there’s an NFT, there needs to be a wallet available to store this NFT.

Traditionally, web3 wallets, especially non-custodial wallets such as MetaMask, have been long criticized for their poor user experience (UX), which may partially explain their relatively limited adoption. After all, one cannot expect everyone to be self-custodying 24-word seed phrases for an inexplicable, marginal benefit.

On the other hand, Digital Product Passports are expected to be implemented on all durable consumer products in the European Union by 2026. This means that within 2 years, all 450 million EU residents will need to be able to somehow know how to navigate wallets and NFTs. Therefore, one of the biggest criteria and challenges for Product NFT wallets is that they need to have a seamless UX for the end user. Ideally, the wallet for Product NFTs should be so smoothly integrated into existing sites, apps, and accounts such that users will not perceive any UX difference. The user should be able to login with their existing retailer accounts with an email and password, and automatically have access to their crypto wallet with all of their handbags as NFTs — an “integrated wallet”.

Arianee Wallet as a Service for Moncler. Source [16].

Wallet-as-a-Service providers realize this vision of an “integrated wallet.” For example, Arianee Protocol develops their own Wallet-as-a-Service solution to help brands adopt their standard for Digital Product Passports inside an integrated UX flow, and has pioneered this at scale with Breitling, IWC, Panerai, and Moncler [16]. For example, Arianee allows Moncler to integrate a custodial crypto wallet directly in their mobile app in order to store the Digital Product Passport NFTs of certain Moncler jackets. Moreover, these Moncler NFTs were also interoperable with various blockchain and metaverse platforms, including being viewable on the OpenSea marketplace and usable in The Sandbox Game.

Another technical route to creating these consumer wallets at scale include using a non-custodial Wallets-as-a-Service solution such as Magic or Passport Protocol. Unlike Arianee’s custodial wallets, which rely on the retail brand to safeguard consumers’ wallets, these non-custodial Wallet-as-a-Service providers allow for a system of more securely storing users wallets. Through using decentralized key management systems and algorithms — such as the Delegated Key Management System (DKMS) for Magic and Multi-Party Computation (MPC) for Passport Protocol — users do not have to safeguard their own seed phrases and passkeys, and can rely on social recovery mechanisms similar to traditional “Forgot my Password” systems [17] [18].

Magic Wallet as a Service for Enterprise. Source [19].

These advanced key management systems of Wallet-as-a-Service providers allow for the benefits of an integrated UX and flow of a traditional consumer app with increased security properties. With these technologies, all that a customer needs is just an email address and login, and suddenly, they too have a crypto wallet, all within the UX of an existing retail app.

NFTParis: Pioneering a New Consumer Economy

So what might luxury and fashion look like in web3, where the physical and the digital asset interoperate and mirror each other? I myself was fortunate enough to attend NFTParis, one of the premier consumer crypto conferences in Europe, held in late February 2024.

Unlike many other conferences that are primarily targeted towards a crypto-native audience and developers, NFTParis presented a vision of crypto tightly integrated with traditional retail and consumer products, with NFTs as a sociotechnical medium to bridge these two different worlds. And fashion played a crucial role in this sociotechnical vision of the future.

Digital Art Galleries at NFTParis. Source: Original Content.

For example, at the conference, there was a fashion walk, where live models demonstrated clothing that were available to purchase and collect as NFTs, and other pieces that were inspired by web3 game assets. Large sections of the conference also featured NFT artwork and galleries by practicing digital artists that minted and sold their artwork as NFTs. Panels throughout the conference also included a strong emphasis on the future of digital fashion, including discussing the integration of DPPs, generative AI art, and wearable technology with the fashion industry [20], with speakers at the event ranging from global fashion brands such as LVMH and Sephora, to game studios such as Roblox and Ubisoft, to a host of web3 companies in the consumer and fashion space, including Arianee, Art Blocks, and 9dcc [21].

For me, perhaps the biggest takeaway of NFTParis was that a lot of the advances that we’ve been discussing throughout this article, from product passport NFTs to revamped loyalty programs to wallets as service, are not just theoretically possible; they are already being piloted today, by both global brands and newcomers in the space. Even during the week, there were several fashion product unveils, such as American denim label Wrangler’s experimental collaboration with digital wearables brand MNTGE, featuring Wrangler vintage western shirts embedded with digitally-signed NFC chips that recorded the garment’s product history on-chain [22].

All this serves as a testament to NFTParis’ commitment to integrating blockchain technologies, such as NFTs, with broader consumer culture — a part that is often neglected in crypto-native communities. Indeed, whereas many crypto-native communities are still preoccupied with niche, jargon-laden infrastructure trends, the world of digital fashion is quietly edging towards mass consumer adoption, and use-cases that may ultimately build a completely new consumer economy.

Conclusion: Product Passports as a Product Market Fit for NFTs

For a long time, the crypto community has debated on how to find a “product market fit” for tokenized technologies. In discussing how to build a “killer application” that onboards millions of users, many people in the industry look towards crypto-native games, social media, or other variants of “X-to-earn” opportunities using sophisticated token technologies.

But I argue that the “killer application” — especially for NFTs — may be much more mundane than this tokenomics wizardry. The European Union’s Digital Product Passport mandate is expected to come into full effect in 2026 [23]. Whether intended or not, this law may in fact provide a strong product-market fit for consumer NFTs. As outlined above, blockchain-based Digital Product Passport implementations yield material advantages over traditional databases for standardization, transactability, and provenance. Combined with the luxury industry’s existing experiments with tokenized technologies and the overarching movement towards a new conception of “Digital Fashion,” it is very possible that Product Passport NFTs will become a new digital primitive, on top of which we will see a reimagined consumer experience — whether it be NFT-based loyalty programs, a luxury experience in the metaverse, or through integrated wallets in consumer apps.

Thus, mass consumer adoption of blockchain technology may be much closer than you think; luxury watches and designer handbags may in fact become the “killer app” for NFTs — perhaps all within the next two years. As more retail brands comply with EU regulations and create DPPs on blockchain rails, we may well see luxury retail become the distribution channel for mass consumer adoption, and ultimately “mint your watch as an NFT.”