What is Web 3.0? What web3 means for the fashion industry

There’s no doubt that we are in the midst of a technological renaissance and the latest technology that the fashion industry is enamored with is Web3.0.

You’re probably one of the millions of people who are taking it to Google to understand this latest technology. That’s why we’ve decided to make it easy for you by answering the questions that are most important, starting with…

• What is Web 3.0?
• How is it different from Web 1.0 and Web 2.0?
• Why do people want to decentralize the internet?
• What Web3 means for the fashion industry in terms of—supply chain traceability, sustainability, independent design, solving authentication problems, customization and personalization, ownership and intellectual property rights, and the use of Defi or decentralized finance.
• Warnings about Web 3.0

Web 2.0, which is the current version of the Internet, has many things but privacy and security is not necessarily one of them. One major criticism of Web 2.0 is that it is highly centralized, most of it being controlled by large tech corporations like Google, Meta, Microsoft etc. Enter Web 3.0 where the real power will lie in the hands of its users rather than the platforms. The term Web 3.0 was coined by Gavin Wood, Co-founder of Ethereum and Founder of Polkadot, in 2014 who referred to it as a “decentralized online ecosystem based on blockchain.”

Web 3.0 is a version of the Internet which is decentralized using technologies like blockchain. As of now, the most prominent Web 3.0 platforms and services are being built on the Ethereum blockchain along with other blockchains called Polkadot and Algorand.

During the 90’s when the internet first came into being with Web 1.0, it mostly consisted of read-only websites, which were just static pages of information. In web 1.0, most users were mere ‘readers’ or consumers of information and the creators were only people who knew how to write code.

Then came Web 2.0, the Internet as we know it in the mid-2000s. Suddenly, the Internet was an interactive space where real people (or consumers) could create their own content even if they didn’t know how to code. People could communicate with one another, whether it was by discussing news in community forums or by posting cat videos. Web 2.0 essentially allowed everyone to become a ‘content creator’.

Right now big tech companies have a monopoly over Web 2.0 and our data. Yes, you can post whatever you want but Big Tech can use it however they want. And this is a big problem when you hear news about how Cambridge Analytica misused the data of millions of Facebook users to influence the Brexit referendum or to manipulate election outcomes in 30 countries including the US and the UK. People have become increasingly aware of how damaging our data can be in the wrong hands. Yet tech companies continue to buy and sell personal data without any repercussions from the government.

Consequently, you can see why owning your data would be so appealing to users and Web3 promises exactly that. On Web3, you can exchange money and information without the need for any middleman like a bank or tech company. People can CHOOSE if and to whom they want to sell their data. This is a system that allows for more transparency and autonomy for the end users.

Now that we have answered the burning question of WHY would you want to decentralize the internet; and how Web3 is different from the Internet of today. Let’s discuss why the fashion industry is interested in Web3 and how it is taking advantage of this new technology. 

1. Supply Chain Traceability & Sustainability

So far, we’ve talked about how Web 3.0 is great for regular people. But what about fashion companies? How do they benefit from a decentralized system with open protocols? Turns out, one of the technologies that powers Web 3 (aka blockchain) has massive implications for the fashion industry.

The fashion supply chain is highly fragmented and complex in nature, as brands and suppliers need to share and coordinate a lot of data with each other. But this fragmentation often leads to distrust in data followed by inconsistent, incomplete and delayed information sharing. But by recording supply chain data in an open-sourced centralized ledger, fashion brands can effectively track information to its original source easily.

Since transactions on the blockchain can’t be altered, deleted or forged, fashion brands can also use it as irrefutable proof for their claims of ethical sourcing, production and sustainability. This will help improve customer trust, loyalty and brand image.

Brands can use blockchain to better vet any 3rd party suppliers and root out the bad apples with unethical labor and production practices. It will also help them identify and fix supply chain bottlenecks and points of wastage much faster.

Read more: How blockchain can make fashion supply chains more transparent

2. Rise of Independent Designers 

Web3 is giving rise to a true creator-centered economy by democratizing the digital fashion industry. Pretty much anyone can become an independent designer and start a digital label. In fact, many independent designers and labels are making millions designing virtual clothes, skins and accessories for Web3 games like Guild of Guardians, Skyweaver as well as regular gaming platforms like Roblox and Fortnite.

With 3 billion gamers in the world, as of 2022, digital fashion products have opened up a whole new market and a demographic for fashion brands, designers and creators. Independent designers can charge anywhere from $20 to $200 for their designer. It’s a lucrative business with a low barrier to entry, unlike traditional fashion retail where you need manufacturers, suppliers, patternmakers and a whole lot of capital to start your own brand.

Samuel Jordan, Mishi McDuff, Xinyue Li, Republique, The Fabricant, Auroboros, and DressX are some of the biggest names in the digital fashion space right now. They not only design their own collections for Web3 platforms but are also helping traditional fashion houses like Balenciaga, Gucci, Louis Vuitton, Stella McCartney, Ralph Lauren, Burberry, Coach, Adidas, Nike, Bulgari and many others enter Web 3.0.

3. Solve Authentication Problems

Authentication is one of the most important functions of the fashion resale market. It is also the most secretive and difficult part of the industry. And for good reason—luxury brands lose an estimated $100 billion every year due to counterfeiting (as per OECD’s 2021 Global Counterfeiting Report). That’s just the monetary impact, sophisticated counterfeiting erodes consumer trust, brand image and has legal consequences that are harder to quantify.

This is where another key Web3 technology aka NFTs (Non-Fungible Tokens) can be the fashion industry’s saving grace. NFTs are a great way to record the purchase and manufacturing history of products. This will help distinguish between fake and original products since there is no way to falsify data. With NFTs, information is verified by a peer-to-peer network. This means there is no need to rely on or pay centralized organizations or third parties such as authenticators for verification.

Read more: What you need to know about Supply Chain Management in Apparel Industry

4. Customization and Personalization 

One of the things that makes digital fashion in the Web 3.0 world really special is that it can be customized and personalized more than physical clothes. Web 3.0 digital fashion brands like The Fabricant use 3D Software to “fit” the garment to the user’s photo or digital avatar. This kind of customization gives digital clothes a more natural and seamless look. Although there is still a long way to go for digital clothing to look better than real clothes, digital design is catching up very quickly!

The Fabricant has also launched a new online design studio where users can create and trade their own virtual clothes as NFTs. The digital fashion house says that the studio is enabling “anyone to become a digital fashion designer.” Users can wear these personalized outfits or ‘looks’ in the Metaverse or trade them if they want. This is a great example of how fashion brands can use Web3 to create a loyal community through personalized experiences.

In fact, Gucci even bought virtual land on the decentralized platform The Sandbox. But why? Well, Gucci plans to build a concept store called Gucci Vault which will provide more interactive and personalized experiences to its ‘fans’ in the digital world. And from the looks of it, it’s making Gucci even more popular among Gen-Z, a key demographic whose disposable income has reached an estimated $360 billion and will only keep on increasing  as they grow up.

5. Rethinking Ownership and Intellectual Property Rights

NFTs are the best option for verifying ownership of assets. Brands like Nike and Jacob & Co. are selling physical products that are connected to NFTs, which can be used to verify the item’s authenticity and ownership. No matter how many hands the product passes through, its ownership can always be traced through its blockchain records. This will significantly reduce sales on the black market and the counterfeiting of luxury goods.

However, when you buy an NFT by itself and not as part of a bundle, it can make people question what they are actually paying for. What does it mean to own an NFT if you don’t have some sort of physical property? This is where we must distinguish between ownership and intellectual property rights.

Ownership of a digital asset means that you have the right to use it however you want. You can make exclusive merchandise of your digital asset and sell it; you can use it for marketing and advertisements; you can resell it for a profit, etc. But, the original creator is entitled to royalty payments because they own the copyright. To get a better understanding, you can see it as how music artists may receive royalties for reproduction of their work but the ‘masters’ of those songs are technically owned by the music labels.

Even if you resell your digital asset, the original designer makes a percentage of the profit since they have copyright. In a way, intellectual property rights are a recurring profit for the designer since no matter how many times their “art” gets sold, they always receive a percentage of the profit.

Read more: The evolution of the showroom – how technology is transforming B2B sales

6. Use of Defi (Decentralized Finance) In The Fashion Industry 

A subsector of Web 3.0, DeFi is an umbrella term for blockchain-based financial services. It aims to replace traditional financial institutions such as banks with peer-to-peer networks that can provide banking services, loans and mortgages, asset trading and more. DeFi is faster and doesn’t require extensive paperwork or involvement of third parties (although regulations may be underway).

For many small to medium companies, DeFi is emerging as an alternative financing source. It is especially beneficial for independent designers, designers from marginalized communities and new fashion brands who might not be granted loans from traditional banks for various reasons.

Using cryptocurrency has its own perks though, brands and designers can transfer funds across the world much faster and cheaper. Not to mention it’s more transparent and is the closest thing to a universal currency. This is one of the many reasons brands like Gucci, Balenciaga, Farfetch, Tag Heuer, Nike, H&M, Off-White, ASOS, and Calvin Klein are already accepting cryptocurrency as payment.

For example, if you want to expand your brand overseas but don’t have a credit score in that country. You can use decentralized finance (DeFi) protocols as a source of funding because there are no borders for DeFi protocols, so you can use it as a source of finance abroad.

DeFi can also be used to make automatic payments such as royalties to designers. You can also use self-executing programs such as smart contracts to automatically execute payments when certain conditions are met, for instance, when the company verifies it has received a shipment.

• At the moment, tech companies are responsible for moderating harmful content on their platform. Yes, they are doing a lousy job but it’s still something. But who is going to regulate a decentralized system? And how?
• With Web 3.0 still in its infancy, experts are not sure how it will work on a large scale.
• Web 3.0 assets are highly volatile to be considered safe investment options.
• Consumer protection laws are yet to catch up with Web 3.0, which means the lack of regulations exposes consumers to fraud, theft, scams, price fixing and much more.
• Blockchain and Web 3.0’s high level of energy requirements are a big concern for environmentalists.
• The highly speculative nature of Web 3.0, along with the hype around it could very well mean that it’s a bubble.
• According to the World Economic Forum, around 3.7 billion people don’t have access to the Internet. So, it’s likely that Web 3.0 will exacerbate the problem of access inequality.

Like any new technology, it’s true that Web 3.0 has massive potential. The technology and its counterparts are revolutionizing the way consumers interact, shop, and purchase fashion products. Fashion brands are in a race against each other to market themselves and to sell to those customers. And it’s becoming clearer every day that the way to win is to first understand the technology and its implications and then make a strategic plan of how your brand can adopt it, if it makes sense for your business.

Whether you want to take the ‘virtual fashion’ plunge or not may be a personal choice, but it is safe to say that the digitalization of the fashion supply chain is no longer optional. If you want to learn how you can digitally transform your fashion brand, speak to a WFX digitalization expert today!