*Disclaimer: The accuracy of this transcript is not guaranteed. This is not investment advice, and any opinions expressed here are the sole opinions of the individuals, not of the institutions they represent.
[00:00:14] Seamus: Welcome to the 31st episode of METACO Talks. Today we’re speaking with Pedro Lopez-Belmonte, the blockchain lead at Richemont, the Swiss based luxury company, owner of brands like Cartier, Montblanc, Net-a-porter, et cetera. Pedro is currently driving the blockchain and digital asset management strategy and roadmap for Richemont in the public and private blockchain. He makes it possible for consumers to access products’ history and proof of authenticity of luxury goods, from sourcing and sales all the way to secondhand markets.
Pedro, welcome to METACO talks and thanks for accepting our invite. Thanks for being here.
[00:00:54] Pedro: Well, thank you Seamus. Thank you for having me, pleasure.
[00:01:00] Seamus: Why don’t we kick off? As I understand, your background is as a software engineer and you’ve been in the industry for more than 20. It would be great to hear your journey to blockchain.
[00:01:14] Pedro: I don’t think it’s something out of normal. Back in 2016 I started learning about blockchain. What grabbed my attention first was a Bitcoin, as I guess it was for everyone – this new thing, this new money that was not regulated, and so on. I started to deep dive as well into Ethereum from the cryptocurrency perspective. But soon after I started to learn about NFTs and about the possibilities, and that was the real blow for me. A technology that is able to enable ownership and provenance in the digital world, I thought that the possibilities were limitless, were infinite. Especially due to my professional context, I thought, this is going to be great, hopefully. I was not wrong.
That was the journey. Soon after we started to work with blockchain technology at the company, till today.
[00:02:37] Seamus: It’s great personal journey. What’s the context of how you are applying that in the industry use case?
[00:02:46] Pedro: It’s funny because a lot of industries have been very careful. But I think the luxury industry was very keen and very interesting since the beginning. We started with an open mind, with an exploratory approach, trying to find out exactly if the technology was able to deliver what it was promising and if we would be able to leverage on the technology to bring value to our customers and to our business, trying to tackle existing problems. The first and foremost has been since the beginning counterfeiting, for all the industry, and reaching those use cases with additional features and additional value.
I think that’s where we are today. Not as a single company, but as an industry, there is a lot of interest. The technology has already proven the value. We have been able to explore, to learn a bit, and now we are in a position that we can start building on the foundation that we have already built.
[00:04:10] Seamus: It’s interesting, there’s a general perception that reasonable would be conservative branding. Luxury is by definition conservative. At the same time, your tagline as we craft the future. Often many of our guests come on around from banks, and there’s always the question of how you innovate in a conservative organization. You seem to bring both the conservative and the future. How do you manage the tension between the two?
[00:04:36] Pedro: I don’t think it’s limited to us, but I think that’s again an industry perspective. Each company has its own idiosyncrasy and its own dial-up, different features or different aspects in their own way. But I think the luxury industry has always dealt with this approach.
I find balance between conservative approach in terms of heritage, tradition, and in terms of the image that luxury brands represent. That’s the conservative part. In terms of the emotion, even in the products that we do, they are highly emotional. When you go to other industries like the food industry, it’s also very emotional but in a different way. It is very common to buy a luxury piece, a jewel or a watch, to celebrate something. To celebrate your kids moving from childhood to manhood, or to celebrate an anniversary, a special event, graduation, wedding, et cetera. It’s super emotional. This requires a lot of tradition and a kind of conservative approach, to keep the heritage.
One the other side, we are used to innovate. In terms of industrial manufacturing, materials processing, techniques especially in watchmaking, in terms of the complications, all the different aspect of the watches, we’re continuously innovating. We have the responsibility of continuously innovating, first to keep the brand interesting and to stay ahead of the curve. That is being shown in the fact, especially the watchmaking industry, is subject to a lot of counterfeiting. The figures on counterfeiting are huge. It’s not only because of the price but because of this technology innovation.
I think the industry is used to work with this dichotomy, with trying to balance these two elements. Blockchain technology has been something not new in that sense. It has been a new feature or new ingredient added into the meal, and we are probably dealing with it in the same way that we deal with other innovations. We have these continuous debate between the need to improve, the need to evolve and to get better, and the need also to keep our heritage.
[00:07:50] Seamus: Of course. You’ve got a brand which you’ve got to protect, and at the same time you’ve got to grow.
It’s exciting when you talked about the emotional element. When I look at all the premiums around some of the top end brands these days, it’s almost a little bit of like FOMO in crypto. People want to get it. You’ve got to maintain that FOMO as a future brand. Can you get into specifics? What are some of the public initiatives that Richemont announced in regards to blockchain and token economy?
[00:08:19] Pedro: Probably our best known initiative is the digital certificate for watches. We started with our brand Vacheron Constantin more than three years ago. We rolled out three years ago the first pilot, delivering the digital certificate for watches. We basically replace the traditional paper-based certificate with a digital token, with an NFT. It enables authenticity. It helps the customer to prove the provenance of the piece. But it also enables ownership. The customer has a wallet and is able to get the digital certificate into its wallet and prove the ownership, transfer if the customer wants to sell the piece or to give it to someone else. Probably that’s the best known.
Today we are issuing digital certificates for all versions of watches that are being produced. That’s a huge achievement. We have a lot of trust, and I’m sure more brands with follow.
We have some other interesting initiatives. For example, we are using blockchain to certify our intellectual property. Recently we have jumped into the sexy NFT world and so on, with Panerai. Our brand Panerai announced two or three weeks ago the release of an NFT. These days, by the way, the watchmaking event or the watchmaking fair, Watches and Wonders, is happening in Geneva. On Wednesday, another of our brands IWC announced another NFT project.
We are now trying to move beyond what we have and explore new territories.
[00:10:33] Seamus: The NFTs initiative sound very exciting. We have seen NFTs have a huge impact on the art world, the collectible world, which I suppose bridges into your space. You’ve started with the certificates, which could be almost a three-dimensional way leveraged into the NFTs. What do you expect the impact of NFTs to be on the luxury and fashion industry?
[00:10:57] Pedro: I think NFTs will be paramount. In general, in art world we are moving towards a deep, digital world. It’s not something new. It has happened for more than 20 years. Amazon was started in 1995, something like that. Since then we are moving towards a deeper digital experience, and digital is enabling our life in many different ways.
NFTs for luxury industry is a way to enable ownership and authentication or provenance, and transparency. We are able to use the digital certificates to prove the authenticity of the piece. But we are also able to prove the authenticity of the digital token, which is equally important. When we speak about ownership in terms of tokens, we usefully see the ownership of the customer, in our use case for example a customer owning the detail certificate. But who has created this detail certificate is equally important. I say that because I’m convinced that we are going to see a surge of counterfeiting in the digital realm. There will be counterfeiters creating fake NFTs. I think it’s super important to educate our customers, not only on what the NFT means in terms of link with the physical piece or ownership for themselves, but also in order to encourage them to check who has created the NFT.
With NFT it; is very easy. With a paper-based certificate you cannot check who has created the paper. It’s very easy to print. But a digital token is much more difficult to falsify. The opportunity for counterfeiters is in the illiteracy of the consumer. But if the consumer knows what to check in order to ensure who has created the NFT, there is no option for fakes.
The NFTs are also a great way to bring something, which I have already spoken about, the heritage of the brand, this emotional part. The digital art world is a very interesting example, because you can add a digital piece to an NFT and therefore you can bring provenance to this authenticity, to this piece. You can certify who created it and who owns it. Before that, we are all been asked to use Napster and Torrent and all the digital features. Those were possible because in the digital world, digital assets provenance wasn’t possible. With NFTs, it’s now possible. Now if we would bring that to the luxury industry, we are able to add a lot of elements: pictures, videos, documents, et cetera, that contribute to tell the history. One side, to tell the history of the piece, of the watch or the jewel, but also to tell the relationship between that piece and its owner. I think that’s great, because it will represent a lot to customers.
Lastly, we’re in the latest trends of the metaverses and so on. That will also enable the customers to really use these digital assets across different metaverses, which I think is what’s going to be the real meat in the bone.
[00:15:08] Seamus: It’s a fascinating direction and future you’re describing. Clearly the potential is huge. What’s the role of luxury brands in delivering these NFTs to customers? You’ve got the safe custody of these tokens you talk about, managing the keys, the attestation. There’s removing friction, because managing keys is not trivial. It’s getting better, but still. Is it all of the above, or how do you prioritize these things?
[00:15:34] Pedro: I think it’s all. But we need to start step-by-step. If we cannot use the NFTs to tell the history and every touch of the piece on the ground, and as I said, the relationship with the customer, it loses a bit of power. That’s the side of building on top of that. That’s the side of bringing value to the customer. At the end, it’s bringing something special to the customer.
But then you mentioned something which I think is key, it’s paramount. That’s the friction. The friction is an obstacle. In the digital world friction means a lack of adoption. When we start seeing that when you ask the customer to download yet another app in the phone, it’s like, “Okay, I have 200, now I’ve got 201.” That’s the problem. The friction is the problem. The friction, when we move into a setup, for example a web 3 wallet, decentralized noncustodial wallets, is huge. For individuals like you or me who we are already in this since a while, it’s our bread and butter. It doesn’t represent any friction. But what sometimes professionals in this ecosystem don’t realize is that those simple actions that we understand and that are part of our daily routines, they represent a huge mountain to climb for the majority of the individuals in this planet. Setting up the wallet, backing up your keys, all these elements, they don’t understand why. They don’t understand the implications of that.
I think the role of the industry, whatever industry now, the luxury industries as well, is to educate the customer and to help them transition from this web 2.0 to web 3.0 in many ways. In terms of managing the credentials, helping them to use these credentials, what are they? What does it imply for them? What are the implications for them?
For me, frictionless is paramount. In any project, if you don’t take into consideration the friction, it might not be a failure but for sure it won’t be a success. I think it’s our responsibility as well to help introduce our customer base into this world in a fluid way. In that case, key management as you have mentioned, plays a key role.
[00:18:53] Seamus: Key role, no question. We’re probably both old enough to remember the moment when the Apple came out and they all of a sudden make computers easy. I think we’re still waiting for ‘Apple moment’ in the space, right? I think we, as you say, as insiders we forget that it’s quite complicated.
You made an interesting reference with a metaverse. We have people displaying their crypto punks or their apes on their social media. How do you view the metaverse of luxury? That’s been created now, but how do you think that’s going to evolve?
[00:19:31] Pedro: Well, I think it depends. First, when to set up the concept of metaverse, because I think each one has their own concept of metaverse.
There is a common belief that metaverse is these 3D digital world. Call it the centralized arm, for example, or even call it second life. I think it is just a manifestation of the metaverse. If we speak about the metaverse, for me the metaverse is more a philosophy than a specific implement. The metaverse I would say is the ability for an individual to communicate and interact with other individuals regardless of their physical location, through digital tools. I would abstract it in that way.
The 3D metaverses that there are today, I think they are good parts. They provide this anonymity by representing the users with the avatars and providing something cool, something digital, which is very flexible. What I also like about the digital space in those 3D worlds is that the creativity is great because you are not subject to physical world rules. The laws of physics don’t work in there. There is a lot of potential and space for creativity to let the imagination fly and bring some really cool experience.
But at the same time, I think there is some friction. We go back to the friction. Either we interact through our computer or through our tablet or mobile phone, which is a flat screen, it is already a friction. Even if we are used to working with that, it’s not mature. If we think about the little actions that I annoy us every day about using our iPhone or our phone or our computer, we realize that that’s the case. Some 3D worlds also propose the headsets, even some additional gear like gloves or whatever. While this is super cool, it’s again another point of friction. It’s not natural to the human being. I need to put myself into a device and interact with something. Usually the first time you put a headset, you get a bit of dizziness or it requires a ramp up over a few days. Then the movement, you need a room for yourself that you’re not going to hurt yourself while you are immersed into this experience.
[00:22:27] Seamus: Like a player type of scenario.
[00:22:29] Pedro: Exactly. I think first there is no single metaverse. There are a lot of manifestations, and there is a lot of elements to come with less friction.
I am a true believer of holograms. I think holograms have the potential to integrate with human behavior in the most natural way. Because even if it’s an external device, you can bring something 3D without the need of putting into any device and so on.
That’s just my approach or my vision. But in that way I believe new experiences will arise. If we add that into the luxury space, I think that will happen. I’ve seen the last year a couple of initiatives to build a very luxury metaverse I wish them the best of luck, because collaterally I have some scheming to that. That would be great. It will be a great exploratory work, but for the moment I don’t think they will have a lot of success. We need to think about what luxury means: exclusivity, feeling a part of the club. That’s why you choose one brand over another. It means a lot of things, but for the moment I don’t see it materialized in a specific metaverse. The current metaverses can provide some of these features, but we need some evolution in order to integrate this metaverse experience with this luxury heritage, with these emotional stories and relationship that that each one of us with has all these pieces.
What I believe is that at least the features such as scarcity and exclusivity are guaranteed not by the metaverse, which needs to evolve, but today they are warranted by NFTs. The difference, if we look at what second life meant, second life didn’t go mainstream in my opinion because it was lacking this layer of ownership in their economy. They have an economy, and it was super powerful. They were a brand doing something in second life, if you will remember. But the experience was completely confined to that metaverse. With the NFTs, we are able to extend the economy outside the confinement of the metaverse. This is something that I think is the game changer.
[00:25:28] Seamus: That’s a fascinating way to look at it; the philosophical approach rather than this is our specific metaverse. I’ll have to ask, once you get into that metaverse, however you define it, how will people differentiate between luxury goods and mass market ones? Is that just limited availability?
[00:25:50] Pedro: Exactly. Again, with NFTs brands can leverage on them to ensure scarcity, exclusivity, and uniqueness. It is these three elements where brands can bring value, where brands can tell the story. There is a lot of storytelling as well. It’s through that they can leverage on these features to tell the story to the customer, and the customer can rely on the NFTs to ensure the voracity of the story, to ensure the scarcity, and the exclusivity, and also to ensure the ownership. As a customer, it doesn’t matter if I’m enjoying my NFT in my phone, or if I go to one of these metaverses and bring my digital version of the luxury piece with me, it’s the NFT that guarantees that I’m the owner, and therefore I feel part of the story.
I think that’s the key value and also the game changer in terms of the digital experience for luxury goods.
[00:27:12] Seamus: Given you’re in the space, you’ll know as soon as you create some of value it can then be fractionalized. How does that impact exclusivity and brand maintenance?
[00:27:25] Pedro: That’s a great question. We need to differentiate; not everything can be fractionalized. If we take into account a piece of art – which sometimes is good parallelism – or an exclusive jewel, like the tiara of Princess Grace which was made by Cartier, the fact that it was made by Cartier, it’s already something. But the fact that it was super special, it was belonging to a very specific person in a specific moment of time, brings the piece to another level. Does it makes sense to tokenize that? Maybe.
I think most of these pieces, as well as art pieces, are even now in many countries owned by the state, are paid for by everyone’s taxes. We have the British National Museum, the Louvre, Museum of Prado in Spain. All of them are paid for by taxes. It makes sense, because they tell our story as countries, as individuals. Exactly. Does it make sense to tokenize these elements? I think it might make sense, for example to enable some additional stories over those pieces, or to raise funding for specific causes, or to raise funding to take care of them better, and so on.
For unique pieces, I think it makes all the sense to tokenize. For less unique pieces, I don’t know. Who cares about my watch? Who cares if I tokenize my watch?
[00:29:25] Seamus: Maybe your kids want a share of your watch, but otherwise no.
[00:29:26] Pedro: Exactly. What I believe is it is tokenized in a different way. I see the tokenization of elements in two ways. We can issue a single token over a piece for utility proposes. For example, who can care about my watch? My insurance company, for example, will care about my token of the watch, because it helps them to check that what I’ve declared is true because the token has been created by a company. Or something which is now trendy in the DeFi space, if I want to use my watch as a collateral for a loan, with the token we can remove friction and articulate it faster and better.
Then we have the other way of tokenizing things. Multiple tokens, multiple ownership, and maybe not tokenizing 10%, of the piece, which I think belongs more to these unique pieces, these unique tiaras or jewels or pieces of art. That’s becoming part of a community, it’s a complete different experience. I think both of them have a place in the space.
[00:30:47] Seamus: You touched on something, once the value gets tied to a digital token, then the digital token to a degree defines the value of the real world asset. But you can leverage in a DeFi and everything else that comes. Fascinating.
We don’t have much time, but there’s a couple more questions I wanted to touch on. Can I step in a way from this very interesting topic? I’m ignoring some questions here unfortunately, because we wanted to go to some other things. But I’d love to have you talk about NFTs again. From a corporate perspective, given you’re already looking at tokens from the client side, internally are you looking at exploring use cases, things like stable coins, the balance sheet, payments, treasury, this types of thing? Is that something that’s a topic of discussion at the corporate level?
[00:31:28] Pedro: We are looking at different things. I cannot speak to what we are specifically looking into. But from a general perspective my opinion is that specifically on the DeFi and on the stable coins, the action has happened in the banking industry. It has been either the traditional banks, or these new banks or startups trying to make the industry more dynamic. I think we are doing a good job. If we moved to traditional industries outside the banking one, I think it’s a matter of time that all the industries or the companies to start to have stable coins and crypto in their balance sheets.
What I think needs to happen and it has not happened yet, is regulation. This will be enabled by regulation. Today regulation is very clear with Fiat currencies, with the traditional book and account keeping. You need to do KYC process, AML processes. It’s super regulated for traditional assets, but it’s not that clear yet for stable coin assets. It has started to happen, but I think companies and especially finance teams want to jump into that, but they don’t see very clear regulation, and especially for multinational companies, very clear regularly globally. That needs to happen; regulation needs to happen.
But clearly everyone is looking into a lot of different aspects of the technology, and in my opinion it’s just a matter of time. I’m not a finance expert, but I think stable coins specifically opens up a lot of possibilities for companies.
[00:33:38] Seamus: I know we touched a little bit about the frictions earlier. There’s always that expression in the market, not your keys, not your assets, not your certificates and not your NFTs.
Any advice for companies that are looking at the space, but that might not be experts around cryptography and key management, how to build a solution in a safe and scalable way?
[00:33:54] Pedro: Here I will put my hat off an individual crypto geek, and I will endorse 100% the not your keys, not your assets statement.
I think it’s part of this philosophical approach to understand what are the implications of that. It’s a huge change in terms of mindset. It’s a model change coming from this traditional centralized management to this decentralized approach. It gives us freedom, but also it gives us a responsibility. It comes with the responsibility of doing our due diligence and our duty to manage our responsibility. In that way, there is a lot of friction.
My recommendation when a company wants to jump into this world, they need to think very clearly. If a company we propose something into WEB 3.0 which is non-custodial, it will be very much aligned with blockchain and decentralized best practices, but it will have a lot of friction. As we said before, it will be great for crypto geeks, a tiny fraction of the world population, but it wouldn’t be great for the rest of us.
In my opinion, I see in the future a non-custodial world in terms of key management. But we are not there yet. Now we need to think about a transition. Crypto geeks are there to be as the beacon of where we want to go. But I put my hat of a professional in the industry, I advocate for flexibility, for openness maybe, to give our customers the chance of having on one side a non-custodial way of managing their assets for those who feel comfortable with, but provide a custodial way for most of our customers, which for the moment they don’t know anything.
I always call this the test of the mother. If my mother knows how to do it swiftly, then it will work. If not, there is a lot of friction.
Custodial approach and key management by companies in this very moment, is the door to open crypto to the main street. I have to say that it cannot be done in any way. I see these days a lot of people, what they propose is the traditional web 2. 0 approach. Yes, there are some keys behind, but how are these keys managed? Does the company have access to that? Can they operate the company through these keys without the consent of the user? I think the setup is key.
What I think and what we propose as Vacheron Constantin, is a way of helping the customers to transition softly into web 3.0. The proposal is open, so they have a full web 3.0 way to manage that, or they have custodial approach. It makes things easier and frictionless for them, but at the same time we manage their keys, but we manage their keys in a way that there is no way that anyone within the company can operate the keys on behalf of a specific user. There is no way. I’m not going to enter into the details, but I can guarantee that we have done a huge effort to design a system that first matches with this approach, we call it web 2.5, and then in the future we are ready to segregate keys to our customers whenever they are ready. Not the future, in the present we can do it.
I think that’s a good approach. My recommendation to any company would be to try to get this approach. Try to understand first what the non-custodial approach implies, and try to think about the best way to provide a custodial experience which is meaningful.
[00:38:49] Seamus: I think it’s a great approach. Philosophically, we have the same approach to the future, based on the idea that people will more than likely want externalize to a custodian just because it’s easier, but also have the option to be able to take control of your keys for whatever reason you want.
Pedro, it’s been super interesting. I think we made a mistake, for this episode we should’ve made it an hour. I have a lot of topics to cover, I couldn’t even get to the questions. This has been the most questions we’ve had in an episode. I apologize to all those who submitted questions.
It’s been a real pleasure to have you here today at METACO Talks, thanks for your time. Did you have anything, any parting words, last things you want to say before we sign off?
[00:39:28] Pedro: I would say not your keys, not your crypto, for example, but in the meantime give also a space for people that don’t feel comfortable with that, and maybe they are not prepared to get into the crypto ecosystem in a softer way. The thing that all of us need to take in common is to do our due diligence. Now it is the web 3.0. Beyond key management implies each individual needs to do due diligence. The responsibility is not of a third party right now. It’s starting to rely on ourselves. That would be my recommendation.
[00:40:16] Seamus: Thanks for that. Thanks, Pedro. Everybody, thank you for joining us today. I hope everybody enjoyed METACO Talks. I certainly did. It’s been one of the most interesting conversations we’ve had. We’ll be back in a few weeks, and until then have a great week and great weekend ahead. Don’t forget, all of this will be available as a recording on www.metaco.com/talks, and most of your favorite outlets as well. Thanks for joining today and see you next time.
[00:40:39] Pedro: Thank you for having me, and have a good day.