There was a time when the only way to show the world your latest luxury purchase is by donning it in public or displaying it on social media. Fast-forward to 2022 and your avatar – your digital identity residing in an immersive digital space – could wear the digital versions of these luxury goods in the form of non-physical assets such as non-fungible tokens (NFTs).

We are, after all, gradually exploring the so-called metaverse, which the New York Times defined as a fully realised digital environment that exists beyond the physical world. And owning and displaying NFTs is another step towards the metaverse. But what exactly are NFTs?

Fungible pertains to items that can be traded for the exact same thing, like the US dollar, as opposed to non-fungible, which means something that cannot be replaced. An example is a customised jewellery piece, which cannot be exchanged with any other jewellery item. NFTs are just as unique. These are digital representations of intangible goods that exist on a shared and decentralised platform like the blockchain, but these tokens can also be attached to physical goods.

In the world of collectibles, NFTs convert digital works of art into one-of-a-kind, verifiable assets that exist on the blockchain. Tokens are usually purchased using cryptocurrencies like Ethereum.

Brands are taking notice of the massive business potential of NFTs. Data from market tracker DappRadar showed that NFT trades reached more than US$23 billion in 2021 and US$12 billion in the first quarter of 2022 alone.

Apparel giant Nike, Inc recently bought RTFKT Studios, a virtual company that makes NFTs and shoes for the metaverse. According to Nike, the acquisition accelerates its digital transformation as it plans to provide virtual products and experiences and extend its metaverse footprint. Other big brands like Coca-Cola, Gucci and Adidas have likewise dipped their toes into NFT waters.

The luxury jewellery and watch industry is also catching up to the NFT phenomenon. In December last year, coloured gemstone expert Gemfields introduced “The Chipembele Crash,” a series of six distinctive rhinoceros avatars made of photographed inclusions from the 7,525-carat Chipembele emerald, which is Gemfields’ largest top-quality emerald to date.

Proceeds from the sale will go to the North Luangwa Conservation Programme to support efforts to protect black rhinoceros in Zambia. Each NFT comes with a proof of donation.

Multi-awarded jewellery artist Reena Ahluwalia meanwhile blazed a trail in the diamond trade when she unveiled her first foray in the metaverse – a series of truly exceptional diamond art NFTs, which are now hosted on the NFT marketplace, OpenSea.

Payal Shah, the creative mind behind luxury jewellery brand L’Dezen, likewise launched a hybrid NFT that consists of both physical and digital versions of a bespoke pair of diamond earrings.

Bulgari most recently presented Octo Finissimo, the world’s thinnest mechanical watch, with a US$440,000 price tag. It comes with an exclusive NFT artwork accessible through a QR code engraved on the barrel cover. When scanned, this reveals the story behind the making of the watch.

The NFT attraction

In an interview with JNA, Ahluwalia, who received a Guinness World Record for her diamond painting on the dial of the Mudan diamond watch by Coronet, highlighted the historical significance of her NFT initiative since it is the first of its kind in both the NFT and diamond space.

“The digital artworks are my hand-painted diamonds that I digitised to reveal their power, symbolism and more importantly, characteristics that connect to our own individual spirit,” explained Ahluwalia.

The collection includes ultra-rare edition, 1 of 1 alongside limited editions, 10 of 10. Proceeds from the sale will benefit Jewelers for Children Charity to aid young victims of catastrophic illnesses, abuse or neglect.

NFTs appeal to the inherent desire of humans to collect items that resonate with their personal beliefs and aspirations. “With NFTs, those who invest in physical jewellery or diamonds can now collect and own digital jewellery and diamonds and have an immersive 3D experience in the metaverse,” she added.

Diamond NFTs are also being viewed as the first digital asset that is as “forever” as a real diamond, said Jonathan Kendall, founder and CEO of start-up Diamonds4crypto.com and co-founder of blockchain service provider Diamond Ancestry.

NFTs are also the most ideal way to memorialise a diamond’s distinctive characteristics and authenticity from mine to consumer, noted Kendall. This notion is especially attractive to younger buyers who value digital representations of ownership more than older generations do. “It is expected that in the near future, all tangible assets of real value will have a blockchain digital asset to accompany them,” he continued.

The low-cost yet global network that digital assets live on contribute to the allure of NFTs. This unique feature enables meaningful assets to be “owned” by the consumer in a way that Web 2.0 platforms cannot.

Investopedia.com defines Web 2.0 and Web 3.0 as successive iterations of the web, compared with the original Web 1.0 of the 1990s and early 2000s. Web 2.0 is the current version of the internet as we know it while Web 3.0 represents its next, more advanced phase.

“NFTs for tangible diamonds are often used as a certificate of authenticity or CoA. Unlike paper or physical CoAs, a digital CoA can be embodied with significantly more information than before. These include images, videos, manufacturing documentation and grading reports, to name a few – all authenticated and memorialised in a single NFT,” explained Kendall.

Erik A. Jens, founder of LuxuryFintech, said NFTs are not entirely new and have been around for many years since the advent of blockchain technology. A sudden NFT boom in the arts sector triggered the rise of NFTs in the jewellery trade.

This presented myriads of new opportunities for jewellers. With people increasingly becoming engaged in the metaverse gaming world where they can create avatars or digital versions of themselves, “dressing” or “accessorising” one’s metaverse personality has become a growing trend.

Jens explained, “People are connected in this gaming world. For instance, they can buy Nike shoes for their avatars. And the hope is that the person buying an NFT for his avatar will later buy Nike shoes for himself to match with his avatar.”

NFT profile pictures or PFPs have also become covetable property in the NFT world, and some fashion companies have started “dressing” celebrity and influencer PFPs as an alternative way to market their goods to tech-savvy audiences. The same concept can be applied to the jewellery trade where brands and designers can adorn celebrity PFPs to introduce and promote jewellery collections.

“The possibilities are truly endless,” said Ahluwalia. “The metaverse can be viewed as a fully functioning economy where an NFT owner can celebrate his or her individuality by wearing virtual jewellery in an expansive digital world.” Jens agreed, adding that industry leaders like Bulgari and Nike have already envisioned this possibility. The metaverse is a whole new world or platform where companies can explore non-conventional digital marketing and sales strategies, he added.

With NFTs, jewellers can more effectively sell the story behind a jewellery piece or diamond, including its mine to market journey to guarantee provenance, sustainability and authenticity. Blockchain technology also creates immutable proof of ownership, effectively preventing fraud, remarked Jens.

How NFTs work

Ahluwalia explained that owning an NFT gives you the right to sell it and make profit. It can also be programmed to grant perpetual royalties to the creator every time the NFT changes hands.

NFTs can likewise be endowed with many features such as charitable donations, membership to organisations or access to exclusive events – a further testament to a more seamless connection between the digital and physical realm.

Jewellers who want to enter the NFT space can explore various ways to tokenise or mint their jewellery or diamonds as an NFT. “Since NFTs live on the Ethereum blockchain, these are one of a kind. You can create an original digital asset like a JPEG, GIF or video of your jewellery to mint as an NFT. It can also be paired with a physical jewellery,” revealed Ahluwalia.

Kendall added that an NFT when related to a physical diamond serves as its CoA and the NFT’s value is entirely driven by the value of the real diamond. In the same vein, the value of the tangible diamond is represented by a digital asset that cannot be manipulated or altered, ensuring continuity of the diamond’s lineage and authenticity.

“The most valuable NFT models utilise decentralised, open-source and permissionless blockchains. Diamond Ancestry deploys the same resilient model and ethos as Bitcoin, ensuring a truly global and hack-resistant digital asset,” he continued.

Future of NFTs in jewellery

Jens, who worked with Ahluwalia in developing her NFT series, said his collaboration with the jewellery designer will continue as the future remains bright for diamond NFTs. His company, LuxuryFintech, is planning new initiatives related to the use of NFTs as a funding model for diamond finance but these are in the early stages. There is no doubt however that opportunities abound for NFTs in the jewellery trade, he added. The challenge is education and telling a compelling narrative to help the market understand what NFTs are and what they can do.

Kendall, for his part, revealed that a range of developments is underway at Diamonds4Crypto, including projects that will allow consumers to memorialise life’s moments associated with their diamonds by saving those into an NFT. He also shares Jens’ sentiment of a dazzling future for NFTs. He noted, “The brightest spots are authenticity and trust that is derived from using blockchain digital assets. It is also a more diverse way for manufacturers to immerse their customers in their product/brand. Education however will be the greatest challenge.”

With the physical and digital space inevitably coexisting and enhancing each other in the luxury world, jewellers must develop a digital strategy for storytelling, said Ahluwalia.

“The challenges in the NFT space are more to do with legality, ethics, copyright considerations, licensing, anti-money laundering regulations, data protection and privacy law. The rapid rise of NFTs over the last few months means that the law is yet to catch up with this phenomenon. Regulatory bodies and governments will have to move quickly to keep up,” she added.