How Blockchain Can Fight Counterfeiting and Fraud
Aug 28, 2019
This article was originally published on Global Trade.
A recent report by the Organization for Economic Cooperation and Development and the European Union’s Intellectual Property Office shows that imported counterfeit goods raked in $509 billion in 2016 — nearly 3.3% of all global imports for that year. To fight back against the rising tide of knockoffs threatening their brands, companies are turning to blockchain technology to create more transparent supply chains.
Blockchain is a distributed, decentralized ledger technology controlled by smart contracts and regulated by a consensus protocol. The ledger automatically records every transaction, and every record it creates is unalterable. Depending on exactly how one uses the ledger, it can be classified as permissioned, public, or fit for purpose.
Within a brand’s supply chain, a blockchain ledger can manage a variety of activity from automating contract compliance between entities via smart contracts to tracking products from manufacturing to distribution. The ledger eliminates supply chain ambiguities and creates transparency that ensures companies and customers get the quality for which they pay.
Blockchain’s Value in Existing Supply Chains
The value of modernizing supply chains with blockchain isn’t just theory. Major brands have already begun partnering with tech firms and other entities in response to rising demands for improved brand protection. LVMH (Louis Vuitton SE), for instance, working closely with Microsoft and ConsenSys, has created Aura Ledger to provide proof of authenticity of luxury items and trace their origins from raw materials to point of sale and beyond to the used-goods markets.
Throughout the retail industry, companies like eBay are starting to offer product authentication as a value-added service. Currently, the company authenticates only handbags due to rising concerns from customers about their authenticity. However, eBay plans to expand authentication to additional luxury items that might be subject to counterfeit.
In agriculture, the blockchain-based Grain Discovery streamlines transactions between farmers and buyers, making it easier for them to form new partnerships. In the pharmaceutical industry, distributors have formed the MediLedger consortium to track the provenance of pharmaceuticals and stem the counterfeit drug market worth more than $75 billion annually.
In virtually every industry, suppliers and distributors are turning to blockchain technology to lower their risk of fraud. A decentralized, immutable record of every product’s journey can help verify authenticity — or lack thereof.
Blockchain as a Force Against Fraud
Companies that worry about counterfeit versions of their products have options to address the issue. When implemented together, the following steps can help mitigate risk and inspire confidence among companies and consumers alike:
Establish a secure supply chain network.
For blockchain to successfully transform a company’s supply chain, every business entity along the chain must agree to participate. That makes establishing a network of trusted partners the most important step toward securing products.
For example, the jewelry consortium TrustChain, which operates on IBM’s blockchain platform, only works because the group includes the mines that produce jewels, manufacturers that refine them, and retailers that sell them.
Given the rise of counterfeit purchases, most companies with strong brands are looking to work with their suppliers to prevent fraud. The momentum of such efforts increases when every stakeholder in the supply chain sees the value and signs up to actively participate in the efforts.
Choose the tags most suited for the brand and product.
Only with the right tagging technology can blockchain technology track every product along its journey. Through various IoT devices, tags can detect diversions, liquid leaks, vibrations, package openings, tilt, excessive force, and more.
Companies have several options, such as smart tags and high-resolution signatures that digitally relate products to the blockchain. Purpose-fit tags that have been developed to track shipments at the container, pallet, and package levels further help. Companies can also employ decentralized identifiers (DIDs) that are universally resolvable and globally visible to stakeholders throughout the supply chain.
This topic holds great interest across many industries. The RFID Lab at Auburn University recently announced the Chain Integration Project (or CHIP) launch, a project focused on finding ways for retail and apparel companies to communicate with their suppliers about tracking product inventory at the item level using radio frequency identification tags and blockchain. The project has attracted global companies across many industries due to the applicability across supply chains outside of retail and apparel.
Some products don’t need to be tracked with such intricate detail, while others should be tagged to track every moment of their journeys. Determine what tagging technology makes the most sense, adds business value, and is easiest to manage along the entire supply chain.
Encourage customers to be part of the solution.
When customers clearly and directly benefit from a company’s use of a blockchain-enabled supply chain, getting more partners to join the consortium becomes easier. However, brands can’t expect all end users to automatically jump on board.
When eBay released its authentication program for handbags, it did so in response to a need its customers had expressed. To entice sellers to participate, it offers several incentives if they sign up to authenticate their products.
Before long, the streamlined processes and unprecedented transparency that blockchain provides will be more than enough to encourage participation. Until then, make it more attractive through bonuses and other rewards in order to incentivize users and increase customer stickiness.
Unleash IoT, AI, and ML to actively fight fraud.
Protecting against counterfeiting and fraud isn’t always a passive exercise. With blockchain, companies can unleash the potential of IoT, artificial intelligence, and machine learning to actively prevent fraudulent transactions.
For instance, customers can scan product tags to verify their authenticity or compare images of the product against its stored signatures. Proof of purchase and other transaction details can be cryptographically linked to the buyer and product and then subsequently uploaded to the blockchain.
Any product that bears a brand’s name but can’t be tracked to its manufacturer would be considered counterfeit. A company can ensure, in real time, that it receives compensation for every product sold with its name on it.
The reported value of fraudulent goods that hit the global market is expected to continue rising, but companies are no longer helpless in the face of counterfeiters. As more industries and their supply chains embrace blockchain technology, counterfeit goods will no longer have a place in any market.