Fight against product counterfeiting with the blockchain

The counterfeit trade is booming, to the detriment of authentic businesses which are suffering heavily.

According to a reportcounterfeit goods caused an estimated $323 billion in damage to the global economy in 2018. According to Forbes, counterfeiting was the largest criminal enterprise in the world. The counterfeit industry is expected to reach $2.8 trillion and cost 5.4 million jobs by 2022. The world is experiencing a massive supply shortage leading to shipping delays, and counterfeiters could take advantage to conquer a larger market.

Fake products are everywhere. From cosmetics and pharmaceuticals to cooking oil and clothing, all major industries suffer greatly from counterfeit products. According to a estimate According to Gartner, almost 60% of “extra virgin” olive oil is fake. Counterfeit products significantly affect the brand image of companies. the world is losing nearly $90 billion a year because of counterfeiting. Counterfeiters make millions selling cheap copies, and companies need to look beyond traditional practices to find an effective solution.

Counterfeiters are gaining strength thanks to issues such as supply chain disruptions and production shortages. The pandemic has severed the global supply chain, providing counterfeiters with an opportunity to flood the market with counterfeit products to meet demand. The size of the market for counterfeit products reflects the failure of genuine countermeasures, and companies have also taken notice. The deployment of revolutionary technologies such as blockchain to combat counterfeiting is absolutely necessary. Many luxury brands, including LVMHembraced blockchain technology after recognizing it as an effective way to tackle counterfeit products.

Industries most affected

Counterfeit products hinder innovation in all sectors by offering cheaper alternatives to consumers. This seriously affects brand image and costs companies dearly. Here are some of the most affected industries:

  • Shoe. In 2016, shoes represented 22% of the total value of counterfeit goods seized by customs. Counterfeiters have targeted luxury brands such as Michael Kors, Gucci and Louis Vuitton, as well as mainstream brands such as Adidas, Nike and Reebok. These companies have suffered losses of billions due to the sale of counterfeit products under their brand.
  • Clothing and fashion. According to statistics, clothing is the second most affected industry due to counterfeit products. According to Ghost Data, 20% of fashion products advertised on social media platforms are fake. Counterfeiters use Instagram and other popular channels to advertise counterfeit products under the guise of branded products. The fashion industry lost more than 50 billion dollars in 2020 alone due to the sale of counterfeit products. Copies of clothing, watches, perfumes and other accessories contributed to this figure.
  • Medications. The impact of counterfeit products on the pharmaceutical industry is frightening, to say the least. The pharmaceutical sector suffered losses worth more than 10.2 billion euros in 2020 due to the sale of counterfeit products. Fake pharmaceuticals include antibiotics, lifestyle treatments, painkillers, antimalarial drugs, diabetes treatments, and central nervous system drugs that are rarely properly formulated and therefore pose a significant threat to public health.

Toys, jewelry, electronics, and leather goods are some of the other industries severely affected by the sale of counterfeit products.

Some companies ignore the creation of counterfeit products under their brand, explaining that the cost of fighting counterfeiters outweighs the losses. Additionally, social media platforms turn a blind eye to posts advertising counterfeit products as they drive engagement.

Companies will have to take responsibility for fighting the counterfeit industry. Traditional practices have failed to stop counterfeiters, and it’s time to look beyond to tackle the problem. Here are four tools companies can deploy to spot and stop counterfeits:

  • Human verification. Companies can deploy regulators who perform real physical inspections, sampling and testing to perform on-site audits and issue verification certificates. These regulators can also audit seller review scores in case of digital operations to control manipulated scores.
  • Automated verification with AI. Customized solutions powered by artificial intelligence can analyze and recognize the attributes, components and ingredients of the authentic item according to the standard authenticity verification procedure.
  • Digital verification. This is an effective method of quality control. Techniques such as DNA analysis and spectral imaging are used to capture the product and save it as a digital object. Later, blockchain technology is used for end-to-end tracking of the object to ensure its authenticity.
  • Verification of handling points. Verification of pre-determined handling points is essential to ensure products are shipped from the correct distribution facility and then sold from the correct retail location. To verify manipulation points, QR, RFID or NFC chips can be used to complete the scans and record the geolocation of the scanner for validation. Analyzes can be carried out throughout the supply chain by the retailer and the consumer.

Although these issues can solve the problem to some extent, there are still some shortcomings to consider. The human verification method would be ineffective in the case of large companies that produce thousands of products daily. An alternative is to stack the three solutions, but the cost will increase considerably. There is a need for a cost-effective solution that can end counterfeiting in all industries.

Blockchain as a solution

Better traceability and end-to-end tracking can help businesses fight counterfeiting to a great extent, and blockchain helps businesses in all industries track their shipments in real time. walmart uses blockchain to add transparency to the food supply ecosystem. automotive giant Ford uses it to trace cobalt supplies. FedEx relies on blockchain technology to protect its chain of custody. Business adoption of blockchain increases with awareness of the technology.

Blockchain helps fight counterfeiting by identifying proof of origin or provenance of a product. By combining this with the blockchain’s end-to-end tracking mechanism, companies can ensure quality checks at all levels, from production to delivery. Smart tags are an integral part of a blockchain-based solution to combat counterfeiting.

Smart tags are used by companies to implement blockchain provenance identification. They are attached to products to identify where it was made, track real-time location, and assign specific information to different stages. Here are some common types of smart tags used by businesses.

  • RFID tags. Radio frequency identification tags use radio waves for communication. A reader is required to receive signals from an RFID tag.
  • QR codes. They are widely used by businesses for purposes such as payments and shipment tracking. Unlike RFID tags, QR codes can be read by any smartphone or tablet, allowing businesses to easily view the status of shipments.
  • NFC chips. NFC stands for Near Field Communication Chip, a silicon component that can be attached to an antenna to enable short-range wireless communication between two devices. The combination of a uniquely programmed NFC chip with blockchain leads to increased transparency and trust in the supply chain.

When a smart tag is attached to a product, data from each new transaction is sent to the blockchain with the corresponding timestamp, creating a layer of trust for the data by making it immutable. This allows interested parties to easily track a shipment and view the history from the start.

We are seeing the emergence of blockchain-based platforms that provide businesses with customized tools to fight counterfeiting. They rely on distributed ledger technology to create a digital footprint for the entire supply chain. The platforms streamline the flow of money and services in the supply chain through automation, eliminating the possibility of fraud. Blockchain-based solutions designed to combat counterfeiting can be easily integrated into existing systems. This makes blockchain a cost-effective solution to combat counterfeiting.

As consumer demands increase, counterfeiters will try to take advantage of the opportunity and increase their market share. The world needs a cost-effective solution to fight counterfeiting, and it needs it now. Since the adoption rate of blockchain looks promising, there is an opportunity for innovators to harness it for the benefit of the global economy. Additionally, blockchain solves the problem of counterfeiting without replacing legacy systems. As businesses transform their operations with digitization, the scope of blockchain mining continues to expand.

Dan Weinberg is a United Nations supply chain expert and Managing Director of Morpheus.Network.

James T. Quintero