Blockchain: A silver bullet against counterfeiting and fraud?
The characteristic of blockchain technology supports immutability, transparency, traceability and security of the data stored. Blockchain has since become a buzzword by those seeking to fight against counterfeiting issues. Many articles have highlighted that blockchain is very appropriate to prevent counterfeiting of physical products. Is it really the case?
Many companies started to request for Blockchain as part of their brand protection program without truly understanding if the technology is suitable for their products and what they seek to achieve. Given that every brand owner’s situation and their product is unique, the approach needs to be holistic to address different channels of counterfeiting.
To understand how Blockchain may be used to tackle counterfeiting, let’s first explore how the fakes can possibly reach us. Fake products usually enter from (a) Upstream or (b) Downstream along the supply chain as shown below:.
In the upstream, counterfeiting occurs in 2 key areas:
- Raw material supplies
Fake supplies of raw materials can enter the upstream of our supply chain when the poor-quality ingredients were purchased by factories. Usually, these raw materials slip through without sufficient quality check.
At the manufacturing stage, there are often cases where defective products that had failed quality checks are smuggled out and sold. Pilferages and illegal overruns where products are produced more than the order volumes also occur in the factory floors. These unauthorized activities contributed to illicit products that are sold globally.
For down-stream, counterfeiting would primarily happen in the following 2 key areas:
- Point of Sales
Counterfeiting often happens at the 2nd or 3rd tier distributors. To maximize profits and reduce risk of getting caught, they would often mix both genuine and fake products for sales. Such illicit activities are hard to detect without active random field checks. With the ability to track and gather insight along the distribution channels, brand owner or authorized main distributor can carry out effective targeted checks.
Point of sales refers to both E-commerce store and physical retail outlet. Consumers can purchase fakes if brand owners are not working to remove them from the market. Moreover, most often consumers are not able to readily verify genuine products during purchase.
The ways to tackle fraud and counterfeiting can be summarized in the infographic below.
So how can blockchain help to prevent counterfeiting in the upstream and downstream of the supply chain?
We know that data stored in the blockchain is immutable. However, the weakest link would be the data that is fed onto the blockchain. The approach to ensure data reliability is without human involvement for data processing as it may be subjected to tempering.
When raw materials are delivered to a factory, there should be a process involving 3rd party independent testing to certify the quality before acceptance. The testing results can be uploaded onto blockchain or an independent secured cloud server. Testing results and data are immutable once they are being uploaded. The frequency of the test results being uploaded is an indicator for data accuracy. Time lag to upload test data would affect the information reliability. For instance, data that is being uploaded within a short period such as 24 hours is considered more reliable compared to data that took weeks to be input onto the blockchain. The delay in uploading potentially invites chances of the data manipulation.
During manufacturing process, the use of IOT devices can help to capture production data automatically. Production data that is critical can similarly be uploaded onto blockchain for audit compliance check. Regular data checks ensure product defects to be traced and accounted for. The data entry reliability can be monitored with the use of Artificial Intelligence (A.I) algorithm to seek and flagged out data that are significantly deviate from the normal production.
For downstream, the entry points for counterfeiting are at the distributions and point of sales. Communication and interaction with stakeholders are crucial at these stages. The aim is to engage and allow consumers, retailers, distributors and enforcement officers to verify genuine products easily. Verification and tracking can be achieved through integrated physical and digital security solutions as deterrence to increase difficulties for counterfeiting.
Physical security usually involves the use of tamper-proof labels, supported by security materials such as hologram and taggant inks. Digital security covers the use of technologies that are verifiable with mobile smart phones. Some examples are unique encrypted security codes or RFID/NFC chips. With integrated solutions, users can authenticate their purchase at point of sales in the retail stores. Data and information to allow for authentication check can be stored on blockchain or secured cloud servers. The ability for brand owners to track and gain visibility along distribution channels are important. Insights gathered can help companies to take relevant actions and enforcement against infringement.
In addition, brand owners can implement internet monitoring programs to monitor online infringement. Fake product listings can be removed from the marketplaces before they reach consumers. This helps to identify and track illicit activities on the internet.
Businesses looking to jump onto the bandwagon in using blockchain to secure products and supply chain need deeper analysis. Digital data is more important to tackle raw material supplies and manufacturing fraud in the upstream of the supply chain. The ability to allow product authentication and tracking is more relevant for consumers and brand owners for downstream application. Consumers have the right and need to know whether the product they consume are real or fake.
As a conclusion, Blockchain may seem to be a powerful next generation technology. Desired upstream fraud protection is dependent on data accuracy and data entry frequency for information reliability. In contrast, downstream counterfeiting protection is determined by application of integrated physical and digital security solutions needed for verification and tracking. The usefulness of Blockchain would be more significant for upstream security. However, the weakest link and benefit remain on how the data is being fed into.