How blockchain can help combat the menace of counterfeit goods

Photo:US Customs and Border Protection

Counterfeit goods are a growing global scourge, causing billions of dollars’ worth of losses and damages. Efforts to curb counterfeiting have failed so far but blockchain could hold the answers.

By Preetam Kaushik

“Imitation,” as the oft-repeated saying goes, “is the sincerest form of flattery.” But it is also at the core of an illicit business worth hundreds of billions of dollars.

Counterfeit products are a growing menace. People usually associate counterfeiting with cut-price luxury goods like designer bags and sneakers, which seems relatively harmless to the consumer, who gets access to expensive-looking goods on a bargain.

However, the counterfeiting industry is anything but harmless. The manufacture of these goods often involves exploitative labour practices and the active involvement of organised crime. They also cause financial loss to the brands involved.

Not all counterfeit products are so benign. Counterfeiting is also rife in fields like medicine and children’s toys, which can have serious, even deadly ramifications. By one estimate, around half of all medicines sold online are counterfeit, the majority of which originate from the Asian continent. Counterfeit medications have been held responsible for tens of thousands of deaths per year globally.

Source: Raconteur

Blockchain is a technology that is quite often considered as the panacea for many (if not all) of the problems plaguing out modern digital lives. While many of those claims may be exaggerated, in the case of counterfeit goods, it could help provide a solution to the global problem.

Fake goods are flooding global markets (especially in ASEAN)

In 2013, according to OECD figures, global imports of fake goods were worth nearly US$500 billion. Just five years later, the figure had climbed to US$1.2 trillion. Online marketplaces account for nearly 70% of the total sales of these illegal goods and products. 

Source: OECD

Though China is the main production hub of counterfeit goods, other emerging economies in the ASEAN region also have a prominent role in counterfeit goods production. There is a burgeoning local production industry of apparels and other counterfeit products like lubricants. 

Between 5% and 40% of the goods sold in the region are counterfeit.

The smuggling of goods is also rampant along the porous Vietnamese and Myanmar borders. Counterfeit goods are also stowed aboard ships that pass through major ports like Singapore and Thailand

Stricter laws are only a part of the solution

Lax enforcement of laws and the inefficient policing of customs borders are a significant part of the problem. But countering these can only go so far when the demand for counterfeit products remains high.

There are stringent laws and periodic crackdowns against illegal narcotics all over the world. That has not stopped the international drug trade because there is a steady demand for the product. The same holds true for counterfeit products. While there is a steady stream of consumers ready to buy cheaper knockoffs, knowing their dodgy provenance, laws alone will be unable to disrupt the industry.

Two drug packages appear to be identical in normal light.
Photo: The US Food and Drug Administration

The brands themselves have been unable to prevent the counterfeiting of their products. Many smaller designer brands are helpless because they lack the resources or know how to prevent counterfeiting. It requires the constant monitoring of supply chains, which is (or rather, used to be) prohibitively expensive.

Blockchain can be employed to thwart the fakers

To make a dent in the global counterfeit industry manufacturers need a way to keep their supply chains and intellectual property safe, law enforcement needs a thorough paper (or digital) trail to trace a product to its origin, and consumers (need a system through which they can verify the authenticity of the products they buy. Blockchain can do all three.

As a highly secure yet transparent ledger technology, blockchain has the potential to revolutionise the way we handle supply chains. Using smart tags and embedded radio frequency identification (RFID) chips, we can trace a product from the factory floor to the retailer.

Using a central blockchain ledger shared by suppliers and manufacturers, every single component can be traced to its point of origin.

Blockchain technology can revolutionise the way we maintain and enforce IP rights and contracts. If these contracts are maintained on the blockchain, it may not be able to prevent breaches, but it will certainly be able to trace the breach and the perpetrators. 

These are still early days

We will probably never succeed in fully eliminating counterfeit products. But using emerging technologies like Blockchain and the Internet of Things (IoT) we can hope to mitigate the damage inflicted by counterfeiters, especially when dealing with sensitive products like medicines, electronics, and foods and drink.

As a technology, blockchain is still in its infancy. We have a long way to go. There are significant other hurdles along the path as well. Getting consumers, retailers, manufacturers and law enforcement on the same page will take time, but blockchain is the way forward.