Blockchain for anti-counterfeit
March 11, 2016 - How blockchain technology can be an anti-counterfeit solution
Fake it 'till you make it? When looking at trade, counterfeiting seems to be a real problem since roughly 7-8% of global trade is comprised of counterfeit/pirated goods. It is spread across various sectors ranging from consumer (digital) goods to technology and pharmaceuticals [ref1]. This amounts to more than $500 Billion of lost sales globally and it is worthwhile to battle this problem. Consumers should be assured of the authenticity of the products that they are buying. Often these products include an identifier to prove their authenticity. However, the identifier should be hard to copy and easy to verify.
Current anti-counterfeiting solutions can be broadly classified into two categories. The first where the authenticity can be verified without any special equipment, e.g. unique label or a hologram, and second where specialized tools/skills are needed to verify the authenticity of the product in question, e.g. watermarks or temperature-sensitive inks.
With modern manufacturing techniques it is becoming easier to outwit the above mentioned anti-counterfeit solutions. A solution to this problem can be found in the Blockchain technology, the backbone of Bitcoin.
How it’ll work with blockchain
Let’s say the manufacturer (sender) has completed the product and now wants to send it to the retailer (receiver). Along with the physical transaction, shipping of the product, the manufacturer will also perform a blockchain transaction. To perform a blockchain transaction the sender will require two things: a private key to sign a message and the receiver’s digital address. The message to be signed contains information about the sender, the receiver’s digital address and any other relevant data such as product characteristics.
On a high level, the sender computes a hash of the message and signs it with its private key. The signed message, the unsigned message and the sender’s public key is sent to the blockchain network. The members of the blockchain network verify the hash and upon verification add the transaction to the latest block in the blockchain. Such a process prevents fraudulent transactions by providing verification of product ownership. The full history of the product, its sub-components or any transfer of ownership is recorded in the distributed ledger and can be verified by anyone with access. Any diversion from the product’s intended path can be clearly observed, making it easier to track and identify stolen goods. The entire process is transparent and there is no need to base the product’s authenticity only on trust.
To bridge the virtual and physical world the product could, for example, be labelled with a unique number. The exact form is dependent on the product in question. The unique number could be the public key, in part or whole, of the manufacturer’s private key corresponding to the product. As the product ships from one member of the supply chain to another, the number is signed with the sending member’s private key. Consequently, at any point in time it is possible to trace the entire path of the product.
As an example, let’s assume that the number is displayed as a QR code. A retailer can, on receiving the product, verify the full history as it went through the entire supply-chain. Scanning the QR code will provide the retailer information to verify the signature of the product’s sender, making it harder to sell counterfeit products. The design and process of the verification itself can have many forms, but technically one would just need an online portal or mobile phone to enter or scan the unique number and verify the path (authenticity) of the product. This verification system can be fully open to everyone, restricted or a hybrid (combination of both).
The concept described above is already being developed by several start-ups. There are applications in the space of diamond trading (to verify their origins), pharmaceuticals, electronics and other luxury items.
The solution proposed above is not free from challenges. From a technical aspect, the private keys generated should be unique and have minimal probability of a collision. Furthermore, it is imperative to use a hash function which is cryptographically secure [ref2]. Another challenge is how open the ledger should be, public, private or hybrid. Ideally one would like the hybrid system with a public part accessible for the consumer and a private part accessible for the manufacturers and suppliers.
From a business aspect the challenge lies in the implementation of the solution. As a manufacturer, bulk buyer or any other member in the supply chain, one would have to participate in this process and should be willing to make the effort of implementing such a solution. In addition, the consumer uptake might prove to be a critical factor in the success of a blockchain based anti-counterfeit solution.