In the world of luxury good counterfeiting, there is the concept of “counter quality” replicas.  These are ostensible fake products, such as handbags or watches, that are so close to the original that, if placed on the counter of the boutique or retailer, the shop attendant would not be able to distinguish the fake from the original.  Whilst some people seek out these products as lower cost alternatives to the original and, in the case of watches, there is even a thriving internet subculture focused on these replicas, not all the buyers of such products are aware they are procuring a fake.

There are, for example, fake luxury goods, such as handbags, being sold online through electronic marketplaces; or, in some extreme cases, dishonest workers in a luxury good store may themselves steal the originals and replace with these “counter quality” fakes.  Needless to say, many countries, trade organisations and, obviously, companies are keen to eradicate the trade in counterfeit goods.  The economic impacts of counterfeit products are significant but, when one considers the trade in counterfeit pharmaceuticals, for example, there can also be significant adverse health impacts.

Blockchain can play a significant role in addressing the counterfeit good trade.  With its characteristics of immutability, finality, and it’s distributed nature, the Blockchain provides a useful mechanism by which the provenance of goods — whether physical or digital — can be managed effectively.  In other words, for any supply chain, each participant in this business network can record events and actions taken with respect to an asset — such as pharmacuticals or a luxury product — and the history of these events can be traced back to inception; thus any participant in a network can look at the network and see, in the case of a product, all the participants in the network that have physically or logically “touched” that item on its path from manufacturer to this user.

Consider the case of a luxury handbag.  Once the bag is created by the designer, they create a unique identifier for the product and record it on the Blockchain with details around its creation — such as the location, the composition of the bag, its colour, etc — and then they take this unique identifier and affix it as a QR code, barcode, or serial number in a non-conspicuous part of the bag.  They send the bag to a logistics company en route to the distributor and record, on the Blockchain, that custody has now passed to this company and will be delivered to the distributor in a particular country or region.  Once the distributor takes ownership, they will themselves record this on the Blockchain along with other data and so it continues through the supply chain until the product eventually reaches a retailer somewhere (who also records this on the Blockchain as part of the process of accepting the goods).  The process of moving title for the good could be handled by a smart contract thus improving speed, mitigating counterparty risks, and optimising the supply chain process through digitisation.  For example, a smart contract could state that, once the retailer receives the goods, inspects them and confirms, via a mobile app, they are satisfied with the quality, title or ownership of the good passes to the retailer, the distributor is paid, and the transport fees are disbursed to the logistics company for delivering the goods without damage.

If someone comes into the store to buy this bag, they can, using a mobile app, take a photo of the QR code or perhaps enter the barcode and lookup the bag and its provenance on this Blockchain.  They can see where the bag originated, when it was created, and can visualise every step of its progression from manufacturer to store.  If the store that the bag is supposed to be at is different to the one in which the user is standing or if there is no entry/record of the bag, then it could indicate a problem; or, if the Blockchain records that the bag was actually sold to someone in another country a few months ago, then this could also suggest counterfeiting or similar.

There are startups providing these services today.  Everledger is an excellent example: a company that is applying Blockchain technology to address a number systemic challenges in the diamond trade around fraud and provenance; and, in the United Arab Emirates, there are efforts underway to leverage Blockchain to support the Kimberly Process (which is focused on preventing the trade in “blood diamonds”.

Whilst much of the focus in the Blockchain-discussion has centered on financial services use cases, such as addressing the inefficiencies in the global remittances system or trade finance transactions, the technology has the potential to also fundamentally transform a broad range of industries and address a plethora of business problems, such as the counterfeit goods trade.  For this reason, many believe that we are standing at the beginning of a new era; with the Blockchain promising to do for transactions, what the internet did for information.