Encrypted Transparency: Corporations Fight Counterfeiting with Blockchain
In 2017, counterfeit goods represent a massive problem for retailers both digital and physical. Even though many retailers are now cooperating to remove these items from the market, it remains extremely difficult to track and identify the culprits. Ulmart, Russia’s largest national retailer, is now examining blockchain technology as a possible way to track an item from production to point of sale, and verify its authenticity on an individual level.
In a recent post, we discussed Russia’s position as a rising power in the world of ecommerce. They have a rapidly expanding online economy, but are unique in that a large portion of that revenue is generated by Chinese companies. China is notorious for having a counterfeiting problem, and as a result, Russian retailers are dealing with an onslaught of fake items from shoes to handbags. In fact, in 2015, it was estimated that more than 40 percent of goods sold online in China were counterfeit or low-quality. Ulmart, the Russian Federation’s number one online retailer, is looking to source blockchain — the technology behind Bitcoin and other cryptocurrencies — to solve its authenticity woes.
Since they opened up their marketplace to third-party sellers, they’ve become vulnerable to these copycat sellers, and at the quantities they deal with on a daily basis, the fakes are difficult to identify and the numbers almost impossible to estimate. Since the items are sold through their company, if the products purchased are found to be inferior quality, or knockoffs, Ulmart’s business suffers. Naturally, it’s in their best interest to find an intuitive way to crack down on counterfeiting, and trackable, digital currency may be their best bet yet.
According to the International Trademark Association (INTA), the Internet has created an environment that facilitates the creation and sale of counterfeit goods. Anonymity means that it’s easy for perpetrators to stay under the radar, and globalization enables these products to be easily sold anywhere in the world. The fact that many of these transactions happen across national borders makes it even more difficult for any kind of enforcement to operate.
The INTA details the process of selling inauthentic products: Counterfeiting rings will operate many different online stores at once, some as standalone websites and others on business-to-consumer online marketplaces like Ulmart’s. This ensures that if one store goes down, the net loss to the counterfeiters is relatively small, and new stores appear almost instantly. Cracking down on these businesses has been likened to a game of whack-a-mole.
They usually copy brand name logos directly, and if they’re operating a standalone website, they’ll imitate the official website so that it appears to be authentic. Counterfeiters even go so far as to copy logos and images directly from the actual websites they’re trying to copy. Pricing is usually set slightly lower than the price of the real goods, so that it appears to consumers as if they’re getting the real thing, just at sale price.
Since lots of sales platforms offer “seals of authenticity” and priority listing, discerning real goods from fake versions online is an arduous task for authorities, let alone consumers, to say the least. This is where blockchain comes in.
Blocking Counterfeiting with Blockchain
Blockchain technology operates by enabling consumers and sellers to conduct transactions directly, without having to rely on a bank or a payment service. Any currency can be used, including digital like Bitcoin, and all parties involved must verify the transaction at every step, lending added security. With a public ledger that details every transaction, accountability is a huge component in blockchain and one increasingly loved by law enforcement.
The draw to blockchain for a company like Ulmart is in that every time a “block” (transaction) is added to the “chain” of transactions, it’s recorded and tracked in that public ledger. This means that if a retailer uses a blockchain system, items sold are traceable from manufacturer. With each transaction, a unique private key is used that conatins information about parties involved and the goods sold.
This means that at each step of a product’s journey from manufacturer, to retailer, to consumer, there is a public record that confirms the sale — records that are muddy at best in comparison with traditional tracking. These many transactions constitute the chain, and as a consumer buying these goods, you simply have to scan a QR code to view information of the entire life and journey of a product. If information is missing, this can indicate theft, counterfeiting, or any number of other issues. It even has the potential to provide information on sales between consumers.
If more transactions run through blockchain, it will enable retailers to quickly identify suspicious goods on a much larger scale than they’re capable of today. There are still issues to work out, like making sure every item has a unique code and that each transaction is truly secure, but for the most part blockchain offers both retailers and consumers a chance for a much more transparent marketplace.
Ulmart has plans to aggressively move forward with their third-party selling platform, and they’re very aware of the dangers posed by the counterfeiters that already have so much access to Russian markets. While they estimate the cost of implementing such a system to be in the hundreds of thousands of dollars, they believe it’s well worth the investment, and one day plan to deny the sale of “any large, branded item, such as an Apple product, that comes to the company without any way to authenticate it.”
Ulmart is far from the only company to have their eyes on blockchain. Banks around the world are investigating it as a way to provide more secure, efficient transactions. Experimentation is becoming so commonplace that private blockchain startups are popping up as alternatives to blockchain’s most well-known iteration, Bitcoin. Where Bitcoin requires lots of energy to “mine,” these other currencies do not. They can be used between companies as a way to establish trust and transparency, allowing them to create, essentially, their own internal currencies. Blockchain is even being used to create a “plastic economy” to help clean up the Earth in exchange for clean energy products.
Keeping the Chain Strong
Today, we put almost all of our information in the hands of third parties, and that’s an incredible amount of trust to place in people you’ve never even seen. This means that a safer, better encrypted Internet benefits us, the consumers, in obvious ways. Retailers and business owners, however, stand to gain just as much. By investing their time and money into creating a system that is transparent throughout, they ensure quality and consistency — hallmarks of a good retail business and earning the trust of their marketplace.
By fighting the counterfeit goods industry through blockchain, large companies like Ulmart and Amazon can begin to create an environment of honest commerce, where all parties involved are sure they’re getting what they paid for. Satisfied customers become return customers, and not having to bear the cost of fake goods increases profitability.
We’re nearing the possibility of a world where you can simply scan your new iPhone and see exactly where it’s been, who’s purchased it, and how often it’s changed hands. While the future of blockchain and cryptocurrency is still somewhat uncertain, we’d be well advised to keep our ears to the ground.