How does blockchain technology change the game for counterfeiters?
Counterfeit is an enormous industry pseudo-sector, a true parasite on the economy of the whole world. A 2017 update to a report by the Commission on the Theft of American Intellectual Property described the absolutely enormous magnitude of the problem of counterfeiting. That report estimated the cost of counterfeiting at about $600 bn just for the United States. Of course, the US economy is not the only one in the world that suffers counterfeit, but the impact is global, with the International Chamber of Commerce projecting a $4.2 trillion drain on the global economy between 2018 and 2022.
Counterfeit affects a surprisingly wide cross section of the global economy. While most of us are familiar with the fake Gucci bag-type counterfeit of brand name products, consider the following areas where one finds this practice employed:
- Pharmaceuticals – counterfeit medications are held responsible for the deaths of about one million people per year. The counterfeit Pharma industry is estimated to be worth of $75 bn.
- Counterfeit tangible products, such as fashion items, but also including components used in automotive, aviation and aerospace and consumer electronics. Fake iPhones, anyone?
- Pirated Software – This applies most often to Operating sytems and “cracked software.”
- Intellectual property, such as branding, trademarks and licenses, but extending to trade and manufacturing secrets, website content, software code, and more. This is a $445 bn pseudo industry on its own.
Counterfeit operations are indeed a parasite, using the popularity and desirability of brand-name products, and all the creativity and care that went into those products as a platform from which to flood unsuspecting consumers with cleverly made fakes of those real products, often sold at prices at or near those of the originals, or cleverly marketed as “deeply discounted”, this practice creates enormous income for companies that usually possess shoddy manufacturing ethics, corruption through anything remotely resembling product support, and even danger to the environment, as a company which manufactures cheap products is likely to use cheap and often toxic materials, or to dispose of materials in a way that harms the natural environment.
All of this underlines the great importance of counterfeit prevention, to which Verisium is dedicated.
The technique Verisium employs is a unique hybrid set of technologies. Verisium embeds NFC chips into brand-name products which are unique in several different ways, each from another. But Verisium also makes use of Blockchain technology to further protect brand-name items from counterfeit.
Blockchain technology is known in the world, but its primary emphasis in public discourse has been in the field of financial technologies and cryptocurrencies, such as the ubiquitous Bitcoin. Because of the enormous attention Bitcoin and other similar exchange methods made, the actual nature of what a blockchain is is easily lost. Here, then, we wish to explain at a layman’s level the fundamental theory of blockchain technology and in particular, show the reader how Verisium makes use of this to change the game in anti-counterfeit operations.
One of the greatest opportunities for counterfeiters to operate with tangible goods is through the creation of separate supply chains. In other words, a Gucci faker has its own factory that makes the fake Gucci bags, with a separate supply chain from the real company.
It stands to reason that a relatively simple redesign of a brand name’s supply chain could incorporate technologies to support and verify the authenticity of every product that supply chain produces. This is where blockchain technology comes into the picture.
In fact, with many items, we see the beginnings of this idea already in place. Every technological product, such as a laptop computer or synthesizer keyboard, already has a physical tag with the product’s serial number printed on it. These serial numbers are unique, of course, with each product incrementing the series. However, a fake manufacturer can easily print fake serial ID tags on its products as well.
A second level of security is therefore called for to protect the unique identity of real products.
Blockchain technology is also known as a decentralized ledger. Usually we think of a ledger as a big book (or database) that contains all the information about something in one place. This ledger can be said to be centralized, because it is – all the information it has is in one place.
If a counterfeiter got access to this book, he could copy the whole scheme of product identification and reproduce it in such a way that it would be impossible to tell which product was real and which was false. While the ledger’s information is true and unique, it is also easy to access and copy.
Taking the scheme of a centralized ledger farther, we have developed technology to codify the information in a real or electronic ledger to make it much more difficult to copy the information in it in any useful way.
Consider credit cards. Those 16 digit numbers are not sequential in a way that normal humans understand. These numbers are hash codes, and someone with the correct algorithm for decoding them could derive correct hash codes from a few photographs of existing credit cards and then create new counterfeit cards that would work – at least for a little while. However, this still represents an enormous advance in security and it is good enough that millions, probably billions of people rely on these cards with little fear of fraud.
However, with increasing access to technology, these are becoming easier and easier to crack. Part of the problem lies in the idea that the ledger for credit card accounts remains centralized.
But what if we took our centralized ledger and sent each and all entries to millions of different computers in the Internet. Each computer would have all the entries and a code identifying itself as unique, plus a requirement and directions for how to communicate with the other ledger entries across the internet.
In order for a new entry to be added, all previous entries must be verified and agree. While a counterfeiter might know a single or even several individual entries, in order to properly verify all the entries in the ledger in the proper order and create the agreement to make a new entry that is fake, the counterfeiter muse be able to falsify all the entries that exist in the decentralized ledger to make just one counterfeit item be successfully added to it. The cost to the counterfeiter of technology, time and energy to do this becomes arbitrarily high.
In other words, while it is possible to create a fake, the counterfeiter is unlikely to have enough money and resources to do so.
This means that the data in the blockchain, while treated as a ledger, which we think of usually as a single entity, here is replicated thousands or millions of times across the internet. Here is another thought exercise to understand the idea more clearly:
“Picture a spreadsheet that is duplicated thousands of times across a network of computers. Then imagine that this network is designed to regularly update this spreadsheet and you have a basic understanding of the blockchain.
Information held on a blockchain exists as a shared — and continually reconciled — database. This is a way of using the network that has obvious benefits. The blockchain database isn’t stored in any single location, meaning the records it keeps are truly public and easily verifiable. No centralized version of this information exists for a hacker to corrupt. Hosted by millions of computers simultaneously, its data is accessible to anyone on the internet.”
Adding such a ledger to any company’s supply chain makes it extremely difficult to create counterfeit serial numbers. Since the full record of all serial numbers exists at all locations in the blockchain, it is very difficult to alter all of them. And in order to create a fake, one must alter precisely all of them.
Blockchain entries are also cryptographically stored, building on the technology that creates hash codes similar to the credit card example earlier. This adds a further layer of security to the ledger. Since all entries in the blockchain verify the integrity of the whole blockchain, it is immutable and cannot be changed. This adds a third layer of security.
Oddly enough, the whole blockchain is also transparent, meaning that one can track the data if they wish to do so. But they cannot change it.
Verisium’s NFC chips offer further security to a tagged item because each chip is also unique under at least two different UID sequences. It stands to reason that a product so tagged cannot be faked, because the amount of resources required to do so would be more than any counterfeiter could afford.
The cardinal rule of all security code technology is “there is no such thing as an unbreakable code.” This remains true. However, one can make it extremely expensive to break, and one of the attractions of blockchain technology so married to NFC UID security is that any product line so protected is extremely difficult to counterfeit. The counterfeit items cannot have a presence in the legitimate product’s ledger, so they will show as fakes if scanned, even if they also have NFC chips embedded in them.
This stands to be an enormous game-changer in all the industries afflicted by counterfeiters. The ability to verify a product in just seconds, using one’s own mobile device, is enough to dissuade almost any counterfeiter from trying to pass off their product as real. A savvy consumer can prove them wrong instantly.
This may result even in counterfeiters having to get a little honest. Instead of selling those fake Gucci bags as real ones, for example, counterfeiters might simply have to offer their wares as what they are “Gucci-look-alikes” – and this little bit of additional honesty might help them stay in business.
But for the person who wants the real thing, blockchain technology has their back, and they may be very sure that a product protected by Verisium’s marriage of NFC and Blockchain technologies is indeed the real McCoy.
In other applications such as Pharma, such protection could save many, many lives. For users of tech items, having the real thing can be an assurance of security in many ways, ranging from the protection of any personal data they keep on their devices to simple quality assurance, plus the prevention of a nasty surprise if they need service on their iPhone X for example, only to go to an authorized service center and find that it is fake and cannot be repaired.
Verisium offers its NFC-blockchain authentication services to anyone who wants to create unbreakable and unfake-able authentication for their products. Whether the manufacturer be a boutique producer of one hundred items in a product line, or a mass-manufacturer of millions of electronic devices popular in the world, such authentication means can protect that manufacturer’s business as well as their consumers.
Additionally, the ability to verify a
product’s authenticity is also a doorway to increased aftermarket contact
between the sellers and buyers. The same technology that proves your Gucci bag
is real can also invite you to events where one can see more of Gucci’s latest
offerings. It can take a one-time-only transaction and extend or enhance it
into a true relationship between the manufacturer and the customers, and this
can be an enormous incentive to further business and satisfaction from both
 “Update to the Intellectual Property Commission Report, 2017.” Http://Www.ipcommission.org/Report/IP_Commission_Report_Update_2017.Pdf.
 Skellern, Rhys. “Blockchain in the Real World #1: Solving Counterfeit Goods.” Www.medium.com, 14 Aug. 2018, medium.com/ecomi/blockchain-in-the-real-world-1-solving-counterfeit-goods-28e5eeac0ffa.
 “What is Blockchain technology? A Step-by-step guide for beginners.” https://blockgeeks.com/guides/what-is-blockchain-technology/