Blockchain is emerging as the newest weapon in the war against counterfeit goods, with the technology being applied to secure supply chains and prevent tampering, substitution or cloning of high-value brand-name products.
Globally, counterfeiting has become a trillion dollar industry, with a recent report released by international market research organisation Research and Markets indicating $US1.2 trillion worth of fake goods were traded in 2017.
The practice is a major drag on profits for manufacturers, with the report indicating losses due to fake goods being sold online reached $US323 billion in 2017.
But while the losses are significant, the issue is a lot more worrisome than just consumers wondering whether the handbag they bought online is a genuine Louis Vuitton, with specialised medications, baby formula and healthcare products among the fake goods being distributed online.
Virtually every country has been affected, however, China is among the countries where it has been most acutely felt.
In 2008, fake baby formula was responsible for more than 300,000 infants becoming ill in China, with six babies dying and more than 54,000 hospitalised.
For specialised medications, investigations by Interpol in 2016 showed counterfeiting was a rising problem.
Around 1 per cent of all medications sold in developed countries were counterfeit, Interpol said, with that number rising to 10 per cent globally and more than 30 per cent in some parts of Africa, Asia and Latin America.
Interpol said those fake medications resulted in more than a million deaths worldwide each year, a staggering statistic that motivated Mark Toohey, a Sydney-based lawyer with a background in technology and television to find a solution.
“If you told me it was 10,000 I would have thought that was a huge figure,” Mr Toohey told Australia China Business Review.
“It’s anti-malarial medications, heart tablets, you name it, someone out there is faking it, but what really got me is when I found out there have been instances where cancer patients in US hospitals have been given fake chemo.
“I’ve had cancer, I’m alive because I had genuine chemo, and it hit something really primal inside me.
“To face that ordeal, and in the US you may even have to mortgage your house to afford chemotherapy because of their medical system, and then get robbed of your last chance at life is just diabolical.”
Mr Toohey said he became involved with the startup ecosystem in Sydney about a decade ago and immersed himself in Bitcoin and other digital currencies around 2012.
That exposure led Mr Toohey to research the technology behind cryptocurrencies – blockchain.
Blockchain technology essentially involves a series of transactions being bundled and processed together to become a block, which are then linked with other bundles of transactions to become a chain.
“The moment you add a new block to the chain, it is now different because it is the previous block plus one,” Mr Toohey said.
“So, anyone that wants to corrupt that chain, they have to start again.”
Mr Toohey said he established a startup tech company known as TBSx3, a cheeky nod to the old Irish colloquialism ‘to be sure, to be sure, to be sure’, to utilise blockchain as one of three layers of protection in its anti-counterfeiting solution, alongside encryption and logistics tracking.
The company partnered with logistics giants DP World, Hamburg Sud and DB Schenker on a trial of the system last year, which tracked a shipment of Coonawarra wine all the way from the vineyard in South Australia to consumers in China.
TBSx3’s solution comprises encrypted unique codes applied to every single item to be shipped, with those items tracked throughout the supply chain network via the sharing of data across companies from warehouses, to trucking firms, ports and shipping companies.
Individual consumers could test the authenticity of the products they wanted to purchase by using the free TBSx3 app, but it was the blockchain underneath that made the system completely secure, Mr Toohey said.
“Blockchain technology has a feature called no double spend, which simply means that you have a register and the moment an item is sold, that code is crossed off and it can’t be used again,” he said.
“Why that’s important is the very exact opposite of what a counterfeiter does, because they get a genuine product, and we put a code on there, they will make 10,000 copies of that item, including the code.
“But if the code is crossed off the register, then all those copies have no commercial value, because anyone using our free app can scan the code and see if it’s been used before, and if it has, they know not to buy it.”
Mr Toohey said TBSx3 was working with its logistics partners to integrate with their systems, while various Chinese trade delegations had contacted the company to explore using the technology.
Major Chinese groups that are embracing blockchain to prevent counterfeit goods include e-commerce giant Alibaba Group, which partnered with Australia Post last year to explore using the technology to prevent counterfeit Australian products reaching China.
Another Australian startup, UCOT, is utilising ‘internet of things’ technology alongside blockchain as its frontline in the counterfeits fight.
UCOT is led by chief executive John Baird, a former vice-president of Credit Suisse and chief technology officer at Deutsche Bank.
The company recently raised $US4 million to commercialise its supply chain security system, which involves the manufacture of small internet-enabled devices which go inside individual containers or bottles.
Mr Baird said the devices could be tailored to suit the products which are being shipped and could tell the consumer whether the product had been opened, where it had been stored, what temperatures it went through to reach them, and how long it took to get there, covering all the steps a product takes on an export journey.
“It is that ability for the product to tell you that it’s ok, rather than someone along the chain to tell you that it’s ok, that makes all the difference,” Mr Baird told Australia China Business Review.
“Because right now with the counterfeiting, they are already telling you it’s ok, but it’s not.”
Mr Baird said the UCOT solution, which had been developed in collaboration with researchers at University of Technology Sydney, had only become viable with the invention of Narrow Band IOT, a network that enables batteries to last between eight and 10 years.
One of UCOT’s initial focuses is to develop a ‘smart cork’ for wine bottles, to combat the rising prevalence of fake Australian wine reaching Chinese shores.
In one of the most recent incidents, more than 14,000 bottles of counterfeit Penfolds wine were seized in Shanghai in November last year, which were being sold through Alibaba’s Taobao.
The seizure prompted high-profile Australian wine commentator Jeremy Oliver to estimate that up to 50 per cent of wines sold for more than $35 per bottle in China were fake.
“The idea is that the device will actually be in the cork of the bottle, that’s what we are designing, and the end user will be able to scan the bottle with their mobile phone, which communicates with our ecosystem and tells it what number the bottle is,” Mr Baird said.
“The system quickly looks up the blockchain records of that bottle and says ‘that was grown on the east side of a hill with these grapes in this ground, it was packed on this day, fermented for this long, it was shipped on this day, and it has arrived to you still unopened from the factory’.
“From a marketing point of view, you have then taken interesting information about the shipping and turned it into a marketing edge, which is then going to add value to the wine.”
UCOT is also developing a smart can lid for products such as baby formula, as well as a bespoke solution for premium meat products.
But Mr Baird said the UCOT technology was not just for the end consumer to verify the authenticity of goods, it could also be used to ensure supply chain partners were fulfilling their contractual obligations every step of the way.
Mr Baird said the system allowed for the development of smart contracts, with the sensors on the products to automatically trigger penalty clauses if a wine bottle is opened or is stored in high temperatures, for example.
UCOT’s database is up and running, with the first sensors expected to be deployed by the third quarter of 2018.
At the same time, Mr Baird said the company was actively engaging with the Chinese government to roll the system out across borders, with the technology receiving an enthusiastic response.
“There is a problem with counterfeiting in China and it’s hurting the Chinese image,” he said.
“The government is actually very keen to fix this, so that when Chinese goods arrive overseas, they are seen as being quality and they can break that association that Chinese goods are knockoffs.
“In some cases China is suffering from the copyrighting problem in much the same way that the rest of the world used to view China, which is that there is good innovation and good products being developed there, but before they hit the western market it gets flooded with knockoffs and the quality of the original innovation is being destroyed because of all of these knockoffs.
“The same thing that we want to get out of it for the rest of the world, so does China.”