Blockchain has been touted as the next technology that changes the world just like how the internet did in the early 21st century. The basic characteristics of decentralized, immutable, and consensus algorithms in blockchain technology make it very useful for provenance and verification. Many companies and industry players are excited about how the technology can provide great value for them. But did we pause and ask, is it really the case?

A key view to consider is that blockchain is not necessarily about lack of trust. It is about identity. We came across several brand owners requesting blockchain to be used for their brand protection efforts. However, many executives don’t understand whether blockchain is necessary or even suitable. Companies simply jump onto the bandwagon and hastily chase the buzz in using blockchain for authentication and anti-counterfeit purpose. In many cases, there is no need for a blockchain. A secured database will have done a perfect job too.

Well, if blockchain isn’t needed everywhere, so where could a blockchain create values for companies? Let’s analyze the arena of brand protection and anti-counterfeiting.

How blockchain can add value

Anti-counterfeiting solutions powered with blockchain are most relevant when authenticity and ethical sourcing are essential to a product’s worth. New business opportunities that can be enabled by blockchain also add to value creation. However, the benefits vary for different products. Below is an overview to quantify the value of blockchain for companies in different industries.

Luxury products such as watches, leather products, and jewelry that command relatively premium prices would benefit from blockchain introduction. The proof of origin of such a product would vastly affect its value. A customer in a retail shop needs to know if the luxury watch he is buying genuine, thus worth the amount being charged. Fakes contribute to a substantial market value in the respective product category. By decreasing the counterfeit products, the brand owners would benefit greatly.  Moreover, blockchain can form the backbone for product validation and verification that is needed to create a trusted, lucrative secondary market exchange. This in turn help to drive demand for these luxury products.

For consumable products such as medicine, food, and beverage, the value created by blockchain is debatable. In terms of compliance, safety, and transparency, blockchain does have the value to prevent fatal harm of fake products to consumers, negative publicity, and expensive recalls. However, as consumable products are relatively lower cost and produced in large volumes, the economic value may not justify the usage of blockchain. Higher value and important medication or food such as vintage wine may be able to extract more benefits, especially if new business opportunities can be unlocked with blockchain.  For industrial products such as electrical machinery, there is limited incentive and benefits that blockchain can provide to companies besides provenance check.

As such, we can observe that the higher the premium involved for a product especially consumer products, for example, a branded designer handbag versus a mass-market brand, the more value there is in confirming the genuineness. However, knowing where blockchain can help is just the first step in assessing value. We will need to determine the possible weakness when being applied for product authenticity.

Weakness in blockchain when applied to physical products

1. Digital data security, not physical security

Blockchain is no doubt able to offer transparency and security for data. Being decentralized and immutable, blockchain is thought to be a game-changer that provides visibility and transparency along the supply chain.

However, as a standalone technology, Blockchain itself is not the silver bullet to provide the best anti-counterfeiting solution, likewise for all other brand protection technologies.

The limitation of blockchain becomes apparent when applied to physical products. For instance, blockchain is able to verify information associated with a bottle of wine, such as country of origin, name of vineyard and production date, etc. However, it will have difficulty to prove that the wine in the bottle is real. Blockchain is able to verify the digital information but not able to authenticate physical attributes (that are offline). It is possible to copy a packaging or product and make everything look alike physically. Blockchain will have a problem proving whether a physical product is a copy or not.

Unique identifiers such as security labels with QR codes, NFC tags, or combinations are needed for a meaningful blockchain application. Security labels and smart tags can be used to record each product’s unique identity (ID). The ID of a product can be registered on a blockchain when produced. The assigned ID is a link between the physical product and its digital marker on the blockchain. It can be used to track along the distribution channels from manufacturer to distributors to retailers and consumers. Anyone will be able to quickly distinguish genuine goods from fakes. Given that secured unique QR codes/NFC form the bridge between physical and digital verification, some sophisticated counterfeiters will even attempt to counterfeit them. In these cases, there would be a need to have anti-copy QR codes to eliminate any possibility of cloning.

2. Blockchain’s success dependent on the application of a unique identifier

Earlier we had highlighted the need to have a unique identifier for product authentication on a blockchain-enabled solution. The ability to attach a unique identifier (eg QR code/NFC) onto an individual product determines the solution feasibility. The easier it is to attach unique identifiers onto a product, the faster towards the path in extracting benefits from blockchain adoption. For instance, operationally, it is easier to embed security codes/labels onto each unit of the bigger products such as bags, machinery parts compared to smaller ones like medicine and food products. The smaller product and its packaging make it harder to attach the unique identifier. Moreover, the cost of application per unit also needs to be taken into consideration.

Product authentication and traceability must provide material benefits to the companies. Brand owners need to determine if is it a “nice to have” function such as a certified organic label, or is it a “must-have”? By enhancing the blockchain solution to support offline to online consumer engagement, greater values can be created from a business marketing perspective.

3. Garbage in, garbage out

Just like any other computer system, the age-old saying of “garbage in, garbage out” applies to data on the blockchain, too. A key aspect of transparency depends on the integrity of the data that is first input. For example, a person who sprayed pesticides on apple trees can still enter onto a blockchain system that the apples were organic. The initial entry could be wrong, omitted, or fabricated.

Blockchain does not magically make the data in them accurate or the people entering the data trustworthy. They merely enable us to audit whether it has been tampered with. Having the data on it be immutable often provides a false sense of security that misleads brand owners to choose blockchain as the ultimate anti-counterfeit solution. If a blockchain’s primary use is for product authentication, then it is serving just like a highly secured database, pretty expensive and overkill.

Solving the “garbage in” data remains an important aspect to address for blockchain. Accountability for user’s entry and IoT devices that automatically send production information onto the blockchain are some ways to help ensure entries are correct and credible.

In conclusion

Blockchain technology while still relatively new is already affecting many sectors. The visibility, traceability, and immutability characteristics of blockchain make the technology well suited for anti-counterfeiting applications. Counterfeiters profiting off fake products is a longstanding issue that cuts across industries, results in billions of lost sales, exposes consumers to health and safety risks.

The potential to prevent these issues makes blockchain attractive. While the use of blockchain in stamping out fraud holds great promise, however, uses cases and the value created varies. To make informed decisions, executives need to assess the benefits specific to their products and industry. Companies have to ensure that their blockchain initiatives are able to relieve persistent pain points and cases, where product source is key to value and pricing is strong. Those initiatives that deliver concrete financial returns, able to engage customers, gain significant loss reductions, and improve supply chain efficiency in the near term will succeed.

Guankai (Gk) Ng is the Director for Business Development at Nabcore Pte Ltd., a brand protection and tracking specialist in Asia based in Singapore. Gk specializes in smart brand protection tracking solutions with over 10 years of experience navigating the grey market in Asia. His focus is on designing interlocking smart applications for FMCG, healthcare, industrial and automotive products that help brand owners prevent counterfeiting and enable marketing engagement.

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