Know Your Product: How Blockchain Will Transform the Supply Chain

As consumers, we’re predisposed to trust the name-brand companies that form our commercial ecosystem. We believe, for the most part, that the products we buy are genuine. And for the products that aren’t, we have confidence that protocols exist to ensure that they never make it to market.

It’s an optimistic point of view, but it’s poignantly short-sighted. As evidenced by recent headlines outlining the recalls of products from Mercedes to Samsung, faulty or counterfeit items at even the most reputable companies can sometimes slip through the cracks.

It’s beginning to seem as if major multinationals are in a perpetual conflict with counterfeiters for control of the market. And, to the dismay of consumers everywhere, the counterfeiters are winning. In fact, counterfeit and pirated products are projected to drain $4.2 trillion USD from the global economy, and will put 5.4 million legitimate jobs at risk by 2022, according to the International Chamber of Commerce (ICC).

It’s a complex problem that requires a complex solution. And that solution is blockchain technology.

Paving the Way to Supply Chain Visibility

Blockchain, the underpinning technology behind cryptocurrencies like bitcoin, holds the key to ensuring that consumers remain informed about the products they purchase, before they purchase them. At its core, blockchain is an immutable and decentralized ledger outlining a product’s journey from creation, to packaging, to sale — all leading back to its original source.

Picture a trail of breadcrumbs. Every time a product moves to a different location, another breadcrumb gets added to the blockchain, which is then made instantly viewable to all interested parties. And because the platform is decentralized, companies can guarantee that expanding scalability doesn’t come at the expense of accuracy in the system.

In fact, blockchain-backed programs have the capability to pinpoint even the most minute counterfeit product as it travels from juncture to juncture. As companies continue to outsource their production infrastructures to vendors in disparate parts of the world, especially in regions where access to technology is limited, the ability to provide transparency to an otherwise uncertain ecosystem will be increasingly important to ensuring that counterfeit parts aren’t inadvertently used to create genuine products. This is a fundamental rule of thumb of the supply chain: If part A is genuine, and part B is a counterfeit, then the final product C will be a counterfeit product.

While transparency is certainly an important driver for eliminating bad actors from the space, many industry experts believe that blockchain’s accountability features will be the key to ensuring longevity of the space for years to come.

Enter smart contracts — a blockchain-based system of checks and balances that holds vendors accountable for the secure transfer of goods and services from one location to another. Using blockchain, companies can require vendors to put up collateral assets in an effort to cover any potential losses due to counterfeits. If and when product is successfully delivered, and that product is determined to be genuine, the vendor will receive their money back instantaneously. If, however, that product is determined to be a counterfeit, the parent company will be immediately alerted, and the incentive will be withheld.

We’re already seeing companies find success in this manner. For instance, on May 15, IBM announced a partnership with Veridium Labs to tokenize and measure carbon emissions along the supply chain. As each product moves through the platform, its emissions data is recorded and transmitted back to headquarters, where experts can assess whether or not vendors are operating in compliance with energy consumption standards.

This is just the tip of the iceberg. Through blockchain, companies can use smart contracts to evaluate statistics for a wide range of predetermined criteria, including storage temperature, travel times, and final point of sale.

It’s not just industry experts that are calling for the widespread implementation of the technology either; government agencies are beginning to do so as well. On May 9, members of two U.S. congressional subcommittees held hearings about how blockchain could be used to transform supply chain management. Members concluded that while the absence of regulatory standards presents as an obstacle for the future viability of the industry, the use cases for blockchain technology are undeniable for the general public.

In one notable instance, Republican Congressman and Chair of the Oversight Subcommittee Ralph Abraham stated: “If I understand blockchain correctly — and I am in a steep learning curve — it will revolutionize the tracking of goods somewhat like how GPS revolutionized navigation. So I think this is a world-changing technology that we’re dealing with.”

It’s hard to imagine a future without counterfeit items. So long as unique products are created that capture the attention of the general public, counterfeiters will seek to replicate them for minimized overhead and maximized return. However, while we may not be able to eliminate these actors from the space completely, we can arm ourselves with the tools necessary to identify and control their presence along the supply chain. Through blockchain technology, we can make this a tangible reality, so that soon, we will be able to look at the car in our driveway and know exactly where it came from.