Walimai

This is part of "Blockchain Decoded," a series looking at the impact of blockchain, bitcoin and cryptocurrency on our lives.

Alexander Busarov used to buy a popular brand of pet food for Gulchatai, his Siamese cat, from Taobao, China's sprawling eBay-like auction site. That changed when the kitty landed at the vet's after eating from a shipment that looked strikingly different from store-bought tins.

Gulchatai eventually recovered -- she had acute gastroenteritis -- but the episode worried Shanghai-based Busarov. How could he ever know, he wondered, if what he was buying online was real?

So in April 2015, Busarov, a former McKinsey consultant, and Yaroslav Belinskiy, another Russian expat, established Walimai, which makes high-tech anticounterfeiting labels for products like baby food. The labels use blockchain, the technology behind the controversial bitcoin cryptocurrency, to ensure whatever they're stuck to hasn't been tampered with.

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"Fake food is a way more serious problem than fake designer bags," Busarov said, pointing to a rash of fake rice and eggs that has plagued China. "It threatens health and sometimes even lives."

For more than bitcoin

Walimai isn't the first company to reimagine the use of blockchain, which entered the mainstream as a secure ledger for recording cryptocurrency transactions and is essentially a way to hard-wire trust. The Swedish government, for instance, is testing a land registry backed by blockchain to track property transactions and save taxpayers more than $106 million annually. In Australia, a startup called Everledger uses blockchain to trace blood diamonds, action that it says prevents an estimated $45 billion in fraud each year. Expanding its upscale uses, the company later used the technology to verify the quality of fine wine.

The food industry might not leap to mind as a hotbed of fraud, but more and more incidents of foodstuffs being sold as something they aren't have cropped up in recent years. The cases range from the inclusion of cheap ingredients that aren't listed on the package to an item being passed off as something else entirely. Four years ago, Chinese officials arrested more than 900 people for selling "mutton" that was actually rat meat. And just last month, 22 people were hospitalized after drinking whiskey tainted with methanol.

Fake food and imprecise labeling aren't limited to China. That extra virgin olive oil you put on your salad? It may not be quite what you think it is. Up to 80 percent of the EVOO sold in the US doesn't actually qualify as EVOO, according to a CBS News and 60 Minutes report, which also found problems with cheese, caviar and truffles. The North American Olive Oil Association trade group disputes the report, citing study conducted by the International Olive Council labs that found 98 percent of the olive oil in the market in the US is authentic.

In 2013, Swedish furniture giant IKEA had to recall meatballs sold at its cafes after they were found to contain horsemeat. Switzerland's Nestle also recalled frozen beef meals that were found to have horsemeat in them amid a wave of tainted meat products in Europe.

"Food fraud is present around the world and has been since food commerce has existed," said Dr. Geoff Allen, chief executive of the Asia Pacific Centre for Food Integrity. Walimai and similar antifraud systems can help slow the spread of doctored food, Allen says, adding "there is no silver bullet."

Walimai isn't the only company to attempt fighting food fraud with blockchain.

Walmart, the huge American retailer, partnered with IBM and Tsinghua University in China last October to explore how food products can be tracked with blockchain tech. Since then, trials have successfully traced pork products from farm to shelf in China, and the origins of mangoes sold in a Walmart outlet in the US. The entire process to trace the mangoes' origins took less than a week, which Frank Yiannas, Walmart's vice president of food safety, told Fortune is much faster than it would take without blockchain.

"One of the reasons food fraud can occur today is because many parts of the food system lack transparency," Yiannas said in an email. Blockchain, he added, "will be the equivalent of shining a light" on each link in the food chain.

In August, nine other companies across the global food supply chain, including Nestle and Unilever, joined the Walmart-IBM collaboration, hoping to discover new areas in the industry that could benefit from blockchain.

Alibaba, China's titanic equivalent of Amazon, is working to figure out how new technology, including blockchain, can be used to fight fake food. In May, it announced the Global Traceability Management Program, which includes using blockchain tracking in its Tmall Global shopping platform. It launched in August.

Peace of mind

The labels that Walimai, which was originally named Verify, produces look like hospital bracelets attached to product packaging. An RFID chip sits on the label, while the straps contain an antenna that communicates with the company's blockchain-based backend system through the Walimai app, which customers download to their phones. (The app is available for iOS or Android.)

The labels identify each unit, serving as a passport while the product makes its way through the food chain. Whenever the product changes hands during production, an encoder scans the label so that data -- think time, place and content -- are updated in Walimai's system.

Recording the data is where Walimai's blockchain technology comes in. Each time the encoder scans the label, the data is recorded in the blockchain. It's secure because that piece of data can be written into the blockchain only once, existing from that point on as immutable read-only information.

The labels can't be cloned because each one has a unique code. The labels also can't be removed without destroying the antenna, which leaves them useless. When products arrive in stores, customers use the app to scan a unit's QR code and access the product's history.

All this protection, of course, comes at a cost. Products bearing a Walimai label generally retail at a 20 percent premium to comparable goods, but it's a cost some consumers are willing to pay.

Using expensive special labels may seem like a stretch for many people. But the alternative -- importing products from overseas -- is even more costly. Still, that's what plenty of Chinese parents do for foodstuffs like baby formula, a particularly sensitive product after six infants died consuming tainted formula a decade ago.

During a pilot test that started a year ago, Walimai has found that people are willing to pay for peace of mind, Busarov said, especially in less developed cities where fraud is more serious.

That makes sense, especially if the alternative is a late-night trip to the vet.

Update, Feb. 14, 6:34 p.m. PT: To clarify that the CBS News report states that 75 to 80 percent of the extra virgin olive oil doesn't meet the standard for extra-virgin oil. It also includes a response from the North American Olive Oil Association, disputing the CBS News and related 60 Minutes report. Update, Feb. 17, 7 p.m. PT: To include an additional statement from the trade group.

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