New research by the Organisation for International Cooperation and Development and the Intellectual Property Office of the European Union showed that in 2016, imported counterfeit products accounted for $509 billion, about 3.3% of all imports for that year.
Consequently, companies have started exploring the potential of blockchain technology with smart contract solutions to create more transparent supply chains for product authentication, prevent knockoffs threatening brands, and build consumer trust.
However, developing such a system is a complex undertaking. A blockchain development company with significant experience can help businesses build robust and effective track-and-trace supply chain solutions based on blockchain.
Let's explore how such a blockchain-based product authentication system, including all parties involved in the life cycle of a product, from production to an end customer, would work.
In addition to high-value luxury items like designer clothes, boots, watches, and jewelry, traditional counterfeited products include a wide variety of generic products.
We can also include electrical components, meats, alcohol, tobacco, agricultural goods, toiletries, and pharmaceuticals on the list.
In the case of prescription products, the effects are more dangerous than monetary: counterfeit products may not contain the necessary active ingredients, and thus, may be useless or harmful.
Indeed, people are dying after being treated with adulterated medication, especially in developed countries.
Fake pharmaceuticals are an alarming problem in developed countries, as more than 34 million counterfeit and adulterated drugs were intercepted in two months in 2009, according to the World Health Organisation (WHO).
Given the implications, there are global attempts to eliminate counterfeiting.
However, there is no evidence that counterfeits and adulteration have reduced in the last few years.
Blockchain systems are transparent, permanent, and globally deployable.
Concern emerges regarding how we can use this technology to tackle counterfeiting, what features are useful, and how to introduce a possible solution. Let's find out if blockchain and smart contracts can help.
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It will probably require the establishment of a network of participants who get a version of a shared database comprising detailed data on all phases of the life cycle of a commodity.
A few specified participants will report the details onto the blockchain solution at each point.
Once added to the blockchain database, nobody can remove or falsify records as participants can notice any modification.
Using a web or smartphone app, consumers will be able to independently review all product details, including date and place of manufacture, expiry date, content, and compliance with standard certificates, and verify their authenticity.
Customers will be able to notify concerned manufacturers and regulators promptly in case of receiving a counterfeit product.
Similarly, producers will be able to manage and track all phases of the life cycle of a commodity.
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Counterfeit goods have always been troubling suppliers and customers alike; pharmaceutical firms are losing over $200 billion/per year due to counterfeit products, and about 1,400 counterfeit-related adverse reactions have got recorded since 2014.
The distributed ledger archive of blockchain technology provides a chain-of-custody log that records every step in the supply chain process.
It enables an organization to offer a full product history to customers, from the assembly line to the purchase, thereby ensuring trust and credibility.
In comparison, products can be accredited, ensuring it is easier to identify counterfeit products.
For today's customers, brand accountability, integrity, and ethics are imperative.
In reality, full brand openness creates lifetime consumers.
Also, many clients make buying choices depending on a business's environmental and social responsibility.
Blockchain offers a real-time view of the supply chain network that helps suppliers track raw materials from the moment they join the supply chain to the moment the finished product ships to the customer, thereby, increasing reliability, authenticity, and credibility.
A new survey reveals that 54% of shoppers want as much detail as possible on their goods.
They even want to know where their beef grows and what were the factory conditions during processing.
Blockchain helps customers to achieve accountability for the transactions that they make. They can check the whole life cycle of a product, and corporations have no means of exploiting it.
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Hybrid Smart Contracts work similarly to regular contracts, except although traditional contracts are technically enforceable, they work independently of the parties concerned.
On a Blockchain, a Smart Contract works and, as a result, profits from all the protections the technology offers; openness, immutability, and time-stamped.
In the Smart Contract, parties specify a series of conditions for doing business. If a party fulfills a term or causes an occurrence, a smart contract executes itself automatically.
For example, party A offers to deliver to party B a package of goods, and party B will pay upon delivery.
A smart contract has this term coded in it. The invoice gets created after the output is finished and documented in the smart contract.
If a party fails to render the payment on time, the smart contract will arrange repayment to Party B. The beauty of this style of scheme is that it depends on an If-Then declaration that makes for credible reasoning.
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In many sectors, companies have already been using Smart Contracts for a while.
Since Smart Contracts are part of a Blockchain, this helps consumers to guarantee a product's validity.
It is because all information about the provenance of a commodity resides in the blockchain. It will disregard something that is not part of the block.
Smart Contracts can help anyone, from bankers to innovative.
We can develop smart contracts to address challenges relating to workflow automation, data security, and transaction cost mitigation.
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For example, the supermarket chain 'Carrefour' has also introduced something similar to ensure the quality of its milk.
Also, EY has built a system to check the purity and source of wine.
For product authentication and prevention of counterfeits, Louis Vuitton and other luxury fashion labels are piloting blockchain smart contracts.
Smart Contracts will also validate the certificates like diplomas and wellness certificates.
It will enable insurance companies to check the validity of accounts, as well as review claims.
The Maltese government is exploring Smart Contracts within various sectors.
Essentially, a Smart Contract executes when a party claims to take actions compliant with specified terms and conditions.
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Willing to boost your business efficiency by developing the product authenticity verification capability with blockchain and Smart Contract technology? Feel free to connect with our blockchain experts.