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Fighting With 1’s and 0’s: How Distributed Ledger Technology Could Disrupt the $500B Counterfeit Industry

By Jens Munch Lund-Nielsen, Head of Global Trade & Supply Chains at IOTA Foundation

Look around your room. Chances are that everything inside has been in a container, on a plane, or inside a truck at some point. The miracle of international trade is a complex beast, a series of arteries feeding goods to each corner of the globe. And for the average consumer, we know almost nothing about it. It’s our lack of knowledge that’s given rise to an exploding market for counterfeit goods.

According to the Organization for Economic Co-operation and Development (OECD) and the EU Intellectual Property Office, counterfeit and pirated goods make up 3.3% of all global trade — over half a trillion dollars annually.

It’s here, in dealing with inauthentic goods, that we run into a bit of a blindspot. We know that we bought a jacket. We know where we purchased it (Amazon), how it got to us (DHL), and its country of origin (China). But it’s what we don’t know that’s far more interesting. Have you ever given thought to where the buttons originated? What about the dyes? The thread? Consider the number of miles, collectively, each material traveled, the number of borders crossed before a manufacturing facility turned it into a jacket, and shipped it to your door.

The global supply chain is an impossible tangle of logistical hurdles somehow made possible. With complexity comes opportunity, and unscrupulous actors are taking these opportunities to sneak illicit goods into a legitimate supply.

What Can We Do About It?

In such a complex network, you’d assume paper would be obsolete, a relic of the Dutch East India company long replaced with the efficiency of 1’s and 0’s residing on servers around the globe. You’d be wrong. The vast majority of trade still relies on a paper trail, and it’s here that we have an opportunity.

Digital ledger technology (DLT) can solve these, and other problems just like it. DLT offers transparency, permanence, and accuracy. It allows each supplier, each wholesaler, and each consumer to get an accurate picture of every supply chain element: from sourcing to shipping a finished product.

When we think of counterfeit goods, chances are the first things that spring to mind are apparel and other consumer goods, the kinds of products that cost corporations billions but have little impact on those who buy cheap fakes. Consumer goods are the most common counterfeited goods, so we think of faking legitimate merchandise as a mostly victimless crime. But what about phone chargers with cheap components that lead to injury or death after starting house fires? What about counterfeit auto parts that lead to severe accidents? Or what about the N95 masks we rely on in hospitals to keep healthcare professionals safe from COVID-19? We’ve seen numerous shipments of cheaper face coverings stamped with the N95 label seized by customs agencies worldwide.

DLT brings legitimacy to global trade through trust and transparency. Instead of trusting a label, we can scan the item with a smartphone to complete the picture. We can see where the materials were sourced, how (and where) it was assembled, and view every mile it traveled before ending up at our door.

Companies benefit too. Companies like Nike, 3M, or Samsung can now authenticate their goods, ensuring consumers are getting the real thing. Instead of re-keying data manually, each step providing additional space for errors, we could one day piggyback on existing data, adding new entries along the way. You can encrypt and store the data, giving away, or sharing ownership along the way with other authorized parties.

“More than 4 trillion consumer products are made, shipped and retailed globally every year. Yet end-to-end traceability of each item through its lifecycle journey is, for the vast majority of goods, a black hole of insight,” said Dominique Guinard, CTO and Co-founder, EVRYTHNG. “End-to-end visibility and transparency across the supply chain can only be achieved through interoperability and data sharing between disparate systems, EVRYTHNG’s Blockchain Integration Hub, as case studied in the WEF Supply Chain Interoperability white paper, illustrates how data can be exchanged across ecosystems on a scalable basis. Specifically, helping to facilitate the end-to-end traceability of an item by providing full visibility into a product’s supply chain journey from manufacturing to the consumer to recycling – every touchpoint.”

DLT in Practice

The challenges faced by implementing DLT aren’t technological ones. We have systems in place, and the know-how to build and scale additional ones. Some corners of the globe have already embraced the digital transformation, building and testing massive networks to aid in global trade.

An East African development consortium, TradeMark East Africa, already has a DLT-enabled system in testing phase. It’s using DLT with great success, landing coveted partnerships with KLM and others to build and test solutions to increase efficiency and trust in global shipping.

Smaller pilots are underway in both the European Union and the United States as well.

DLT adds trust and transparency, regardless of whether you understand the nuts and bolts that make it work. It adds a layer of simplicity to a system that we can use, even if we don’t understand it.

When sending an email, for example, few of us can explain how it gets from Point A to Point B. Warehouse workers know how to operate a scanner, but don’t need to understand where the data goes or how it gets there. Companies like Zebra Technologies are planning to roll out such capability as an out-of-the-box feature when you use their Scanners. Solving our counterfeit problems isn’t about educating people in the complexities of global trade; it’s about providing simple and effective alternatives to the decades or centuries-old practices holding us back.

About Jens

Jens Munch Lund-Nielsen has built a life and career on bringing together different professional fields and sectors, thereby creating new types of partnerships. By carefully and deliberately mixing diverse experts and interests, he has built new ventures and created impactful partnerships — especially within the field of supply chains and global trade. For the last 8 years he has taken up different roles within A.P. Moller — Maersk including launching a new e-trade platform for Africa, forged a partnership with a large bank to develop financial trade services with focus on emerging markets, co-founder of a global public-private partnership with a focus on trade barriersincluding five governments, the ICC and the World Economic Forum. Within the field of CSR, he has launched human right initiatives and established a partnership with other logistic companies such as UPS and Agility supporting the UN World Food Programme, to deliver a rapid response to large natural disasters around the world.

In addition to his educational background in civil engineering and a masters in Philosophy, Jens also holds an MBA from INSEAD. Jens is a Danish national living in London with his family.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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