Application of Blockchain Technology in Combating Counterfeit Goods in the European Union

CHAPTER 1:  INTRODUCTION

Description of the research problem

Counterfeiting is defined in various studies as the process of replicating and selling copies of primary goods or items without the authorization of the original owner, and hence violating the trademark validity. Such an act is considered as a ‘criminal act’ as defined in the Medicrime Convention (reference CETS No.211) as well as in many legal jurisdiction across Europe, and the world. Based on various reports published within the past few years, the current situation of imported counterfeits goods in the EU and Worldwide is increasing annually, and the rate at which this is occurring is alarming  (Behner, et al., 2017). According to a report by the EUIPO (European Union Intellectual Property Organization) and Europole, it is estimated that between 60 to 85 billion euros are lost every year from the European Economy, representing 5% of imported goods in the EU, and if compared to the losses, this is equivalent of Luxembourg GDP (EUIPO and Europole, 2017). It is extremely difficult to seize the exact number of illegally imported goods since most of these goods gets into the European Jurisdictions unnoticed by the relevant authorities.

The numbers are distressing since it is not only decreasing the revenue for the producers but also decreases the tax collection for the European countries and therefore the overall standard of living of the European consumer decreases. In 2017 alone, the EU seized 31 million of fake goods, more than two thirds of these goods were seized from the maritime routes from where they end up in the main roads (European Union Intelectual Property Office, 2017). Taking into account the potential risk for the health and the economic consequences, it is no surprise the European Union is establishing a global effort against counterfeits goods. No result of decreasing numbers have been seen over the years. And this leads to the question, can a disruptive technology such a blockchain help combat counterfeit goods in the EU?

Significance of the study and the rationale of studying it.

Trust is a paramount aspect of any sort of exchange between human beings. Regardless of paying for goods or having a successful business transaction, there will always be unsatisfactory believes among the parties involved in the transaction if there exist trust issues among them. It progresses toward even becoming considerably more complicated, when numerous outsiders are engaged in the exchange, and third parties are needed. For instance, when one is selling a house, the individual will need to put his or her trust on a bank, and /or the notary, while in some instances, an escrow house. All the parties have to work with each other, and more importantly have a trust on one another. Provided that there is no person or entity between the key parties involved in the transaction such as brokers, a lower and faster transaction cost can be attained and the transparency between the parties can be augmented. This is what cryptocurrencies have managed to achieve as far as blockchain technology is concerned. It is possible to send money to someone without the need of an extra third party such as banks or any other money transfer entity. For instance in Venezuela, where banks and the government are corrupt and the national currency is in hyperinflation. Venezuelans are turning to Bitcoin, a popular cryptocurrency to exchange money between them  (Gage, 2018). In such transactions, the authentication of the transaction is not done by banks, but rather by an algorithm that employs cryptography to secure and validate the transactions. The need to believe in a third party is uninvolved.

Although the Bitcoin have employed the blockchain technology to achieve such a level of trust between transacting parties, but this is not only an area where blockchain can be applied, it can do much more than financial applications. The realization of what can be accomplished by blockchain has not been fully explored. Under blockchain technology, whenever an individual does a transaction, the transaction details are automatically shared among all the computers in the network and stored it in chronological order  (Deloitte, 2016). This makes it easy for each individual parties involved in the transaction to be able to monitor the transaction status at any given time. Application of blockchain technology have been successfully tested and employed in various sectors such as in voting, crowdfunds, access to medical information, and many more. With regards to the present study, the key concern is how this technology could possibly be applied in tracking the supply chain of goods which is a key aspect of counterfeiting of goods, and thereby assist significantly towards eradiation of counterfeiting goods in the EU. This thesis explores the possible potential solutions to combat counterfeiting goods. More precisely, a solution supported by the European Commission.

Research questions

The blockchain technology provides a significant context to examine the current situation of counterfeiting in the ‘’luxury’’ and pharmaceutical goods spectrum. While this technology is still a new technology, the attention of academicians from different fields of study have been drawn towards this technology. The potential of blockchain technology in solving the key problems that affects economies of the world especially problems associated with fraud, counterfeit as well as swindling transactions, is high. As such, this study will tend to answer the following research questions while it will be carried out:

  1. What is the current measures against counterfeiting of goods in the European Union?
  • How can blockchain disrupt the current situation?

Study Objectives

Based on the above described research problem and research questions, this study aims to meet the following research objectives:

  1. To develop an understanding of the current situation and the impact of counterfeiting in Europe.
  2. To examine the concepts of blockchain and its different applications.
  3. To investigate the possible legal opportunities of using blockchain in fighting the counterfeit problem.
  4. To explore the potential approaches that can be adopted in implementing blockchain technology in the fight against counterfeit problem in Europe.

CHAPTER 2: LITERATURE REVIEW

The predecessors of the product authentication based on the blockchain research acknowledges the importance of the traceability and transparency in the supply chain (Jeppsson and Olsson, 2017). In 2016 two students from the University of Singapore highlighted the blockchain concept in enabling Trust & Transparency in supply chains (Anders et al., 2016). In the same year, a report by Dittmar (2016) was published on the application of the blockchain for authentication and verification of Identity. Sadouskaya (2017) examined the current Adoption of blockchain Technology in Supply Chain and Logistics. Meijer (2017) also a scholar wrote about the Consequences of the implementation blockchain technology. Current exposure of the blockchain is growing as more and more scholar write about it. If performed accurately, this research article will provide guidelines to interested audiences on blockchain opportunities in the anti-counterfeiting market for blockchain avoiding any potential risks in the EU’s market.

This research will be of significant use to those who are planning to start learning this technology, informing, advising and guiding them towards a very crucial choice of an appropriate market, understanding the blockchain opportunities of the market due to the discrepancies in different projects. Existing blockchain projects in the market will lead the way to a better and more secure Europe. It is a general belief that what has been accomplished so far with the blockchain technology is little, and much can be done as the technology is still new. This study contributes in the research on application of blockchain technology by enlightening the future scholars and researchers on the apparent situation of blockchain application in elimination of counterfeiting of goods while at the same time provide recommendations of the possible near-future accomplishments in this sector. The vision of the present study is to reveal what has been done, from technologies before the blockchain to the disruptive revolution we are living today.

The Byzantine general problem

The Byzantine general problem is a metaphor describing a problem of trust in computer science. An explanation, imagine 5 army generals who have to attack a city together. In order for them to attack they need to have more than 51% of the group to agree together. The generals can only communicate through a messenger passing via the city, not knowing if the messages have been corrupted or if the message is a trick from the enemy. If an army attack alone it gets defeated. The problem is to find a way to communicate together and to be able to reach a consensus (more than 51%) and therefore attack and defeat the city. A solution proposed was to communicate via voice message but if one of the messengers is corrupt it can force the others to disagree and therefore not reach the consensus.

The solution proposed to this problem is to encode the message and only the receivers have the special combination to decrypt the message sent from the receivers (TOPLAS, 1982).

Description and definition of blockchain technology

Blockchain is a distributed ledger where all the past transactions are kept. The first blockchain to popularize is the Bitcoin, the first peer to peer electronic cash based on the blockchain written by Satoshi Nakamoto in 2008 (Nakamoto, 2008). It was the first time a technology allowed to send electronic cash without a bank. We can compare blockchain has a database, the difference with a current database is usually located in one location, the servers are centralized in one location making it very vulnerable to attacks due to its one single point of entry.

Compare to the blockchain where all the information is not kept in one location but in all the computers of all the participants of the network  (Harvard Business Review , 2017).The blockchain technology has two main features. It can be public or private. In the first case, a famous public blockchain is bitcoin, everyone is allowed to see the past transactions and from who to who. Everyone has access to the transactions because the transactions are stored in what it is called blocks. Every ten minute a new block is created and the last one is closed and linked to the previous block. After those ten minutes, all the transactions made are kept ‘forever’. What make it so strong is that every new block as the past transactions of all time, so if you try to trick it by changing one block it will directly be seen and not been accepted because all the other computers of the network will compare it and see it doesn’t match with then rest and therefore the transaction will not be accepted. The blocks are linked in chronological order and secure by encryption.

Private Blockchain on the other hand, work more like today’s database but in a decentralized way. Each participant has to be invited and accepted by the set of rules put in place by the network to join it. The main advantages are to choose and decide future entrants. It gives significant benefits for industries such as digital identity in the healthcare segment or in the supply chain as it allows only certain entities to have access to it others won’t (IBM, 2017). Similar to private blockchain you can find consortium blockchain where the main use is for organizations, where the need to share information amongst. For example the UN sharing information with voters from certain countries.

There are seven attributes of blockchain technology that qualifies it to be the most appropriate technology in fending the counterfeit industry, and from these attributes, bitcoin became popular and embraced by consumers regardless of the fact that the timing was wisely chosen. The release of the white paper of Satoshi was made in 2008 at the same time the financial crisis happened (Tapscott & Tapscott, 2016). These attributes include:

Incorruptibility: The process of the transaction is managed by an algorithm and the outcome is recorded cryptographically. Each party doesn’t have to trust the other because the trust is made by an Incorruptibility system. No one can alter or scam the other at the time of exchange.

Distributed influence: The blockchain is based on a peer to peer technology. The blockchain is based on all the computers of the network. If the authority tries, for example, to shut it down the bitcoin network it is impossible has it would require to shut down millions of computers around the world. The bitcoin network rewards you for “mining” or calculates the algorithm that allows transactions to happen. Imagine a peer to peer network where you have your personal information based on it and every time a marketing company wants to access your information you get rewarded.

Security: The use of private and public key or password in common terms allows to encrypt and decrypt the encoded message into a secure transaction.

Privacy: Each participant of the network is responsible for its own private data. No personal data is required and thus keeping a high level of anonymity. The information is not kept in a one single point database.

Ownership: The ownership of an individual is transparent. A protocol called the proof of existence used to certify documents and prove ownership. A project called ID2020 plan to base people without any document and providing them with a digital identity.

Lower barrier of entries: Satoshi has the vision to use his system with a basic payment verification system. More than 1.7 billion people worldwide are unbanked (World bank, 2017). New startups such as SMS coin allows people with just a phone to send through SMS cryptocurrencies, eliminating the need of a bank or internet and therefore have access to the global economy.

Types of Blockchain Technology

There are different types of blockchain technology that are differentiated by the aspect of the public, private and consortium. Selection of a given type of blockchain technology to incorporate in a business depends on the key demands of the business. Public Blockchain allows anybody to access the information as it is accessible anywhere. The blockchain is open source and is running mainly thanks to two distinctive cryptographic verification method. The first one is proof of work (PoW), the principal is simple you put at disposition your computer power to calculate and decrypt the algorithm and in exchange, you get rewarded with a small fee from the transaction. Blockchain such has bitcoin, bitcoin cash, and litecoin work with this method. The idea behind the proof of work is to incentivize the community and stakeholders to use this currency. The main disadvantage is the electricity consumption artificially created (bitcoin tech talk, 2017).

The second method is Proof of Stake (PoS), it works by having a certain amount in your wallet of a certain coin and you can only verify the same amount you have or lower. This measure is taken in case you try to validate a false transaction and send it to you the ‘stake’ you are verifying back, your losses will always be higher and therefore you will lose more money than what you try to steal. Proof of stake use much less energy and at rewards also with a fee. Popular proof of stake coins is Dash and NEO.

Last but not least the blockchain IOTA is not using either Proof of Work or Proof of stake but instead use the Tangle technology (Iota.io). Eliminating the use of miners and stake, the validation is made by previous transactions, allowing to do millions of transactions without paying any fees each time, has it is highly useful in the case of the internet of things and connected technology working together. Moving forward to private blockchain, it is the complete opposite from the public blockchain. Public blockchain in its nature is to be decentralized and open to everybody. In private blockchain, an organization can rewrite, change and delete commands from the blockchain if wanted. Public outsiders have limited access and can only access it if authorized by the organization.

The private blockchain is not decentralized at all and could be compared to a ledger protected by cryptography. But on the other hand, the verification process is much faster and cheaper, because the agreement is set up internally and no miners are required using a lot of energy, resources and time to verify a transaction. The trade-off is a less secure blockchain compared to the public ones available. Examples of private blockchain in use are Hyperledger and MultiChain. Hyperledger is part of the Linux Foundation, founded to benefits big organization to set up a permission environment. Currently partnering with IBM (IBM, 2018).Multichain is an open platform to build private blockchain. There may advantage is the simplification of the process. No need to specializing in IT for developers in the blockchain to develop and create a private blockchain infrastructure with MultiChain. Partnering with big institutions such as Accenture and the Boston Consulting Group (BCG) (MultiChain, 2018).

Similar to private blockchain we have consortium blockchain. Working as a private blockchain but allowing other participants to share the power of deleting, rewriting and change commands in the blockchain. For example, 10 banks are in the private consortium platform, one bank wants to make a change in the agreements, it will need to have the majority of them to agree with those changes to accept the first bank to do the changes. A current company called R3 based in New York has already created a consortium with more than 200 financial institutions and companies. To enable Institutional transfers across the blockchain. JP Morgan and Goldman Sach were amongst the first banks to fund and join the consortium (Fortune, 2018).

Blockchain Potentiality in business

From a business perspective, both public and private types of blockchain technology offers a wide range of opportunities. Under private type of blockchain, provision of institutional level needs is its key, Hyperledger is a blockchain by IBM allowing institutions to be connected. The current organization working together and already knowing each other, no need of proof of work mechanism to establish trust because they already know each other. The use of a private blockchain will enable them to have the same information at the same time with no delays and erasing data errors. Creating a more connected market, and regulating competition.

In the case of combat counterfeiting, it would be very interesting in having a private blockchain or even a consortium blockchain, by connecting many different players across the globe. Enabling access to government to create transparency across the whole process and sharing only the information needed for the customer. Looking further at the idea of consortium, companies will allow accepting other companies to enter the consortium reaching a bigger audience of market players and trust.

Public blockchain as the potential to disrupt the current way our economy works. Because it incentivizes and rewards the participants. The open blockchain has the potential to enable a circular economy to take place  (Tanasyuk, 2015). Cutting the needs of centralized Institutions and facilitates the transaction at the p2p level, ranging from the transport industry to the energy sector, see figure 2 of all the potential use cases of the blockchain technology. Society will work more and more with machines in the future. Combining decentralized blockchain applications with AI and machine learning will be the logical next step that will dominate our technological future. For example, the current network of counterfeits seized goods will be reported in a large public blockchain. Every company can have the chance of knowing where, how many and what types of goods have been seized. Creating a transparent platform for authorities to communicate with company affected by counterfeits goods. Allowing a public blockchain to have accessibility establishes transparency and trust between societies.

Adopted from Moungayar, 2016

Application of Blockchain Technology

In relation to the above figure 2, blockchain technology is widely applied in numerous sectors in different industries. The bitcoin blockchain used in financial transactions was the first blockchain to be widely used. It was revolutionary because it allowed transparency and trust and the same time no middleman is involved. Since it worked really well, new applications started to see the light always related to financial applications. Only after the success of the financial industry people started to get interested in on how to disrupt other industries.

We will first start with some examples of applications in the related financial sector. The first revolutionary use of blockchain has been in the use of digital currencies has a means of a transaction, disrupting the monopolistic markets of financial institutions. Using a smart contract. A smart contract is basically an automatic code a computer follows in order the meet the criteria required. For example, you want to send money to someone you don’t trust. The smart contract, in this case, will only unlock the funds if both sides have sent the money and once both funds are secured and locked in the blockchain then only the contract will be fulfilled and the funds unlocked. All types of contract and agreements can be used with smart contract, opening the way for a peer to peer transactions. It can be used in many different industries such as in swaps of Insurances, check the credit history of somebody, sell or rent a real estate and do money transactions. In the case of transferring ownership and exchanging rights, we could imagine the new stock market based on the blockchain in a decentralized way where it would decrease the risk of shutdown and reduce market failures. In terms of potential, the blockchain as the capability to allow a piece of personal information to be once verified (know your customer) and then be used by many different services. Allowing applications to be AML (Anti-Money Laundering) compliant reducing the risk of fraud.

Following the financial applications disruption, the non-financial applications started to enable new types of transactions and businesses. We start having decentralized storage, meaning personal information is stored. Using the healthcare and music industry for example. Each participant have is own personal identity store in the blockchain and only the selected institutions by the participant such as hospitals or clinics would have access of your medical record to be checked. In the music industry, it allows sharing back the ownership and copyright from the songs back to the original artist. Splitting and gather royalties easier.

A new type of digital asset called Non-fungible token (NFT), is starting to change the way we are digitizing information. The current smart contracts have limited capabilities and only have the possibility to create a single token for a category of good. A token is the representation of a physical good on the blockchain, a token can be shared, send and sold. The ownership of the good is represented by the token, a token allows an illiquid asset to become liquid. For example a house, it is nearly impossible to sell 12% of it. But if you tokenize your house on the blockchain you can sell and split the exact amount of token representing this value. Meaning if you want to transfer the same good with different characteristics, for example, Nike shoes personalized for a special edition it is impossible because all the token are the same. The standard token in used is the ERC20 token based on the Ethereum blockchain. Most of the blockchain technologies have and are still continuing to advance with time. In the case of Non-fungible token it allows a new type of counterfeit goods to be stored on the blockchain. Using NFT can allow creating a unique token for every single good with distinctive characteristics (ERC 721, 2018).

During the Hackathon, more precisely a Blockathon event (Blockathon is an event where hackers meet to test and discuss new ways to improve software) organized by the EUIPO on June 2018, the outcomes of the competition were to use the Non-fungible token to transfer the digital identity of the good. Has the case of the Seal network, an anti-counterfeit solution based on the blockchain and winners of the event. The solution proposed is what it is called a digital twin technology. It consists on creating a digital copy of the characteristics of the physical good into a non-fungible token based on the blockchain. Allowing to transfer many different goods with different characteristics on the same blockchain. While the adaptation of blockchain technology expands in different industries, it is significant to ask certain significant questions in relation to application of blockchain technology to solve counterfeiting of goods problem, what are the technologies in used and what is the potential of the blockchain for non-financial application related to anti-counterfeiting goods?

CHAPTER 3: RESEARCH METHODOLOGY

The proposed research design and data collection procedure

This study will primarily develop a systematic review research design which will be based on the secondary sources that were involved in the collection of primary and secondary data on the topic of how Bockchain technology can be employed in eliminating counterfeit goods in the European Union. A systematic review research design was selected for this study since it aims to explore how Bockchain can be employed in s0olving the counterfeit problem in Europe as well as the apparent measures put in place to solve this same problem. Moreover, the usefulness of this design in this study revolve around the exploration of Bockchain fundamentals and its application. While the study adopted a systematic review research design, it did not limit itself to theories that emphasized quantitative research. The strategy of the study was mainly centered on academic journals that are available publicly online as well as the most relevant periodic articles and report from relevant online sources.

Although the key plan of the design was to use relevant and legit online resources, but books especially on Bockchain topics, and with counterfeit associated headings were also utilized for the purposes of finding meanings, genesis of counterfeits, shifts in trends, and other aspects of Bockchain technology and Europe’s counterfeit goods. It was hoped that the books along with the journal articles would assist in presenting a relatively exhaustive review of literature on the use of blockchain technology to solve the problem of counterfeit goods in Europe. The methodology adopted in this study also guaranteed high validity and reliability of the findings of this study. Moreover, the methodology was described in a manner that it allows duplication so as to enable validation of the study findings by other researchers.

Part of the data collection procedure involved entering key words such as blockchain technology, Europe counterfeiting of goods, fundamentals of blockchain,  application of blockchain technology, measures to fight counterfeiting of goods in Europe, and the possibility of blockchain technology in solving the problem of counterfeit goods in Europe and the world at large. Only sites showing relevant results was visited for further knowledge on the topic. However, the inclusion criteria will be followed to the latter, and only those articles which would have utilized English language, published not older than the year 2012, and provide relevant information to the main subject which places emphasis on the application of blockchain technology in solving the problem of counterfeit good will be visited further for the purpose of the study.

In addition to the systematic review research design, this study will also partly adopt a qualitative research approach whereby three companies within the context if the study, and whose operations are relevant to the key subject of the study will be selected, and certain individuals interviewed on their opinion on various aspects of counterfeiting industry in Europe as well as the application of blockchain technology in combating the counterfeit problem.

Sampling Design

Samples will partly be selected from the available secondary data which will be accessible online especially from the European Union reports database. Studies will be included as a sample if it meets the following criteria: If they were done in English language, if they were performed on the blockchain technology and its application on fighting counterfeit problem, If simple random sample collection was used in the process of sampling, If they will be easily accessible, and are purely reviewed articles not older than five years. Data with randomized sampling design will be considered due to its numerous advantages over the non-randomized design as it has no biasness. Titles and abstracts of all link on the topic will be checked. Only journals which fall under the inclusion criteria will have their content retrieved and hard copies produced. Their content will be scanned to ensure that they are relevant to the subject of the study. Nothing will be accepted outside the content of the study. Further evaluations will be done to ensure that the articles are appropriate enough to be included in the systematic review.  The key evaluation questions will be: Did they effectively answer their research questions? Was the research design appropriate in gathering valid answers to the questions? How was the validity and reliability of the instruments and results? Were the results valid from the data? Upon gathering as many articles as possible but less than 30, data will be retrieved from them.

With regards to involvement of blockchain in the European Union, a sample size of three companies will be chosen from three different categories associated and relevant to the subject of this study. Selection of these companies will be based on two principles which include they incorporate blockchain technology in their countermeasures against counterfeit activities in their operations, and if they employ blockchain technology in any aspect of their operations.

Plan to protect the human subject

While the design that will be adopted will largely be based on secondary data collection, part of the design will involve collection of qualitative data from the primary sources directly in person. With respect to secondary research of literature, there will be no direct contact human subject. Only research findings from previous studies and published reports available publicly online, l and will be evaluated to get more information on how blockchain technology can be employed in combating the problem of counterfeit goods in Europe. Nevertheless, the researcher will make that the ethical principles are adhered to during the design with utmost responsibility and integrity while avoiding any form of misconduct. The research will be conducted in such a way that it does not violate copyright regulations of the primary sources such as present a plagiarized work with redundant duplications, and report on studies with ethical insufficiency, and contravene the publication ethic and guidelines. This research will acknowledge all the sources and the individuals who will contribute in completing this project successfully. The researcher will seek for ethical permission and approval from the relevant authorities such as EU databases, and institutions in order to access information crucial for this study.

Since part of the research design adopted in this study will involve gathering of primary qualitative data directly from respondents of the chosen companies, appropriate measures will be taken to ensure that their identities as well as opinions that they will not want to be published are kept safe depending on the agreement with the researcher. Additionally, being that this study is not experiential, and does not pertain direct contact with the health of the respondents, the safeness of the respondents especially with regards to their health is guaranteed. Additionally, the respondents will have an option whereby they will agree or not to have their identities included in the study or not.

Data Collection Procedure and Tools

Data was collected using an assortment of search engines that offered access to various articles, abstracts, reports, e-books, and papers. Related articles were also attained via accessing the abstracts and articles obtained by using the keywords highlighted in the study. Upon getting sufficient related articles, key information will be checked and recorded. Evaluation and synthesizing evidence will be performed on the articles and reports verified and approved for the study topic. They will be evaluated, critically analyzed, summarized, and assessed as either of low or high quality before actually be integrated into thematic analysis. Quality of papers or search materials will be evaluated in accordance with merits such as designs, exhaustiveness of advancing their respective research objectives, implications, limitation, and findings. The research philosophy will be discussed at this stage in order to assist in deciding on the appropriate database search engines to employ while looking for search materials in consideration of the key words which will be indispensable in selecting search materials. The approved search engines and scientific publications will be utilized to search articles and abstracts accessible online in the library. Sampling and quality assessments will be undertaken in database search engines capable of accessing Google Scholar, Ethos.bl.uk, and databases for articles in the EU journals. Data collection will be attained by use of search engines assorted by virtue of providing access to abstracts, articles, papers, reports, and e-books. The key words also will be used to collect data from related articles attained by accessing abstracts and titles obtained as it will be highlighted in this section of the study. The keywords which will be used in the study include blockchain technology, applications of blockchain technology, EU’s measures against counterfeiting industry in the UK, and fundamentals aspect of blockchain technology.

Tools to be used in this study particularly in the collection of secondary data include writing materials for recording findings, computer networks, and hard copy of peer reviewed articles on the selected topic as well as soft copy from the internet, search engines such as BIN, CINHAL, Ethos.bl.uk, and Google Scholar. From these engines, articles and reports will be retrieved and analyzed based on the study questions and topic. The study will also employ books in defining meanings, and in establishing shifts in trends especially in the measures of counterfeit goods in Europe.

In addition to gathering data from secondary sources, data will also be gathered directly from the respondents using structured questionnaire with open-ended questions. The interview will involve direct one-on-one conversation with the respondents whereby the researcher will ask the respondent questions enlisted in the questionnaire, and the responded will freely answer the questions without any limitation. The tools that will be used in the interview questions in addition to the questionnaire include a voice recording device, and writing materials to note down the responses provided by the respondents. With a combination of these two methodologies, the reliability and validity of the study findings are guaranteed.

CHAPTER 4: FINDINGS/RESULTS

From the reviewed literatures particularly concerning mitigation of the counterfeit industry in Euro, the researcher found that indeed, the European Union have certain measures in place to help fight counterfeiting of goods across European nations. As an overview, some of the rampantly mentioned measures used across many of the European countries in fighting fake goods include overt solutions, covert solutions, and trace technology. While some countries have adopted either of these means in fighting counterfeit problem within their jurisdictions, others have employed all the three measures towards solving the counterfeit problem. It was also noticed that even though these techniques are adopted differently by different European countries, but they all have their shortcomings as well as benefits.

With regards to application of blockchain technology as a solution to the counterfeit problem, the study found that even though blockchain is a technology that came to the public limelight recently, but already the interest of applying it in solving various problems including counterfeit problem has grew significantly. In fact, certain blockchain anti-counterfeit systems have already been developed and are under test in some jurisdictions with Europe. These systems include Seal network, Block verify, Ever-ledger, and Provenance. However, the study also found that there are certain systems that are similar to the blockchain counterfeit system, that are actually employed in fighting counterfeit goods, but they don’t actually incorporate the blockchain technology into their functioning. These systems include the Alp-Vision, and Cypheme. While the blockchain-based technology that are potential in fighting effectively the issue of counterfeit have numerous benefits, it was also realized that they have certain critical shortcomings that can adversely affect their effectiveness in application to end the counterfeit problem in Europe, and possibly across the globe.

Based on the data gathered directly from the interview, it was found that the leading industry across Europe in production of counterfeit goods is the pharmaceutical and medical industry. It was realized that a significant amount of drugs types sold in pharmacy outlets have falsified directive, and wrong information on them. Moreover, it was also found that the regional measures put in place to help in ending the problem of counterfeit medicine across Europe are only being implemented seriously in some European Union countries, but not many. The regional body concerned with this issue which is the European Union for Falsified Medicine Directive Regulation has not been taken earnestly by the member states of European Union towards implementations of measures believed to be effective in combating counterfeit medicine across Europe.

Nevertheless, based on the information garnered from interviewing the respondents from tech-industry, it was realized that the European Union is much interested in implementing new technology-based measures such as the block-chain technology towards ending the counterfeit issue across Europe. In addition, the study also found that presently, the European Union is investing in technology –based means to end the challenges of implementing measures to eradicate the counterfeit problem across Europe, and the key technology that have been forecasted to have a potentiality of ending the counterfeit problem not only in the medicine industry, but also across different industries in Europe, and the world. It was also found that blockchain has already started to partner with other companies such as IBM to device the most appropriate tech-based means to end the problem of counterfeit goods in Europe. The pharmaceutical industry is considered by most experts as the industry that have been hit by the problem of counterfeit goods across Europe.  Although this is an overview of the key findings from the gathered data, these findings are comprehensively discussed under the Discussion chapter.

CHAPTER 5: ANALYSIS and DISCUSSION

Apparent techniques employed in minimizing counterfeit goods problem

There are three different types of counterfeit minimization techniques apparently and specifically applied in tracking of supply chain and anti-counterfeiting measures (WHO, 2007). In order for a solution to be viable, it is significant to recognize certain features or aspects of it. Firstly, its convenience whereby the system should be accessible through an easy platform such as a phone or even with an individual’s eye. The system is difficult to replicate for counterfeiters. The availability to reuse the system has many times we want and finally the proof of miss-manipulation during the process. Apparent solutions that are extensively employed in fighting counterfeit problem across the world include

Visible or overt solutions: Overt solutions are designed for the consumer to distinguish between the fake without any need for technology. Solutions such as Holograms, 3D images printed on some packaging or credit cards. Optical variables devices (OVD) combine with color shifting. The image only appears under a certain angle such as in the bank’s notes or luxury clothing brands. Security threads using a special method of printing and Watermarks using special fabric components.

Not visible or covert solutions: Not visible solutions are similar to overt solutions meaning both of them are implanted on the goods itself, the difference relies on the visibility for the end consumer. This includes Invisible inks, shining only under UV lights. Embedded images, digital watermarks, Hidden printing, laser codes, and even microcapsule odor. Most of the covert solution is made to be combined with overt solutions to increase the efficiency of the solutions.

Track and Trace technology: Track and trace result in the most efficient way to track along the journey of the product in the supply chain. The main methods are Radio frequency identification (RFID), found on electronic shops or even on gums pack in supermarkets. Popular barcodes and electronic product codes (EPC) such as QR codes. It’s even possible to apply a unique topography to be tracked. For example a unique pattern of dots in a box product, and by scanning the pattern it’s possible to know the past transactions and history.

While these methods are effective in their own capacity, they also have their individual shortcomings. This is explored in the later parts of this chapter.

Blockchain counterfeiting systems

Applications developed from blockchain technology are very recent as the technology itself. While it can be thought that these applications are few, there are already numerous blockchain-based application in use and others are still underdevelopment. An overview of the apparent systems that can potentially and relevantly applied in solving the counterfeit goods across Europe, and the world as well include:

Seal network: Seal is a blockchain powered product authentication aiming at reducing counterfeiting products. Seal was chosen amongst the winners in the European Blockathon organize by the EUIPO, to develop an efficient way “to create the next level of anti-counterfeiting infrastructure based on the blockchain.” (Seal, 2018) Seal targets luxury brands and electronics but can be embedded in all types of products. Seal network is working with Deloitte group to implement the system. An interview had been made with the current manager of the project at Deloitte see the exhibit “. The functioning is really simple, they implant in the product a chip similar to the one used in credit cards that can be read with the NFC technology. Near field communication (NFC) is in use in our smartphone to scan or share information. Combine NFC technology with blockchain allows to read the information with our phone and to remove the risk of software pirating see figure 3.Seal network aims to provide the consumer with the ability to verify the authenticity of a product. To register ownership, for peer to peer exchanges and avoid theft resellers in the black market. The network can be used for brands to analyze where the product is being sold. To recall products if necessary, the consumer just scans the item and have all the information needed.

 Finally, the biggest game changer is the ability for brands to gain profits on the secondary market. Allowing the brand to gain a small fee on every transaction is made in the P2P market. Big e-commerce retailers such as Amazon and eBay will have the ability to integrate the technology and scan the items before reaching the final consumer.

The product is manufactured with an embedded chip. The brands access the seal network on the app and know exactly how many authentic copies are made. Companies that try to replicate the product cannot be able to do so since each item has its own token or special key in the platform making it impossible to imitate them.

Blockverify: Blockverify was founded in 2014, is a similar concept than the seal network. Using tags to track along the supply chain and storing the information in the blockchain. Blockverify uses the bitcoin blockchain and a private blockchain. Allowing them to enable who can access who cannot (Blockverify.io). An article from bitcoinist.com mentions the successful test program run on a Swiss pharmaceutical company.

Making it the first company to test it publicly (Buntinx, 2016).

Everledger: Everledger is a company focusing on fraud detection mainly for insurance companies and diamonds but also on luxury goods. The difference with the diamonds industry is that there is no need or ability to insert a chip or tag due, to their unique shape you can use special software that analyze certain points and create a unique identity based on the blockchain. Allowing companies to combat the blood diamond trafficking.Everledger uses the combination of a public and private blockchain, using the Proof of Stake technology. Currently still in the test phase.

Provenance: Provenance is a similar project but with a different philosophy in mind. The project aims at increasing transparency and traceability of items and not directly combat counterfeiting. Fighting against climate change and social causes. Their greatest example in action was their test pilot. Called the tuna blockchain. It works like that: A fisherman catches a tuna in the sea and registers the asset via SMS. The producers are chosen and trusted by local NGOs. Each supplier then knows the “provenance” of the fish and link it to the fishermen. From the customer perspective at the time to eat it at the restaurant, the restaurant provides a tag on the menu to be scan.Allowing the customer to know where the fish was caught (provenance, 2016). The provenance test pilot was truly confluent and plan to test it further.

Similar systems but without blockchain technology integration

Cypheme:Cypheme is a French company founded in 2015, the solution they came up is a special packaging with no need of QR code or RFID. The consumer just needs to scan the product with their special app and an algorithm specially developed recognized the product packaging. Telling the consumer if it’s fake or not. Reducing costs and increase adoption. In 2017 the company sign an agreement with a big supplier of packaging “AR Packaging” (AR Packaging, 2017)

AlpVision: AlpVision was created back in 2001 and provides covert solution mixed with technology to trace back the supply chain. They provide the unique solution of taking a picture of the intrinsic surface of the good, for example, a shoe and just by taking an image and comparing with other models it can tell if the good is counterfeit. It uses the micro image has a mean of authentication (AlpVision.com).The implication of these companies having their own infrastructure is that data is controlled by private organizations.

Comparison of blockchain-based system solution, and other systems

Since the beginning of counterfeit goods in the economy, companies and governments had to come with innovative solutions to counter the problem and reduce the threat of counterfeiting. Traditional methods such as overt, covert and track and trace provided a solution for the problem but have for any solution, problems and disadvantages are encountered. In the table below we can find the advantages and disadvantages of traditional solutions. The table summarizes the benefits and shortcomings of the blockchain-based systems.

Application of traditional techniques or systems that are not blockchain-based have significant and critical shortcomings especially associated with securities issues. Overt solutions can easily copied and can increase the cost significantly has each unit need her own customized packaging or material. If the supplier has been compromised, it is extremely difficult or nearly impossible for the producer to know. The counterfeiters can reuse the method. Giving false assurance to the consumer that the product is legit in case of a replication of a supposed ‘anti-counterfeit measure’. The covert solution then provides a more complex method for counterfeiters, but still the need to indicate where to put the attention on is very significant.

Although the technology stabilizes the security aspects of products, but its centralized infrastructures could possibly be faced with serious risks especially from hackers, an RFID tag, for instance, can be hacked and the classified and important information can be interfered with. Track and trace finally can be difficult to implement across different countries because no harmonization exists and cannot be accessed by the general public. In comparison with today’s new blockchain technology, its provisions can possible minimizes these potential risks and act accordingly on any possible threat.

 Since blockchain as mentioned earlier in the second chapter, resolve most of the issues encountered in the traditional methods and follows the seven attributes needed, its incorruptible, the influence is distributed, an incentive of participating, privacy is kept, high security, ownership, and Accessibility for everyone. Blockchain startups such as the Seal network aim to respond to those disadvantages from traditional methods by providing the full potential blockchain has to offer. But again, new technology is disrupting the previous one but at what cost? What are the implication and disadvantages of using the blockchain?

Benefits and Shortcomings of using blockchain technology (General Perspective)

The blockchain technology provides many advantages to current technologies but some pullbacks also. For example, the energy required for the current bitcoin network use the same electricity as a country has Ireland (The Economist, 2018). Another threat for blockchain is a 51% attack, hackers can take control of 51% of the computing network and can take control, remove or double transactions in the blockchain, taking advantage to steal funds. Large blockchain such has the Bitcoin are just too big and therefore too expensive to manage to gain the 51% majority but smaller blockchain are more likely to get hacked by this technique. In 2018, 6 attacks where identity using this technique, to name some of the small blockchain hacked are Electroneum, Monacoin and Verge all did experience an attack by some malicious hackers with the same method (Bitcoin Exchange Guide News Team, 2018).

The integration process of blockchain can be slow, current companies still work on a centralized basis with centralized infrastructure. Blockchain integration would need a replacement of current infrastructure. In order to achieve this shift company would have to prioritize the transition. The slow adoption is also due to the current way our cultures are designed. The reticence to decentralize applications will need to be supported by an increase in awareness to complete the shift of culture to a more decentralized society. Blockchain systems is slow, every transaction has to be verified in the entire ledger to make sure the information is correct. It can happen to be overwhelmed, too many transactions at the same time and the network creates a queue for the verified transactions. Again during the hype of 2018, a single transaction in the bitcoin blockchain could take hours or even days. Current blockchain systems are incompletely scalable. However, with the everyday advancement in the technology, new ways of transactions have been developed which have enable certain activities to be accomplished such as transactions off-chain.

The present blockchain features are still regarded as the “Far West” with respect to legislation aspects of it. Blockchain such has in the cryptocurrencies have not been created by governments therefore not regulated yet. Making the uncertainty of regulation reluctant for institutional adoption. Application of blockchain technology in long-term phenomena have significant benefits especially in terms of cutting transaction cost, but the cost of implementation has to be considered before making the shift to the blockchain. Taking into accounts that a company should only be plan to shift from a drawback or shortcoming strategy if it really makes sense for the business and not based speculative assumptions

Being a technology that is still new, blockchain technology should be advanced particularly in certain critical components of it such as transactions speed, security, energy consumption and scalability to be fully embraced by the mass adoption. In term of what has been done in recent years is it clear that is just a matter of time before we find this technology taking over the current technological functioning of our personal data. Finding it powering governments’ databases may be in the future? Meanwhile the next two case studies example will show how the blockchain is disrupting these two industries.

European Union for Falsified Medicine Directive regulation

In this subchapter the EUFMD directive and its functioning is comprehensively discussed, a regulation put in place in order to reduce counterfeits medicine across Europe. Analyzing the fit of the blockchain to products that can be harmful to the health has previously mentioned in chapter 1. Other segments don’t have a specific set of strict requirement to follow has the pharmaceutical industry. The change of regulation has the potential to open business opportunities across the EU related to the pharmaceutical industry. In 2019 the EUFMD, the European Union for Falsified Medicine Directive will have to be applied by all the EU members (European Commission, 2016). The new regulation is composed of two aspects. The first is the product in itself and the second is the storage of information related to the product. Ultimately providing an end to end verification tool.

The characteristic of the first aspect, the good in itself needs to include two specific security features. It needs to include an overt security measure to alarm the end consumer in case the packaging had been compromised and alert the producer. The second aspect is the implementation of a unique QR code. The QR code needs to contain specific information such as the unique code of the good, the batch number, supplier information, and the expiry date. Each unique code needs to be randomized in order to avoid to be identified. On top of that, each product needs to contain the same data into ordinary language, to allow the consumer to check by himself without the need of scanning.

The second aspect is the storage of the information. The directive specifies a clear set of information to be stored. When the product is produced it should directly be stored digitally on the database and should have the same information has on the package. Once the product has been sold or stolen, the action should be informed to the database. The product, in theory, should only be scanned at the beginning and at the end of the supply chain, but the directive states that in case of a product of high risk of being counterfeit should be scanned multiple times. The problem is known on the producer and the end point of sale such as pharmacies, hospitals, and many other outlets are tasked with the responsibility determine which product is at higher risk to be counterfeit (European Union, 2015). The database needs to have functionalities to easily inform a stolen product or a wrong batch.

A precise technical specification has to be taken into account such as the time delay should not be superior of 300 milliseconds in 95% of the time (European Union, 2015). If a product has been informed to be removed, it should also have the revert option to cancel the action, but only in a delay of 10 days and only by the precursor of the action. All the changes must be load in the database. The directives finally state that non-end consumer shall not have access to the information of the state of the product from the EU database but rather should trust the reseller’s points (European Union, 2015). It is estimated that more than 60% of pharmaceutical companies are experimenting blockchain (Pharmaphorum, 2018). The goal of this directive is to reduce counterfeits drugs and to have a tool of recognizing the fakes and have a way to eliminate products on the supply chain in the EU. The particularity of the EU approach is the clear set of rules on the tool to use but leaves the implementation free to every country. Stating that every country is free to scan products without any constraining factor.

Gap in blockchain technology

EUFMD directive being a set of rules that have been set by the European Commission, the blockchain technology is inapplicable in the EU’s jurisdiction   since its functioning does not meet the principles set by the EUFMD directive. The table below summarizes the demands by the EUFMD directives relative to the inbuilt features of the blockchain technology.

Based on the above table, blockchain provides significant advantages especially with regards to its ability to connect to other networks. Since to alter all the current databases would have an enormous cost, blockchain can be an appropriate alternative to this concept not only because of its flexibility, but because of its capability to improve the transparency in such activities. The concept and component of blockchain that can be employed in a situation where the technology is to be used running a nationwide database is much straightforward, and the use of a public blockchain would imply that a section of the information outside the European Union could potentially accessed.

In terms of public or consortium, the use of a private blockchain would create disagreements between the state members. In order to resolve those issues, a consortium blockchain would be the best fit, has every state would have his own ‘node’ in other terms is a word to say. Using blockchain is significantly beneficial since nearly all of the demands by the EUFMD are already inbuilt. Trust, immutability, and transparency creates an opportunity for the blockchain to take place in the European Union.

Difficulties of implementing blockchain methodologies in solving the counterfeit problem

From a border customs and law enforcement point of view, the lack of penalties given to the people involved in this type of business is extremely low. The biggest problem is the connection with those networks, it is proven a direct link between counterfeiting and organized crime. Counterfeit goods that are sold in the streets represent a small percentage of the industry, a large percentage of fake goods are smuggled into the region by big organizations that are also involved in dangerous undertakings such as financing of terrorism, drug and human trafficking (Unifab, 2015). The second aspect is once the customs borders manage to get a digital offense on a type, the law enforcement lack of education regarding the new technology. A custom border agent relating crime on the blockchain using bitcoin to the procurer for example. The judge will have a hard time to understand. The problem is the technology is evolving faster than the law.

Lastly, the capacity of the unifying the technological and the legal aspect to implement the technology fast and correctly enough to follow the rest of the world is another significant challenge. The Implementation process of the blockchain technology in combating counterfeiting of goods cannot rely only on the technology aspect but other external factors. In order to maximize the chances of success we need to take into account the combination of overt solutions, meaning the introduction of hologram or special stickers to warn the end consumer of a change in the content, if the content was altered how will the consumer be aware. While these considerations seems realizable, operating without any risks has never been possible not only with the blockchain technology, but also with other types of technology.

The risk of only using the technology aspect blockchain or not could always be in danger of counterfeiters to change the inside of the package. The technology may not prevent physical interference. The only way is to introduce a mix of different anti-counterfeiting solutions to avoid a clear manipulation in the process. Increase the end user awareness. Educate the potential consumer to know how to check the authenticity of the product, know how to spot a counterfeit and the measure taken by the company. The reduction of counterfeits product will only be possible if the end consumer is educated about all the potential risk it implies for his health and the ethics behind it. Is it therefore important to increase awareness and educate the masses about how to spot the differences? Making sure the supply chain is transparent. In a multiple stage supply chain process the data introduced should only be inserted by the producer of the good. In order for the good to easily track back to his origins with a unique code and avoid a corrupt supply chain.

CHAPTER 6: CONCLUSION AND RECOMMENDATION                                

This research aimed at answering the question of how blockchain can help in combating the counterfeiting of luxury goods in the European Union with a special focus on end consumer of the supply chain. The main objective was to show the manner in which blockchain can be used to authenticate all kind of goods so that the end consumer of the supply chain is protected against the consumption of counterfeit luxury goods. Through the literature review, the research established that there is a great importance of the traceability and transparency in the supply chain. It further demonstrated that there exist some elements of previous adoption and application of the Blockchain technology to help in boosting the transparency and the supply chain. The literature review also demonstrated that there are concerted efforts to curb the consumption of counterfeit goods that is currently rampant in the European Union markets. The sole reason for fighting the counterfeit goods is to increases the trust between the genuine producers of the products and the consumers.

The research utilized the qualitative approach to answer the research question through the analysis of the secondary sources. By a careful selection and analysis of the secondary resources demonstrated that the blockchain technology has a greater potential to eliminating the menace of the introduction of the counterfeit luxury goods in the market and consequently protect the end consumers from consuming the substandard and non-genuine products. The main attributes of the technology that makes it the most appropriate solution to the counterfeit problem includes incorruptibility (not easy to manipulate the system), distributed influence (interference may require shutting down millions of computers on the network), incentives for participating (the system rewards the individuals for participating in the market), security (transactions are made secure through encryption and decryption through secret passwords), privacy (an individual’s data are accorded sufficient privacy), transparent ownership, and lower levels of barriers to entry.

The research distinguished three solution types that are currently used in ensuring the traceability of the supply chain and preventing counterfeiting. These solutions include the overt or the visible solutions, the covert solutions or the non-visible solutions, and the tracing technology. The first two categories of solutions deal with the implantation of marks on the goods themselves to help the end consumers differentiate between the genuine and the counterfeit products. On the other hand, the track and trace solutions apply the use of radio technology to help both the producer in seeing the channel of the products and the consumer in identifying the product as genuine. Blockchain is among the most recent technologies that fall in the category of the rack and trace solutions.

The research identified four of the most competent companies that provide the blockchain solution to supply chain businesses. These include the Seal network which inserts a traceable chip in the manufactured goods and makes it easy to account for all the genuine products made which are in the market, the Blockverify which uses tags which can be radio-tracked, the Eveledger which focuses of fraud detection, and the Provenance which unlike the other solutions which make efforts to combat counterfeiting, aims at enhancing traceability and transparency of the goods. Some other similar systems that do not utilize the blockchain technology were also identified. In a multiple market supply chain the data introduced and the unique identifiers should be inserted by the manufacturer of the good only for security purposes. This ensures that the order for the goods is easily tracked and trace back to its origins with a unique code and avoid a corrupt supply chain

The research also made comparisons among the various traditional solutions (the overt and the covert) and established a number of advantages and disadvantages. Some of the disadvantages of the traditional solutions established in the research included ease of copying of the identification marks, high costs for the overt solutions, false assurance for the consumers, capacity to be reused, easy to compromise, and difficulty in implementing across multiple markets. On the other hand, the various advantages include ease and simplicity in implementation across multiple markets, low costs, decorative appeal, and capacity to combat theft, difficulty in copying by the counterfeiters, ease of remote authentication, ease in the investigation, and ease of verifiability by the consumers. Further, by weighing the advantages and the disadvantages of the traditional solutions, it can be concluded that they have greater security risks that the modern solution which includes the blockchain technology.

 The utmost shortcoming is the ease of copying since this can present a false assurance to the consumer. Blockchain is consistent in reducing the threats of the counterfeits. The greatest challenge that the blockchain technology presents to the various business in the supply chain industry is the disruption of the previous technologies. However, the disruptions come with a better cost of security than those offered by the traditional solutions. The other pullbacks of the blockchain include the excess consumption of energy (for instance, bitcoin uses as much electricity as entire Ireland as a country), susceptibility to hacking, and the difficulty in management, especially when the blockchain becomes too big.

The various verification processes involved in the blockchain can make the entire system considerably slow. However, this slowness is considered an advantage since it allows the system to correctly verify all the necessary information involved in a given transaction.  Despite the balance between the time for verifying the transaction details and the precision documentation, the research indicates that the blockchain, as a newborn technology, needs to improve on some aspects of its operations such as energy consumption, transaction speed, security against hackers, and scalability. Such improvements are expected to fuel its mass adoption and implementation. This technology has the potential to open many business opportunities across all the European Union markets.

The research concluded that in order for the businesses to realize a greater benefit from the blockchain technology, there is a need to combine several of the overt solutions. This is to imply the need to create a hologram or some special stickers that would serve to warn the end consumer and make it easy to differentiate between the counterfeit and the genuine products in the market. Though zero risks can never be achieved, Blockchain technology that utilizes several of the overt solutions will significantly and effectively reduce the risk that comes with counterfeiting. Creating awareness among the end users and enhancing the transparency in the supply chain are the hallmark achievements of the technology.

Recommendation

,Following the findings of the research, it is recommended that the suppliers of the blockchain technology should endeavor to improve on the weaker aspects such as the transactions speed. Further, a better end-to-end encryption should be developed with the aim of minimizing the chances of hacking and enhancing the safety of use. The chain suppliers should explore the mechanisms by which the blockchain can be used to track, trace, and change the positions of the products across the transnational borders, a case which is currently impossible.

References

AR-packaging , 2017. AR Packaging and Cypheme have signed partnership agreement.

Baker, J., 2016. Tracking Tuna from Catch to Customer.

Behner, P., Hecht, M.-L. & Wahl, F., 2017. Fighting Counterfeit Pharmaceuticals: New Defenses for and underestimated and growing menace. PWC, pp. 1-23.

Deloitte, 2016. A Hotspot for Blockchain Innovations.

ERC-721, 2015. What is ERC-721.

European Commission , 2017. IPR Infringements: Facts and figures.

European Commission, 2016. Regulations. Journal of the European Union, 1(1), pp. 1-32.

European Commission, 2016. Safety Features for Medicinal Products for Human Use: Questions and Answers, s.l.: s.n.

European Union Intelectual Property Office, 2017. 2017 Situation Report on Counterfeiting and Piracy in the European Union. EUROPOL and EUIPO: Joint Project on Situational Report, pp. 1-63.

Gage, L., 2018. Bitcoin Lessons from Venezuela, Where Hyperinflation Reigns.

Harvard Business Review, 2017. How Safe are Blockchains? It Depends. March Magazine .

IBM, 2016. Blockchain and your solution.

Jayachandran, P., 2017. The difference between public and private blockchain.

Medicrime Convention , 2011. Council of Europe Convention on the counterfeiting of medical products and similar crimes involving threats to the public health. Reference CETS No. 2011.

Moungayar, W., 2016. The theory of a Blockchain Circular Economy.

Nakamoto, S., 2008. A Peer-to-Peer Electronic Cash System.

Nguyen, H., 2018. The Anatomy of Proof-of-Work.

Roberts, J. J., 2018. Blockchain Firsm R3 Is Running Out of Money: Sources Say.

Seal, 2019. Press Release: Seal Network to build blockchain anti-counterfeiting network with the European Commission.

Staines, R., 2018. 60% of pharma companies using or trying blockchain- Survey.

Tanasyuk, P., 2015. Anti-Counterfeit Solution.

Tapscott, D. & Tapscott, A., 2016. Blockchain Revolution: How the Technology Behind Bitcoin is Changing Money, Businesses, and the World. Business Review .

The Economist, 2018. Why bitcoin uses so much energy.

TOPLAS, 1982. ACM Transactions on Programming Languages and Systems. Toplas , 4(3), pp. 382-401.

Unifab, 2016. Counterfeiting and Terrorism. Unifab, pp. 1-29.

World Health Organization (WHO), 2008. Use of technology to Combat Counterfeigt Medical products.

World Health Organization (WHO), 2010. Growing threat from counterfeit medicines. WHO News , 88(4), pp. 241-320.

Appendix

Interview questions and responses by a consultant at Deloitte

What are the main challenges in the counterfeit domain right now? And how can blockchain provide a solution to it?

The current challenges in the counterfeit domain right now manly coming from the end consumer who is not interested in buying only real goods. The purpose of the blockchain is to legitimize the goods channels. Another challenge is the customs authorities. Because in order for them to check for potentials containers they analyze the provenance on paper and based on those decisions decide to check the goods or not. This type of method is not really efficient as most of the counterfeit goods pass unseen. The great advantage to use blockchain, in this case, is to provide a real track and trace technology. The paper works can be sent earlier for the customs to check and target earlier the containers. A big challenge regarding the counterfeit domain is how do you do to avoid the anti-counterfeit solution system to don’t enter the illegitimate goods channels. In this case, ensuring the goods have passed through all the legitimate checkpoints in the supply chain.

Are the EU agencies and companies’ part of the industry interested in blockchain solutions? Which are the most common ones?

The EU agencies are currently unlocking big budgets and partnering with startups to develop the current anti-counterfeiting solutions. The EU sees big potential in this technology. The most common one is the Seal network in the counterfeit domain

How do you believe can Blockchain disrupt the counterfeit domain and why? Please give a few examples?

Blockchain as the potential to change how the current system works. By helping the customs authority to target more efficiently the containers to target. Prove the position at each stage of the supply chain with the incorruptibility of the blockchain. An example is the harbor of Antwerp they did a pilot test. The cargo was carrying vegetables from New Zealand to Belgium. In the blockchain was stored all the information needed for the customs to check. The result was very confluent.  The blockchain allows many stakeholders to be part of the same network.

Are there any companies that are currently using a blockchain counterfeit solution?

 IBM is currently partnering with potential Seagate to develop a solution to effectively combat counterfeiting in the electronics sector. The diamond sector is currently highly investing in this technology, no chip is needed because diamonds are unique and have a unique shape, therefore, making them impossible to recreate. The uniqueness of the shape allows this characteristics to be based on the blockchain and to ensure the provenance of it.

What was the blockchain solution that Seal proposed during the Blockathon organized by EUIPO in 2018?

The proposed solution from Seal was to establish the characteristics of the good on the blockchain. It’s called the digital twin technology. The solution is to be able to track the product at each state. Current participants of the network are not allowed to change any state of the good.

Which type of blockchain is Seal using for its solution Private, Public or Consortium?) Why?

The Seal network is currently using Ethereum private. From a legal point of the view, the fact that is private allows the information to be stored in the EU. The main advantages of this blockchain are in the long term the switch from private to public can be made easily. Instead, the Hyperledger blockchain if you start with private and want to change to the public you have to rebuild the whole infrastructure.

How will that combat counterfeit in the EU?

The blockchain solution will allow differentiating the illegitimate goods from the legitimate ones. Ensure the transparency in the supply chain and build an ecosystem around it. Enable the public agencies fighting against counterfeiting to have more efficient tools at their disposal to fight back.

Can you explain a bit more the digital twin technology and its counterparts?

The digital twin is, in fact, the digital replication of the good on the blockchain based on the characteristics. The whole is stored in a microchip. The counterparts of these solutions are still the same. The storage of information is all decentralized and secure but the inputs are always coming from a human source. Until the full process is not completely decentralized this solution will not be ultimately secured.

After the Blockathon, did the EU Commission follow the implementation of blockchain to combat counterfeit?

Yes, the EU Commission is working closely with the EUIPO and other EU agencies to follow up the winners of the event and continue developing potential ideas to work on. The EU is promoting the usage of blockchain by creating laws to regulate the sphere.

Which other industries this solution can target (pharmaceutical, chemicals, textiles, etc.)?

The potential target is the pharmaceutical industry because a concrete example is the transportation of medicine. They need to be stored at a certain temperature. The blockchain as the capabilities to ensure that the information registered by the connected sensor is transparent and therefore secure. In the other industries, safety is less an issue and therefore lacking the exact regulation.

How do you see the counterfeit industry in the future (5 to 10 years)?

The industry in the next 5 to 10 years will be very different. The first thing that has to change is how the current laws are working. In the case of the Antwerp harbor, the test was concluded but the legislation is still lacking in terms of the technical aspect because they are still asking the paper to be physically handed in. In the future, the blockchain will play a major role in the counterfeiting industry by ensuring trust and transparency. It is only the beginning.

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