The rise of digital channels facilitating the sale and purchase of consumer goods has fueled a rapid increase in the trade of counterfeit products worldwide.
The trade of fake merchandise has slowly risen over the last few years and now accounts for 3.3% of global trade.
The Real Problem
First and foremost, it’s the fact that a counterfeit product equals a low-quality product. While this might not seem like a serious threat (and for those who knowingly buy knock-offs for superficial reasons, it’s not), the truth is that poor-quality items can have harmful consequences.
From designer clothes, perfumes to electronics, cosmetics, and drugs – the package and product might look identical to the authentic brand. Still, when used, they have low performance, with some causing health problems, putting consumer lives in danger.
These scenarios severely negatively impact a brand’s reputation and, in turn, consumer trust. Since many consumers are unaware that the product they purchased is counterfeit, the customer will blame the authentic company when the item fails to work correctly, falls apart, or doesn’t meet their expectations.
Businesses can face severe threats of counterfeit products, resulting in a loss of revenue for the brand being replicated. When counterfeiters sell a product that looks the same as the original but at a lower price, the authentic brand will lose sales.
A few years ago, consumers could quickly identify fakes by buying directly from the brand's shop. With the explosion of e-commerce and social media, the lines between real and fake are much more blurred.
A Twist In the Supply Chain: Nexity's Non-Fungible Ecosystem
A plethora of solutions has been launched to overcome current obstacles in guaranteeing certain product quality and authenticity.
While various approaches tackle supply chain traceability, they are mainly concerned with tracing single, non-modifiable goods, being limited to tracing simple goods that have not been part of the manufacturing process.
In supply chain management (SCM), traceability follows a product's path to its origin, while tracking refers to the down-ward operation from raw materials to end products.
A common issue in supply chain traceability is the projection of physical goods onto a digital representation.
Nexity Network provides a token representation that implies benefits, such as proving authenticity by attaching RFID chips and QR codes to link physical products with their digital counterparts on the blockchain.
It inherently allows for proving ownership and permits transferring it to another party. Current solutions can track products from creation to retail.
We created a blockchain-based post-retail supply chain system for anti-counterfeits. We utilized this linkage to trace products after being sold in retail, representing a decisive competitive advantage in helping our entities enable circular supply chains.
As a result, the product's origin and its inputs are traceable.
Currently, we tackle two requirements for supply chain management that conventional systems cannot deliver comprehensively:
Firstly, customers are empowered to review the quality of a product, its ingredients from various dimensions, percentage of traced materials, supply journal, CO2 emissions, and environmental & labor standards.
Secondly, in the context of quality management, the proposed system enables manufacturers to monitor the supply chain on multiple tiers rather than rely on the information provided by suppliers.
Our key contributions are as follows:
- We design a supply chain traceability system that models manufacturing processes as token recipes.
- We present a prototypical implementation for the Ethereum Virtual Machine (EVM) using smart contracts.
- We evaluate our implementation concerning the execution costs of smart contracts and the scalability of our system with increasing product complexity in terms of inputs.
- We link an NFC tag to the physical product to control the ownership transfer, authenticity, and performance over the supply chain.
- We design a customer view page for products as their digital twin with an NFT card attached.
The state-of-the-art for tracing and tracking products throughout a supply chain is to store records of suppliers and customers in a centralized manner within each participant's supply chain management system.
This information is isolated or shared among suppliers and customers to achieve comprehensive insights on supply chain provenance.
To digitally represent a manufacturing process, several tokens can be transformed into a new ticket. When creating a new smart contract, the product composition is defined.
Comparable to a recipe, the creator specifies the number of input goods and corresponding amounts required for creating a new product.
Following the recipe, when a batch of goods is to be created, the contract owner needs to possess the required input goods in a sufficient amount.
The specific batches of input tokens need to be specified so that they can be consumed by the smart contract automatically.
If a batch of units is not entirely depleted, the remaining units are kept so that they can be used for future manufacturing.
Only contract owners can generate token batches, as a contract always corresponds to the product only manufactured by a specific producer or supplier. However, token owners can split, merge, transfer and consume batches.
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