The surge in the number of e-commerce platforms and sales expected to reach $7.4 trillion by 2025 has inadvertently opened up opportunities for the trade of counterfeit goods online due to increased accessibility. The presence of fake products on such platforms can cause significant damage to brand reputations and presents safety concerns for consumers. Distributed Ledger Technology (DLT) promises to offer a solution to this growing problem by providing a more secure way of combating counterfeit goods.
E-commerce platforms have proven to be easy targets for fraudulent activities with counterfeit products making up an increasing percentage of the revenue for retail platforms. A clear example of this can be seen with Etsy, the online marketplace becoming a notable hub for counterfeit goods, according to a recent report by Citron Research. Such activities lead to a significant decrease in the firm's share value earlier this year.
In today's globalised marketplace, counterfeit products account for 3.3% of world trade. The European Union is affected even more substantially, with counterfeit and pirated goods accounting for 5.8% of all imports from third countries. These counterfeit goods do more than just harm brand reputation. They undermine the authenticity and quality of products, particularly of luxury brands, and pose safety risks for consumers, with unregulated products potentially not being as safe as their genuine counterparts.
Counterfeit goods are increasingly challenging to identify. Counterfeiters can potentially access the same supply chains, factories, and materials as genuine brands, making their products almost indistinguishable from the real thing. Fraudsters have been known to manufacture their goods in locations with lower labour costs, which can result in the exploitation of local communities. This activity has significant implications for economies globally. The UK government reported an annual loss to the economy of £9 billion due to counterfeiting and piracy, a trend that has resulted in 80,500 job losses each year.
Countering this issue requires adopting new technologies. DLT is emerging as a tool that can help brands facilitate transparent supply chains, making it easier to trace and eliminate counterfeit goods. Coupled with Radio Frequency Identification tags (RFID), Near-field Communication technology (NFCs) and QR codes, DLT-based solutions offer a tamper-proof way of conducting due diligence, improving trust and traceability.
These technologies allow for the creation of customer-friendly digital certificates that provide evidence of a product's authenticity, with goods verified by experts before being labelled with a unique identification tag. This combination of technologies strengthens the connection between physical products and their digital 'twins', a strategy gaining popularity among e-commerce brands. Though product tagging technology can face vulnerabilities like basic cloning and security breaches if used alone, integrating it with DLT forms a tamper-resistant record of a product's journey through the supply chain, improving trust in the technology itself.
The introduction of DLT and product tagging is poised to revolutionise the e-commerce and retail sector by facilitating greater trust and protection across a variety of markets. The information provided by these technologies will allow consumers to regain trust in their favourite brands by offering transparent proof of product authenticity.