by Paul Camuso and William Shatner
Originally Published in Diplomatic World Issue 61- Autumn 2019
What are you doing with the blockchain? It may sound like one of those preposterous questions asked by today’s youth, but it’s a very important question to be thinking about these days.
The use of the blockchain is poised to permeate our lives whether we are ready or not. Its uses as a distributed ledger of information has boundless applications beyond Bitcoin and other crypto currencies. World industry is gearing up for global adoption of distributed ledgers becoming the normal way of them doing business in the future.
Smart contracts — think of them as little bits of executable code that work on the blockchain as applications do on your laptops and smart devices — are the future ways industry will utilize those blockchains. Futurists at Mattereum, a leader in smart contract property registrations, foresee a time in the near future when not only purchases can be made via the blockchain, but also ownership transfers of everything from automobiles to houses. Imagine not having to wait days, weeks, or months to pass papers on a new home but having to wait minutes if not seconds? This is where, theoretically, things are heading. It does, however, beg the question: how do you know what you are buying is real?
Certainly, a car is a tangible item, as is a piece of fine art or a designer handbag. For the last two, what assurance do you have that they are genuine? For luxury items, if you purchase something on the secondary market, how do you actually know it is real? With the internet becoming the most common secondary marketplace, it is becoming impossible for the average consumer to tell since, aside from a seller’s guarantee and perhaps a paper certificate (which can be easily duplicated), second-hand goods usually come with no assurance of authenticity. With the rise of counterfeiters and their use of technology to create accurate fake merchandise, sales receipts, and even product registration cards, there is a strong need to have something that gives buyers a safeguard when purchasing items. This is where the immutable aspects of the blockchain can assist in a very big way.
Imagine spending thousands of dollars on the secondary market and finding out that you accidentally purchased a counterfeit luxury handbag. The Global Brand Counterfeiting Report estimates that over thirty billion dollars annually is lost solely to online global counterfeiting. That is a worldwide impact on industry.
The OECD reported that the total value of imported fake goods worldwide was USD $461 billion in 2013 with nearly 5% of all goods imported into the EU being fake. And it’s only gotten worse. Harvard Business Review in May of this year ran a story on how Luxury Brands could beat counterfeiters and their numbers were shocking: the total trade in counterfeit goods was put at $4.5 Trillion and that fake luxury merchandise may account up to 70% of that number! That’s a nearly ten-fold increase in just 6 years! Counterfeit items are sold daily on many after-market and secondary market websites. Sometimes the buyer knows they are purchasing counterfeit items, but sometimes they do not. It would certainly help if manufacturers could implement a device in any item that gave off a faint radio signal which could be picked up by a smart device and verify the item as genuine. It could be as easy as using a transit card or a contactless payment card. This works only until the counterfeiters eventually figured out how to copy the signals and antenna tags. That is the depressing dilemma in today’s world, because no matter how smart or clever the manufacturer’s solution is to counter the forgery market, the counterfeiters eventually figure out a way to make exact copies, taking you back to square one.
All that time and energy spent, and within months (or even weeks) a counterfeit of a desirable item is being offered up for sale on websites at a healthy discount compared to its street price. Industry losses are mounting daily, and manufacturers have little recourse. Most countries where counterfeiting takes place have few laws or little interest in prosecuting. You can try and shut down the larger counterfeiters but, like an arcade game, as soon as one goes down, three more pop up to take its place. If you have a desirable brand or product that the public wants, you can be assured that somewhere, somehow, that item will probably be counterfeited.
The one thing that has not been copied to date is a crypto token or coin. The way in which crypto assets are created is based on a timestamp and verification of its creation by a number of machines that exist on the blockchain. When a crypto coin or token is “minted”, its address and identification on the blockchain is based in part on the timecode of its creation. That information is verified and recorded, making it immutable and thus unalterable. Attempts to duplicate it would immediately be rejected by the other verifying machines on-chain.
So there actually is an item (whether it be a crypto coin or token) that cannot be counterfeited. How can we relate this to a physical, real-world object?
Digital Twins versus Crypto Twins
A Digital Twin is what the name implies: a digital representation of a physical, real-world object. The definition goes on to include the actual physical object and the relationship between the two. The term has been in use for several years, having been popularized by NASA in the early 2010’s as a concept for 3D modeling where designs and ideas could be constructed in a digital world for testing before being constructed in the real world.
These twins also exist in the world of Crypto. The Digital Twin becomes a “Crypto Twin” aka a Crypto object (a token or coin) that relates to a physical object in the real world. It’s a bit of the reverse of a Digital Twin where the real-world object stays the same and a crypto token or coin is created to represent it, with their relationship being connected by the blockchain. This relationship can also be used as a record of authentication.
Our goal at Third Millennia Incorporated is to take real-world objects that have some intrinsic value and tag them in a uniquely identifiable way that can be read via a smart device. Whether it’s a one of a kind article, an autographed item, an original piece of art, or a valuable luxury item, we use the Crypto Twin token as a representation of a real-world object and, using the actual record of the blockchain, tie the two items together. This forms an immutable record of authenticity that cannot be counterfeited.
Here are some possible real-world examples:
A design house produces a high-end brand of signature designer merchandise. Since their brand is highly sought after by the public, they are victims of counterfeit goods manufactured elsewhere. The counterfeiters and their agents sell these knock offs via websites, street corners, flash store set ups, and secondary market auction sites. The public may or may not be aware that these items are counterfeit, but inability to stem the flow of counterfeit merchandise is worrisome for the brand as it impacts sales and its reputation.
Art has always been a very lucrative investment. If you choose the right artist, your investment in art can appreciate in value considerably while it decorates your walls. As a result, there is a secondary counterfeit market that produces fairly good copies of art by many sought after ‘collectible’ artists such as Banksy, Invader, and Warhol. Even counterfeit pieces can sell at thousands to tens of thousands of dollars. How can one be assured that they are buying a genuine piece of art and not a worthless fake on the secondary market?
The world of collecting has been around for millennia. Romans collected manuscripts and proudly showed off their treasures in such places as the fabled Library of Alexandria. Even celebrity autograph collecting has been going strong for centuries, with many autographs going up in value once the signer passes away. As an investment, they may not be a cornerstone to a portfolio, but they certainly have a value that can appreciate greatly.
In 2008, Hastings Communication and Law Journal quotes that each year as many as half of the art sold in the UK may be “spurious” and the value of art forgeries trading was estimated to be between $250 and $500 million and that counterfeit goods of all kinds had seen a “five fold” rise between 1989 and 2003. Art authentication, by its own nature is an educated opinion arrived at by a number of people whom the general public accepts as experts. Attributions to artists change over time. It’s not a science. Tens of thousands to millions of dollars are up for stakes in authenticating some art pieces. A lost master could bring millions while if an expert isn’t quite convinced of the authenticity of a piece; it could become a costly mistake for whomever the owner is. Interpol in its first International Conference on Counterfeit Art came up with a series of guidelines to raise awareness of the trend of counterfeit art, to enforce and encourage local laws to be passed regarding counterfeit art and to create a centralized database of information that member countries could turn to when they have an issue with counterfeit art.
The dilemma: how do you know that the William Shatner autograph you are bidding on is genuine? A quick look on secondary market sites like eBay list his autographed memorabilia with prices ranging from just a few dollars to several hundred. Since the signatures all look very similar, how does one know what they are bidding on?
In all of the above instances, and in many more real-world situations where authentication is needed, the question of how we know what is real and what is not continues to pose a great challenge.
Third Millennia Incorporated is attempting to solve this issue with a Crypto Twin Authentication service. Although the concept is simple, the mechanisms are technically complex enough to make them virtually counterfeit proof. Using a tag or marker that can be physically attached to a product, the frequency identification technology of the tag, along with other descriptive e information related to the item — appraisal reports, manufacturing information, photos, video, etc. — are put into the blockchain record.
The on-chain record keeping database is based on the Semantic Web format. Originally developed years ago for the web, its structured format allows the database of items that have been verified to be easily searched using basic web tools and Boolean expressions. This format is also the preferred format for many museum collection databases.
Once an item is scanned by a user on our smart device app, the technology built into the app will perform several functions. The initial scan will look up the blockchain record based upon the frequency identification, and the app will determine if that item has been recorded. If there is no record, an error will be returned. If the scan indicates that the item has been entered into the blockchain, an authenticity smart token for the item will be sought out. If the token has not yet been distributed, an account can then be set up using by providing a few basic details. The system will then create a simple crypto wallet on the app and put the authentication smart token into that wallet. The smart token effectively becomes a “Crypto Twin” to the real-world item and certifies its authenticity.
If the item gets sold by the owner on the secondary market, the token can be moved into a new wallet registered on the app for a small fee. Counterfeiters may be able to copy the tag, and even the signal, but unless the token has not been registered by the original owner, there is only one token per item. So an asset without a token is like a vehicle without a title, or a work of art without provenance. It basically delineates the secondary market for real and counterfeit items, allowing buyers and resellers to know what they are purchasing before the sale takes place.
The future for manufacturers, artists, and celebrities is very bright with the help of this technology. Future enhancements to the token could allow an owner to mark the token as stolen if the item is stolen. Then, any secondary market sellers that are offered the stolen merchandise can scan the item and see that it has been flagged. This would make it very difficult to sell, plus the item could be returned to the owner if the secondary market seller contacted the authorities. Furthermore, the service could be white listed by a manufacturer, artist, or celebrity to become a part of their own smart device app; insuring even more brand loyalty by their customer base.
The World Health Organization reported in 2017 that one out of every ten drugs in developing and poor countries are counterfeit. In a world-wide industry of over $300 Billion dollars in sales this puts the figure at over $30 million in counterfeit sales. Many companies are turning to crypto companies for solutions. Everledger has been working on a blockchain solution to track diamonds to prevent the distribution of blood diamonds into the economy. They are now expanding that system into the fine wine industry. It is hoped that using systems based on blockchain ledgers will help curb counterfeits from entering the commerce system.
The global implications of adopting this kind of technology would certainly benefit the bottom line of manufacturers, artists, and celebrities. The purchasing public can not only trust in the quality and authenticity of an asset but can pass along that trust into secondary market. It enforces brand loyalty and helps buoy up very healthy secondary market price levels to ensure the desirability and sophistication of the brand continues in those markets. This approach to using crypto technology not only enables adoptability by the masses, but also allows for a variety of future applications in everyday life.
“I am very excited to be a part of Third Millennia and it’s forward thinking strategies of employing crypto technology to allow adoptability by the masses. I see not only the uses discussed in this article but so many other practical uses of this technology in everyday life. I am going to be adopting the authentication technology in my own store where those who purchased an item signed by me will get one already registered on the blockchain with this service. It will ensure that my signature is authenticated through and beyond the third millennia!” — William Shatner