Alibaba, JD tackle China’s fake goods problem with blockchain

Chinese ecommerce companies are tracking products from steak to liquor with blockchain technology. Photo credit: Benjamin Faust / Unsplash.

China has long suffered from an epidemic of fake products, from hard alcohol to Louis Vuitton bags. Now, equipped with blockchain technology, the country’s ecommerce giants are tightening up their supply chains.

Through QR codes – the ubiquitous portal between the real and online world in China – JD and Alibaba are giving physical products their own electronic passport through which to record their movement, source to destination.

“Brands in categories such as foods, baby and maternal, liquor, and luxury products are eager for traceability,” says Haibo Sun, head of blockchain research and development at JD. “Consumers are more and more focused on quality, especially in China.”

“Whether to guarantee safety of food or authenticity of luxury products, consumers want transparency and traceability to be sure they’re eating safely, and not being duped with counterfeits,” he adds.

With blockchain, the risk of counterfeiting will become very high – the cost will be too high.

Chinese consumers have seen their share of counterfeit and contaminated goods scandals. In 2008, the country saw one of its most devastating food tragedies when six infants died and 300,000 babies fell ill after drinking melamine-tainted milk. Just this September, local authorities in Guizhou province seized 2,000 bottles of fake Maotai liquor, one of the most popular spirits in China.

According to the Organization for Economic Cooperation and Development, the global trade for fake goods was worth almost half a trillion dollars in 2013, with China as the top producer.

Blockchain technology, a distributed database verified by a peer-to-peer network of computers, could be a key part of the solution. By pushing a product’s tracking data to a blockchain and giving customers access, companies can add transparency to their supply chain while significantly upping the ante for counterfeiters.

“The risk of counterfeiting will be very high – the cost will be too high,” Geoff Jiang, vice president of Ant Financial, tells Tech in Asia. Ant Financial’s Innovation Lab, which Jiang heads, is developing the blockchain solution for Alibaba’s supply chain. He says that in the off-chance that a fake product is found, they’ll be able to track down the culprit.

“We know where the product comes from, its source, and which retailer it’s coming from,” he says.

Off chain

When someone transfers bitcoin to a friend, everything happens end-to-end on the blockchain. The cryptocoin already has a digital identity. The challenge of tracking steak as it travels from Australia to China is that you have to map offline activity online – and make sure nothing important falls through the cracks.

To do that, Chinese ecommerce companies are using QR codes and RFID devices, such as NFC chips, depending on the brands’ needs. Each carrier serves as the product’s electronic passport, assigning them a digital identity with which to record their movement.

Here’s how it works: every time the product changes hands – factory to warehouse – employees scan the code or tag, which records its location and timestamp. Once the package makes it to the customer, they can scan to see the product’s history and verify its origin via JD or Alipay’s app. Thus, counterfeiters would not only have to contend with copying the product or its packaging, but the entire digital infrastructure behind it.

Global movement

Room for error