The Center for Data Innovation spoke with Rene Bernard, chief executive officer and founder of LuxTag, a Malaysian company that creates digital certificates of authenticity for products and assets on the blockchain. Bernard discussed how LuxTag’s solution uses blockchain to combat counterfeiting in various industries.
Eline Chivot: Why did LuxTag originally focus on the luxury goods sector, and what prompted the company to expand its idea?
Rene Bernard: The founders had a background in technology and initially met through tech meetup groups, which they had become more active members of. The joint interest in the years preceding the formation of LuxTag as a startup was blockchain and cryptocurrency. In the years 2015-2016, our “geek-tech world” was talking about all the great opportunities which this particular technology provides. There were many talkers out there, and few doers. We were probably becoming part of the talkers and dreamers category ourselves. Jeff, Faeez, and I put our heads together in late 2016 to find a truly meaningful application, a use case that could bring added value to industries as well as consumers. After intense brainstorming, doing “problem-finding” (as silly as it may sound), we identified the matter of counterfeit luxury consumer products as an easy-to-understand, low hanging fruit problem to tackle. Throughout 2017 and 2018, we learned—the hard way—that the large luxury brands of the world are not particularly keen to “try out some fancy tech which a startup from Malaysia came up with.” We understood that we needed to create a track record and build credibility. That’s why we broadened our scope to other applicability fields.
Chivot: Which special features of blockchain technology do you use, and why is this technology particularly suited to the purpose of LuxTag? Is there any way a hacker could hypothetically alter the blockchain?
Bernard: Blockchain is a ledger-keeping track, an accounting system. It can account very well for a secure, generally accepted truth—and can do so without having a central point of failure nor necessarily a trusted central authority operating it. So here we have a system which can be trusted inherently, and it can account for entries in a very secure and tamper-proof way. The accounting works in an “append-only” way, which means that updates to datasets are possible, however only with the correct access rights (being authorized digital signatures), and creating an audit trail of all transactions. The combination of the above allowed us to construct an efficient system of accounting over unique objects, their creators—manufacturers—and owners.
AI and blockchain can cooperate nicely and interact in regards to predictive analysis of the big data gathered and stored in blockchain ledgers. AI systems can API-call (i.e., connect online) to databases and blockchains—and assign an elevated trust to data fetched from a blockchain source.
Of course, a hacker could “control” the blockchain, for which he would need to recreate it from scratch and insert fraudulent data. To do that, he’d need to control the majority of servers running the interconnectedly synchronized, decentralized blockchain. Hackers would probably instead attack the web application servers, which fetch data from these ultra-secure databases. As such, we use industry best practices to secure the application servers as well as the blockchain nodes. By the way, blockchain systems become more secure the more decentralized their nodes are in place.
Chivot: A wide range of sectors is affected by counterfeit products. How do some of your solutions help track down real goods? What makes them useful and beneficial to your users?
Bernard: We don’t just provide the solution to account for unique items and protect them against counterfeit. LuxTag is a holistic system that comprises both anti-counterfeit, business insights including post-sales insights, and customer engagement. With a combination of these, we were able to design solutions for different industries.
We use the principle of a unique and secure digital twin for individual items. This concept allows for information about product movements, their origin, and their ownership properties to follow the real-world transactions. We use blockchain technology to secure the data, using cryptographically secured blockchain accounts (with address, public key, private key). Further, we leverage multi-signature smart contracts, so that ownership relations are reflected as access rights in the blockchain database “twins’ world.”
Using this solution for use-cases like supply-chain management, warranty tracking, and customer engagement allows a broad range of services that add value to various industry sectors. The counterfeiting of products becomes unviable.
To mention some of our users and the industries we’re working with, they include artists (collector management system); educational institutions (credential verification system, e-CV); fast-moving consumer goods, i.e., product authenticity and customer engagement (loyalty); industrial (e-SPECS sheets and authenticity verification); and luxury (provenance, warranty, authenticity and customer engagement).
Our customers can serve their buyers better when using the LuxTag solution. There’s direct added value, and the implementation cost is not high.
To give you a specific example about how educational and professional institutions use LuxTag—we provide LuxTag e-Scroll, a solution to confirm the authenticity of credentials. Universities use this for educational credentials like diplomas, and the Malaysian Bar Council uses this for their membership certificates in combination with continuous skill development courses. The core of this solution is rather simple. An authorized body (vetted and signed up) creates a document and the respective digital certificate (“twin”). The digital version is reflected as a full-fledged blockchain account, which can hold data and can only be updated by authorized parties.
The verification of authenticity of credentials would require to check into the digital account and verify the existence and validity of the contained data. The checking happens using a mobile or web application and scans either a QR code attached to the print, PDF credentials document, or the document itself with its text. LuxTag developed an optical character recognition (OCR) solution which reads the machine-printed text on the document, and finds it in the blockchain-powered e-Scroll system. Then it’s checked for consistency, and a verification result is displayed to the user.
Chivot: From backing up data of most vital updates to digitizing a supply chain, blockchain is an efficient problem-solving technology and can be applied to a surprisingly broad diversity of industries, including traditional ones such as the pharmaceutical industry. Can you explain why this sector would be interested in using blockchain?
Bernard: Counterfeit in the pharmaceutical industry is a significant problem. Firstly, it’s a large business. Pharmatimes.com estimated its annual revenue loss to be €27 billion in Europe alone. Fraser Institute and OECD data show the worldwide size of counterfeit pharma products to be superior to $200 billion annually, which is only slightly less than the $246 billion illicit drug trade. Secondly, counterfeit in this sector is very dangerous because it impacts peoples’ health and lives directly. Thirdly, it involves consumption goods—which compared to long-living consumer goods makes product quality less critical for counterfeiters’ marketing and business model.
Regulatory bodies are seeking to put standards in place to reduce the issue. Initiatives that focus on monitoring the supply chain, such as “mass serialization,” “track and trace,” or “hologram tagging” have had mixed results. Counterfeiters are nimble and have been quick to find methods of bypassing these measures. Blockchain technology is yet another next innovation step to curb counterfeit in this sector—and if applied correctly (ideally at the points of sale), it can work with near 100 percent efficiency in doing so.
Chivot: Using blockchain could require a deep technological understanding of the technology which not all industries are equipped with. How is LuxTag making blockchain more accessible?
Bernard: We use blockchain technology as a component of a holistic business solution. I’m not even saying “of a holistic software solution” because it embodies a combination of tags, processes, and software—combined with online connectivity. As such, users ideally won’t even notice that they are using this innovative tamper-proof technology.
Decision-makers at businesses purchasing our solution often don’t fully understand the working model. They are more interested in the “ultra-secure” system and the fact that they are using the famous and innovative “blockchain technology” in their organization.
Recently, we had a customer who told us that the objective for their system upgrade would be to tick the checkbox “got blockchain.” So we did exploratory discovery workshops to identify possible use-cases where to plug in our technology so that we overachieve and tick another box, which is essential for us: “meaningfully enhance the system and add value.”
Chivot: Blockchain was often touted as a world-changing technology but its integration in various industries is evolving slowly. How is LuxTag adapting, and in which sectors do you hope to see progress in the deployment of blockchain?
Bernard: We need to go with the trend. And at this moment, the industries are not moving as fast towards full-fledged-blockchain-powered as we would like to see it. Hence, we are working on several client projects where blockchain elements only cater for a limited added value and represent only a limited part of the whole system. For example, we are working on a system to secure states of databases and illustrate trusted audit trails. This is for a government body engaging in licensing, permits, and grant approvals. There’s another project which aims to ensure that intellectual property is respected in the field of additive manufacturing. Our future remains in the field of the core benefits of our solution, as mentioned above (anti-counterfeit, business insights, customer and user engagement). However, we’re bending our core approach away from focusing on blockchain and wrapping it into services. We are now building solutions to solve industry problems, and concentrate on added-value first, blockchain second. We’re moving away from being blockchain geeks towards a professional B2B SaaS solution provider, blockchain-enhanced. And by the way: Initially, we had hoped to create a “product,” but ended up doing various projects as part of our learning curve and the 360-market-discovery. Projects mean that they’re very customized, almost like a software development job with LuxTag innovation elements. Now, in 2019 and in 2020, we’re pushing towards productization so that we can reach scalability. So, to sum up, LuxTag’s future: It is standardized, productized, and scalable!
The sectors where I see progress for blockchain include supply-chain and standardized interaction at handling warehouses and logistics; the notarization of documents and contracts to timestamp and tamper-proof them; intellectual property protection, copyrights, and trademark; and Fintech & Techfin—i.e., for borderless payments, digital gold, “sound money” (inflatable at the utter will of a central bank).