Supply chain solution blog

Blockchain to Solve the Challenge of Counterfeit Components

Counterfeit electronic components on the grey market are a significant issue for OEMs and contract (EMS) manufacturers. Suppliers such as Component Sense go to great lengths to ensure they always buy genuine traceable excess component stock from major OEM/EMS manufacturers - but not everyone in the component supply industry is as thorough.

This creates significant distrust in the supply chain, and causes many OEM/EMS manufacturers to focus on franchise distributors. While this certainly solves the counterfeit problem, it leads to higher costs and increases the amount of e-waste because genuine excess stock can’t be sold and so it gets scrapped.

Blockchain technology promises to solve this problem, according to a new report.

So what is a blockchain?

Put simply, it is a ‘block’ of digital information saved in a ‘distributed public ledger’. Let’s break that down. Each block of information contains three important elements:

  1. Information about the transaction, such as which components have been bought on which date and for how much.
  2. Information about who the buyers and sellers are (their digital signatures).
  3. An encrypted unique identifier for the block, that depends on the information stored in the block.

Each block not only knows its own unique identifier, but also the identifier for the preceding block – this is what creates the ‘chain’. The chain grows one block (or transaction) at a time. To hack a block, the hacker would have to go back into the chain, edit the block, but that would also alter the block’s identifier. So the hack would be obvious, because the next block in the chain knows the preceding block’s identifier.

The next important element is the ledger. Each block has to be recorded, and that’s done in a publicly shared ledger. But the clever thing is that every single computer that is part of the blockchain has a copy of the ledger – that’s the ‘distributed’ part of the ‘distributed public ledger’.

And that’s the second thing that makes the whole system so secure. For anyone to hack the information in the blockchain, they have to hack every single computer that holds a copy of the ledger. When a transaction takes place, all the computers that are part of the blockchain validate the transaction and update their ledgers at the same time. For Bitcoin, for example, there are at least 5 million computers that are part of the blockchain.

All of this can be used to evidence the provenance of a set of components, demonstrating the complete supply chain they have flowed through step by step, so the source of those components can be completely trusted.

At Component Sense we believe that blockchain has the potential to be a useful technology. Anything which helps OEM/EMS manufacturers to have confidence that they can buy someone else’s excess stock also helps to reduce e-waste – a growing and critical issue as we consume the earth’s resources. There are still questions to be answered, though, including how all the manufacturers, distributors, brokers and OEMs/EMSs in the industry can network their computers to form one distributed ledger; and how we will cope with the vast number of daily transactions. This is an important area, and we look forward to solutions emerging.