Hardware companies can use Bitmark to solve warranty fraud.

Hardware companies can use Bitmark to solve warranty fraud.

The bitmark can contain relevant data and metadata to authenticate the physical item. It’s also unforgeable, and can be authenticated without relying on a third-party.

Online fraud takes many forms, but one of the more insidious is warranty fraud. A warranty is a promise from the seller of a product that the product will meet certain expectations. When this promise is exploited it becomes a major pain point for hardware manufacturers and this affects consumers in non-obvious ways.

Products, sold globally, must be supported locally by an ecosystem of staff, distributors, and developers. The supply chain complexity of modern hardware devices, like your phone or computer, is staggering. As the complexity grows the need for trust increases. Small startups struggle to deal with this complexity, and often fail before they can reach scale. Large companies are willing to accept a certain percentage of fraud as an unavoidable cost to doing business. To make matters worse, companies are reluctant to share their experiences and best practices. They fear being more transparent about the problem will lead to even more exploitation. What is needed is a different approach. The Bitmark blockchain can help restore trust in the hardware industry. This post explains how.

Digital titles, or “bitmarks” that secure physical products.
Bitmarks are digital property titles that prove the origin, authenticity, and history of ownership for digital property. (Learn more about what’s in a bitmark). A bitmark works well as a serial number or warranty code. One possible method to fight warranty fraud is to give each product a warranty code and then have customers “claim” the corresponding bitmark. Only one customer can hold a bitmark at a time. (The blockchain enforces this scarcity.) Once the manufacturer transfers ownership of the bitmark to their customer they can rest assured that it cannot be forged, swapped, or cloned.

The warranty code can be a simple label. For higher-value items, it can be etched onto the hardware directly. It should have enough length to represent a bitmark which is 32 bytes. A QR code works well for this. In the few markets, like North America, where people still don’t use QR codes, we suggest using a passphrase — dictionary words not commonly found together in literature. Here’s a good one.

Here’s a claim as a QR code:

Here is that same claim as a passphrase:

middle atom wife rigid pyramid garlic fine badge
hour exotic ordinary change display artwork hand exile
verb size nest mirror wrong ankle float appear

That code represents the rights to claim a bitmark that was issued by the manufacturer.

The bitmark can contain relevant data and metadata to authenticate the physical item. It’s also unforgeable, and can be authenticated without relying on a third-party. This makes it possible to radically lower costs for common after-sales support issues like customer support, warranty, RMA, and much more.

Hardware startups, here’s your fraud-proof serialization solution.
Bitmarks provide the foundation for a robust hardware serialization. To really flush out the value of this fraud-proof serialization, imagine a hardware startup that recently pushed a Kickstarter project into mass production and has begun shipping. If each board is fraud-proof serialized, when a customer has a problem the startup knows exactly which production run the board came from, what firmware was installed, and when it was received, without even having to ask the customer a single question!

But it gets better. Not only can the startup have this information but any distributor can authenticate customers, as well. This means lower distribution costs (with higher margins). And it also means more local, higher-quality support for customers.

“Trust” is automated, basic annoyances like asking for proof-of-purchase can be skipped, and more time can be spent making the customer happy.

Large consumer electronics companies can benefit with Bitmark as well.
Fraud problems are definitely not exclusive to small business. For example, Apple, Cisco, and Fitbit have been known to suffer massive warranty fraud (don’t quote us on this, but it’s likely in the billions of dollars per year!). To make matters worse it hits their most expensive product lineup. Large companies that bitmark their physical products can automate customer support checks across their distributor network, just like the startups. Being able to track conversion rates is valuable data for inventory management and future product planning. In addition, they would be able to offer rewards and discounts on future sales, which is good for their customers and their bottom line.

Enabling hardware business models of the future.
When a product has an unforgeable serial number linked to the cloud, you can do remarkable things, and with great ease. Here’s a list of our top 5 favorites:

  1. Solve the open hardware support conundrum. When you ship open-source hardware anyone can also make clones. Yes, it’s great to have a vibrant community contributing bugs fixes and feature ideas. But it’s also expensive to support clones from other manufacturers. A new model could be to sell a bitmark as “rights for support.” This could transform a cost-sink into an additional revenue stream.
  2. Manage “closed betas.” Special (serialized) hardware could run beta software and the entire distribution of that software could be automated and authenticated and tracked within the confines of a specific group of users.
  3. Make warranties transferable. Being able to transfer a warranty with full transparency and security, would hugely benefit customers and could substantiate secondary markets. . That grows the pie for everyone. Combined with conversation tracking, it’s a great way to bring new customers into the market.
  4. Authorized playback. Bitmarks can protect data in the way that access control software such as Digital rights management (DRM) promised data protection, without the nasty side-effects for end-users. Software can verify ownership by checking the blockchain itself to make sure the current holder is the recorded owner. This can happen behind the scenes, and it doesn’t require a third-party to enforce.
  5. Firmware upgrades. IoT has terrible security. Device manufacturers could transfer bitmarks for security updates to device IDs. This way each device could authenticate the software without having to worry about malware. The blockchain is distributed so that if any one specific server is compromised the overall security can still be maintained.

Join us in our efforts to democratize the digital economy. Sign up for our beta and try our IFTTT service. If you have any questions, we’re @BitmarkInc on Twitter.

By Bitmark Inc. on September 22, 2017.