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Comment by crazygringo | Hacker News Reader

> While NFTs are not sure proof of a physical Birkin bag's authenticity, they all but ruin the economic incentives of counterfeiting.

I disagree. It means you get to have your cake and eat it too -- you use and wear out the authentic Birkin bag for years, a bag you got almost for free because you bought a cheap counterfeit and resold it together with the NFT while keeping the original.

If anything, it seems like this could increase counterfeiting because this would seem like such an... obvious scam to pull.

Indeed, I can even imagine the NFT being resold 10 times, each and every time the person thinking they got an authentic bag, buying a counterfeit and reselling it as authentic... when the only person who kept the actual authentic bag was the one who bought it from Birkin.

This is the fundamental problem with NFT's as I see it -- there is fundamentally no way to tie it to a physical object. Every owner can always sell a counterfeit and keep the original.

So the idea that this "ruins the economic incentives of counterfeiting" doesn't seem to hold water at all.

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An interesting counterpoint comes from coin collecting.

You can send coins to a professional authenticator and grader, like PCGS or NGC, who would certify the coin and place it in a serialized holder. Such "slabbed" coins are often easier to sell and command higher prices. This is a huge deal for some types, where a single point increase of grade (on a 70-point scale) turns $500 into $5000, and some where there are so many fakes that the standard best practice is to buy certified only.

Originally, they'd just have a lookup system on their site so you could see "Certificate 123456 was assigned to a 1825 half dollar, graded XF-45". If someone's selling certificate 12456, but on a 1912 nickel, red flags.

They still ended up with a problem of fake holders/certificates. Just scrape their database and get a cert number for the type and grade you're trying to sell, and pair it with a fake or lesser coin. So the next step was to include a high res photo of the coin in their repository. You could pull up a certificate and see "well, that's a 1825 half dollar in the container, but the one they graded has obviously different wear pattern, toning, die variety". This makes faking it much harder.

Notice it didn't require a blockchain though. There's a clear chain of trust back to the grading service, who has been in business for decades and established their brand and usually guarantees that if they misauthenticate a coin, they'll make the buyer whole.

NFTs are purely digital assets. Expecting physical assets to meld with NFTs is a curiosity for which we will have to wait and see. The benefit of NFTs from the perspective of software is that computers can validate the authenticity with a function call. Blockchain-based financial systems can integrate with them to create interesting use cases.

I’ve been playing around with the idea of a defi project where I mint NFTs for all of my PSA graded TCG cards which would allow you to return the NFT me to be “burned” and I’d ship you the underlying asset.

This would allow someone to hold and have high liquidity in graded trading cards without every having to take possession of the underlying asset.

Why burn the NFT? Wouldn't it be better to transfer the ownership of the NFT along with the physical item?

That gets back to crazygringo's point that someone down the line could sell the NFT paired with a counterfeit physical item and it might even be hard to tell who is the scammer and who is the victim.

Something like this is being messed around with by a few different companies in the form of fractional share ownership in cards, which is likely to be the form it ends up taking (a trusted market, ala the Nasdaq).

So the market holds the 1952 Mickey Mantle and shares get issued against it. You can buy and sell the shares, you never need worry about taking possession of the underlying asset. The market holds the physical asset and insures it.

If cards are going to have another level up from the single digit million dollar area, it'll be due to fractional ownership speculation. Up to this point, generally speaking, either a singular or very small number of people own the most expensive cards or can afford to own them. With fractional ownership, people can put $500 into a $5 million Mantle card, and own part of its appreciation over time. That flood of buyer demand will inevitably pop the total value of all the shares far higher than would otherwise occur for the card as a whole (which prompts the question of whether $30-$50 million type valuations end up happening for some of those cards, as in the art world).

PWCC is one of the obvious candidates for building a giant holding market, with card IPOs or something akin to that. They already allow you to borrow against the cards you hold in their vault. I'd be surprised if they don't experiment with fractional ownership in the near future.

I had this exact same idea not long ago but with PSA graded Pokemon cards. Essentially a reserve for digitising real world assets and collectibles. The challenge would be convincing everyone that your reserves are always secure and properly backed.

Doesn't sound very liquid relying on a single person to follow through on that.

The NFT can be traded infinitely as fast as the network will allow you. You would only have the NFT burned if you want to redeem it for the underlying asset.

I gave up on coin collecting because of the terrible fraud problems, in every aspect of buying, selling, and grading. The whole business is a giant racket.

Heck, you can't even hand a collection to a grader. He'll swap out your good coins for lesser ones when you aren't looking.

Same with stamps.

"Heck, you can't even hand a collection to a grader."

If coins and stamps are worth enough - and many are then you need to start treating your assets with respect. I would consider things like markings that show up under ultraviolet light or a microdot - things that don't affect the article. Get the marking(s) asserted in some way. Make the grader aware that you have taken steps. If the value is great enough, then you might pay out for a minder that follows the article throughout the process.

Perhaps there is a market for an intermediary service of some sort to do this job. Anyway, this has all been done before. You need to do a risk assessment on your stuff and protect yourself in proportion to the potential value of your things. Getting valuations done for any valuable thing is potentially problematic but I'm sure if you have a chat with, say, a jeweller they'll tell you how to get the job done safely.

One of the grading tricks I read about they'll do right in front of you. Hand them a stack of coins/stamps. They'll grade the first one very generously, so you'll think they're good. As they take their time one by one, you'll get bored/impatient and pay less and less attention. The lower down on the stack, the lower they'll grade them.

Sure enough, I went to a coin dealer and that's exactly what they did.

I think you're looking at a different type of grader than the services I'm referring to.

You're paying for the grading/encapsulation as a service, independent from any future sale plans, so they have no stake in under or over-grading any individual coin. They got their service charge (typically $15-100 or so depending on estimated value and turnaround speed) and they'd lose community trust if they were consistently too lenient.

The market only trusts a handful of firms, most of who have been around since the 1980s or 1990s and certified millions of coins. Most other brands are "price it as you would an uncertified coin, caveat emptor" or perhaps even worse, as some sketchy dealers would set up a fourth rate grading service as a means to make low-quality inventory more appealing.

I agree with your premise and doubt that adding NFTs into the mix will do anything to prevent counterfeits.

I don’t buy fancy handbags, but I have read that counterfeits are often made of higher quality material than luxury brands. So, the fool pays $$$ for a quality knockoff and an NFT. Maybe they realize it 5 years from now when they try to sell the bag. Hopefully at that point they will learn that there’s no tangible way to link physical objects to a blockchain.

One optimistic consequence of this may be a distancing between materialism and value. After all, The knockoff is just as good or better than the authentic. Let’s tie value to experience rather than objects. If you really must use NFTs and blockchains, then use them for concert/event tickets, governance systems, game collectibles , decentralized gambling’s/prediction markets, p2p and cross border value exchange, etc.

> After all, The knockoff is just as good or better than the authentic.

I think this may be over optimistic—the fact that counterfeits can be same quality doesn't mean they always, or even often, are. There are product categories where the difference is not apparent even to trained casual inspection, but there are real quality or even safety sacrifices.

I think the kind of product in question has a big role. A handbag should be relatively easy to inspect; look at the seams and look at the material. If both are robust and you like the way the bag looks, then it's a good bag regardless of authenticity. But on the other hand, what about something like wristwatches? To inspect all the parts you would need to tear it apart, which just isn't feasible before purchase [if at all.]

All I know about wristwatches is you can tell a faux Rolex from a real one by the faux sweep hands move in increments, while the real one moves smoothly.

I couldn't care less, and wear a cheap Timex because I regularly ruin them (usually by scraping).

That's what everyone "knows" about fake Rolexes, and it isn't true and hasn't been for a long time. 10 years ago I bought a Rolex for $15 in China that had a smooth sweep.

I think he is talking about a large category of product where you 'pay for the brand', the whole point is being outrageously expensive and exclusive. Thing diamons and designer handbags.

You don't generally have to trust. If you do your research you can buy a counterfeit of the highest quality which is often better than the product.

There are counterfeits that are of low quality, with a suitably even lower price, but by doing some research you can often tell.

This is a big problem for sneakers, counterfeits are often literally impossible for anyone to distinguish. In my high school a kid would be selling knock offs of hyped shoes and brought them to official stores or specialized resellers and got them appraised as authentic, repeatedly.

Now I hear through the grapevine that they have to use things like the rigidity of the cardboard in the box they came in with to try and figure out fakes, because the shoe itself is just too close to tell.

Ultimately there's nothing magic to the original. The products are generally much cheaper to make than they are sold, so there is no reason why someone couldn't make a version with better materials at the same cost. It's a question of imaginary property and signaling more than anything.

Certainly there's likely to be no reason that knock-offs can't be the same quality as, or better than, the original for much less price—but making the knock-offs appear to be the same quality while actually being lower quality is even cheaper still. As a counterfeiter, why wouldn't you make the cheaper product if no-one can tell the difference?

I am thinking here particularly of counterfeit chargers, which are designed to mimic the originals to comical extremes—so that you essentially wouldn't know without tearing them apart—but which are missing crucial safeguards that mean that they are much more prone to catch fire. If, as ClumsyPilot suggests (https://news.ycombinator.com/item?id=27573695), you are thinking only of fashion items, then it's probably less of an issue.

You don't because there is a very very competitive market for counterfeits of these products. For some shoes there might be five or six counterfeiters competing so they may distinguish themselves with higher quality and uphold a reputation that way.

Then there is a whole community of people that evaluate which batches are of higher or lower quality. Personally I don't buy counterfeits at all, the hyped shoes nowadays are just reskins of old designs and aren't that comfortable or imo look that exceptional.

Certainly, don't buy counterfeits that plug into mains though, unless you really really really know what you're doing.

Not all counterfeits are "counterfeit". Some literally come off the same production line as the legit products. A company will order say 20,000 units from a factory but because of overages in components it's actually cheaper (or not more expensive) to manufacture 22,000 units. They can then sell that 2k unit overproduction to a counterfeit dealer for pennies on the dollar, or fractions of a penny on the penny, to make a nice little bonus.

Manufacturing can often be like hot dogs and hot dog buns. The end product is a hot dog in a bun but hot dogs come in ten packs while buns come in four packs each for their own reasons. The most efficient combinations of dogs and buns are common multiples but demand isn't always in those neat numbers. Storing the dogs and buns can be expensive and they will go bad so there's no guarantee you can ever use your stock of stored buns and dogs. If there's a counterfeit market for complete hot dog units you can unload the overproduction and not need to worry about storage or spoilage. You're in the hot dog construction business, not hot dog component storage business.

Clothes are particularly susceptible to the overproduction/counterfeit market.

A street vendor in New York once tried to convince me to buy a Rolex with the pitch "It's got real Seiko parts inside!"

In Bangkok, the fake watch dealers offer grades of product, giving you the option to pay more for a better fake.

I had a fake "Gucci" watch in the 90s that looked ok on the outside, but just picking it up you knew it wasn't the real deal. Someone gave me as a gag gift. Opening it showed the case was a good match, but the inside was just a generic battery powered quartz watch. kept good time though.

I am visiting Turkey every year or two and every time I am going to local bazar to buy counterfeited clothing. They are more or less of the same quality (Turkey is a source of high quality cotton and linen) and really good fit because counterfeiters just cloning original articles piece-by-piece, seam-by-seam. Maybe buttons and zippers are of lower quality, but they are repairable, so I am okay with that.

I think that paying hundreds and even thousands for industrially manufactured shirts, jeans and underwear just for its brand is universally stupid.

> This is the fundamental problem with NFT's as I see it -- there is fundamentally no way to tie it to a physical object.

There is actually. I can't find any references to it at the moment, but there are certain things that are easy to make but near impossible to clone. For example, particles suspended in epoxy can make for a unique pattern for each item that can be scanned and verified, but getting a duplicate pattern is nearly impossible, and not economically feasible.

The NFTs aren't really needed though, a manufacturer could just have a "scan this item with your phone to see if it's genuine" app and that would be sufficient.

> The NFTs aren't really needed though, a manufacturer could just have a "scan this item with your phone to see if it's genuine" app and that would be sufficient.

Again, the problem of a centralised ledger comes back.

Why would it? If brand X adds anti counterfeit detection in their products and makes a brand X validation app, what's the added value of the ledger?

As we have seen, apps decay over time. So someone has to keep track of the app. Also, given unlimited time, all cryptographic algorithms can be brute forced, especially something that has the same key for all hashes. So, now you have the problem of maintaining a key for your "counterfeit detection", and somehow get older keys revoked. Do you see a ledger now?

why does our counterfeit detection need a key?

Someone gets rich quick on pre-mined coins.

I don’t think centralization is a universal problem. In many cases (one could argue the majority of cases), centralization is not an issue.

For items made from natural materials, it should be straightforward. For instance my musical instrument has unique wood grain patterns that could be memorialized in high resolution photos.

Banksy the artist has a validation site.

and an art registry to try a curb east to make fakes (stencils):

https://pestcontroloffice.com/real.asp

When I went to the optometrist, he prescribed some new ones. I ordered a new set of expensive glasses at the adjoining shop.

I noticed that the glasses came in an off-brand cheap case. Another customer there noticed the same thing. What the shop was doing was swapping out the expensive case that went with the expensive glasses, and likely sold the expensive ones to a glasses counterfeiter.

I don't use cases, so didn't care, but I thought the shop was pretty scummy.

Author here. Thanks for challenging my ideas.

If you keep the bag for yourself, and don't care that other people think you have a fake bag, then this is equivalent to the case of "consumable luxuries" that I discuss with Wagyu beef NFTs. I think this still creates pressure on the counterfeit economic incentives. The counterfeiter needs to acquire a real NFT for every fake bag they want to sell, and furthermore, this scam does not profit in units of cash - you end up with NFT-less real bags, which will be difficult to trade back into cash (caveat: this is assuming that no one will want to buy the NFt-less real bag).

I also mention the following in the post - it is not about guaranteeing the pairing of NFT and physical objects. I agree that there does not seem at present a reliable mechanism to pair NFTs with a physical objects. However, I changed my mind once I realized that it's about disrupting the economic incentives of counterfeiters. An even more roundabout way to achieve this goal would be to create legitimate jobs for people with these counterfeiting skills. Not all solutions have to be secure in the transactional sense.

Agreed, and his argument ignores the market for a large proportion of counterfeit sales - not sold as originals, but sold as counterfeits, for substantially lower cost than the original.

This makes a lot more sense.

What producers actually want is an enforceable monopoly on trade dress (the look and design of something), not authenticity or even scarcity.

This is why the most successful art market is probably video game cosmetics, where the game developer can meaningfully enforce that they are the only ones who can provide an X that looks the way it does. Even though an unlimited number of people can have it.

Indeed, if it can't be tied to a physical object, then there is no way to prevent two completely independent markets from developing for the object and its associated NFT. People could buy NFT's with no interest in getting a counterfeit, but simply selling it to someone else at a later date.

Granted this is strictly a hypothetical for me since I don't buy luxury items. My most luxurious possession is a musical instrument that I love dearly, but that is in fact fairly generic, and its value is based solely on its quality. But supposing I bought a laptop computer and it came with an NFT, my first impulse would be to sell the NFT as soon as possible, treating it like a rebate card.

His argument bases on the presumption that the counterfeit and the real thing are very close in quality as to be indistinguishable. You can sell the real item and keep wearing the counterfeit and nobody is any wiser, or vice versa. Whether you keep the "real" item to wear or wear a counterfeit is inconsequential. The real value of the item passes along with the NFT to the new owner. The remaining item whether is real or not has vastly less value.

The economic incentive of counterfeiting is ruining in that the counterfeiter cannot sell 1000 counterfeits with the full price as the real item.

In general for these goods the use value comes with the visual signaling. No one is going to check that the NFT is owned by you in public.

The other value comes with being able to enjoy the utility of the good without risking someone noticing you're wearing a counterfeit. Again, no one's going to check that you hold the NFT.

In that sense, it makes the counterfeit's value higher.

The visual signaling isn't that because NFT is a new thing. Someone will come up with NFT based visual signaling pretty soon.

> Whether you keep the "real" item to wear or wear a counterfeit is inconsequential. The real value of the item passes along with the NFT to the new owner. The remaining item whether is real or not has vastly less value.

IE, it assumes that attaching an Hermes NFT to Birkin bags would cause Birkin bags to become worthless.

The reduction in incentive to counterfeiters is in direct proportion to a presumed reduction in value of the bags themselves.

I think the more likely outcome would be that the NFT is mostly worthless, but wherever things wind up, it remains as two seperate markets.

Hermes could probably get someone to pay for NFTs they create. Pretending they’re tied to their other goods just adds reputational risk.

I don't know how people are making these authenticity arguments using NFTs, because your counter-argument is spot on. Having said that, the anti-counterfeiting mechanism for physical goods like Birkin bags is exactly the use case for Vechain.

> I don't know how people are making these authenticity arguments using NFTs, because your counter-argument is spot on.

Because people are desperately investing reasons to justify themselves because:

1) they're gullible and bought into the hype, or

2) they're shady and want to make money off of the gullible.

It also assumes the economics of counterfeits are about tricking people into believing they have something authentic.

There's plenty of people who want convincing counterfeits because they are unwilling/unable to obtain the real thing.

Reminds me of comments I've seen about counterfeit high end fashion goods. The counterfeits are often higher quality.

If the warranty travels with the NFT, then it provides an avenue for the fraud to be uncovered, and since the intended life of the bag is recorded in the blockchain, the fraudster can be determined. I think it'd be more difficult to get away with what you describe on a large scale with the NFT in the picture than without.

Anyone involved in NFTs for physical objects (other than say, landmarks or some other abstract concept) has missed the point of NFTs. Which is understandable, since that point requires a bit of mental flexibility to grasp in the first place.

Considering the #1 use case widely discussed for NFT's is establishing authenticity+ownership of art both digital and physical, I'd say you seem to have missed the point.

You clearly seem to have a strong opinion about it, but your opinion seems to be entirely against the mainstream NFT conversation.

And please don't insult people by claiming their ignorance is "understandable" because their brains aren't "flexible" enough.

Any reading you can direct me to on people implementing NFTs for authenticity of physical art? I've seen it discussed casually but haven't come across anyone seriously looking at doing it in practice.

The flexibility comment wasn't intended as an insult to people who dislike / don't understand NFTs (or to anyone, maybe just a jab at NFTs themselves).

There's some potential for embedding unique steganographic watermarks (or natural variation, like non-silicon PUFs) into physical items and linking them to the blockchain but it's currently hypothetical.

> was the one who bought it from Birkin

Birkin is not a company/brand, Hermes is the brand that sells these bags.

So no offense to you, but if you don't even know that I'm guessing you're not very up to date on the fashion world in general, and on how authenticity/counterfeit prevention is handled in that space. And your opinion on whether NFTs make that more difficult or easier to handle is probably just an off the cuff guess.

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