The phrases “keeping it real” and “keeping it 100” (or one hunna) are firmly entrenched in the popular vernacular. But in the world of sneakers, doing either of those things has become increasingly challenging. With more and more people diving into the world of limited edition, collectible sneakers, more and more counterfeit kicks have flooded the market. Ebay remains the preferred method for many sneakerheads to buy on the secondary market, but it has also become a dumping ground for fakes. The bogus kicks come in a few different varieties. There are obvious knock-offs that sell for prices far below any comparable competitors. Connoisseur spot those easily. But the counterfeit sneaker manufacturers have gotten better and better at replicating the originals, making it very difficult for a buyer to tell if the sneaker is the real deal. And there is no worse feeling than shelling out hundreds of dollars for your grail sneaker only to have it arrive and be a fugazi.
Just as counterfeiters saw an opportunity in the emerging sneaker market, a new Silicon Valley company sees opportunity in the emerging counterfeiters. Chronicled is a startup that creates a digital record of real world items by affixing smart tags that contain encrypted microchips to the goods. Much in the same way that auction houses can trace a work of art or a collectible car back through a series of owners, Chronicled hopes to do the same with sneakers, and eventually other luxury goods. What makes the company unique is that the records are maintained digitally, through a technology system called a blockchain (Bitcoin uses a similar technology) that cannot be tampered with.
It’s one of these ideas that takes a little while to wrap your head around. But when you hear Chronicled founder Ryan Orr talk about how counterfeit luxury goods represent a $1.8 trillion market (yes, trillion with a “T”) and that an estimated 70% of the sneakers sold on eBay are fake, you realize this is a bigger problem than a few individuals getting screwed on some Air Jordans. We spoke with Orr to find out more about how the system works, why he decided to start with sneakers, and what his favorite kicks are.
Where did the idea to create Chronicled come from?
The original idea behind Chronicled was the emergence of the Bitcoin blockchain. With a blockchain we have an open public registry that can become a platform for registering authentic items. A blockchain is like a public database supported by hundreds of distributed computers that no individual or company owns. It’s a new way to record financial transactions, ownership of assets, or transfers of ownership of assets. If we just put microchips in products, Chinese counterfeit knock-off companies could buy microchips and put them in the counterfeit products, too. It’s the encrypted registration of a specific product to the blockchain that makes it [unique]. This tech’s emergence inspired us, and we’re really the first to apply it to solving the problem of counterfeit product fraud and the authentic verification of luxury goods.
Why start with sneakers?
We looked at launching the company in fine art. But with fine art you don’t have a rapid velocity of trading and you don’t have a really high incidence of fake paintings. It’s mostly older people that are in the fine art market and they are not as tech or mobile savvy. We wanted to find a vertical to launch this authenticity tech platform where we had a really severe problem with fakes in the market and where we had a younger audience. With sneakers you have a huge market of fakes—probably 60 to 70% of sneakers sold on eBay are fake. They trade very quickly. Kids are doing it almost as a part-time job. They’ll resell or flip to the secondary market within 24 to 48 hours. That’s fast. The combination of all of those attributes made it a perfect market to launch an authenticity platform.
How does it work?
We put an authenticity tag on the sneaker and the tag is registered to the blockchain. When you scan the tag with your phone it checks the registry to verify that the chip in the tag is authentic. If it checks out, the app on the phone shows that it’s an authentic pair, shows the sneaker, shows the provenance of the item—released by Nike, sold at Undefeated, claimed by Kobe Bryant, transferred to so and so. We can start to track the provenance or history of an item. It looks almost like a Carfax for a sneaker. The ultimate market that Chronicled is going to be serving is the luxury goods provenance market. It’s probably a multibillion dollar space with no competitors so we’re pretty excited. The sneaker is to Chronicled as books was to Amazon.
How do the Chronicled tags get attached to the sneakers?
The first go-to market strategy is secondary market authentication. We’re running a service at several of the sneaker conventions. We’ll have a booth where we affix our external authenticity tag to the top eyehole of the sneaker. The tags are about the size of a quarter and the thickness of three or four nickels. From that point forward anyone that scans that tag with a smartphone will see that it’s an authentic pair.
How do you guys make sure the sneakers you’re attaching the tags to are authentic?
It’s on a more human level. It’s expert judgement, similar to how Sotheby’s or Christie’s would inspect a piece of fine art with a magnifying glass. We have two authenticators on our team. They’re the two most experienced sneaker authenticators in America today and they work for Chronicled now.
If you want to wear the shoes and not just collect them, what happens?
Most of the deadstock sneaker collectors are leaving all the tags on at this point. The collectible part of the market really behaves differently than the general mainstream wearable footwear part of the market. If someone did cut off [the smart tag], they would still have the sneakers in their collection on the app, but we won’t stand behind the authenticity guarantee that our company offers if the tag has been cut off. They can still include the tag that’s been cut off when they resell the shoe and if the next person that receives it wants us to affix a new tag and transfer the provenance we’re able to do that.
People are always looking for fraudulent ways around systems designed to prevent fraud, how do you guard against that?
We’ve designed the tag to be tamper proof. We tried to hack our own system and it can’t be done without being super visibly obvious. You’d also have to find fakes that are same [as the authentic pair to reaffix the tag to]. If this would become a market standard, if every pair of authentic sneakers sold had the tag, it would destroy the economics of counterfeiting.
Sneaker companies have traditionally tried to keep resellers at arm’s length. What has been their reaction to this?
The first brand deal we did was a Beast Mode collaboration with Greats and Marshawn Lynch. Brand partnerships are where this becomes big. We’ve had a few brand conversations and they all have been super positive. This whole era of counterfeit is a really new phenomenon in human history. Ten years ago this wasn’t really a problem. Today it’s a $1.8 trillion problem, worldwide. I think the brands today have a better understanding. As cheaper counterfeits are available that hurts pricing power for the brand. Eventually if there are so many fakes, particularly if there are performance issues with the product, consumers can lose trust in the brand.
Are there privacy issues with brands being able to know who owns which of their products?
The consumer can opt out in the privacy settings on the app. The way that we think about the business, the consumer is always first. We’re positioning the app as the digital life for the things that you love. But if we can create an engaging consumer platform and also involve brands in that experience in a way that is appropriate for the consumer, you need to balance those two sets of interests.
Are you a sneaker collector personally?
I have probably a dozen collectible pairs. I love the LeBrons. I’ve got three or four of them. The LeBron 12s are my favorite.
What else do you see this technology being used for?
Handbags, furniture, fine art, men’s and women’s fashion. Watches and sunglasses are both really interesting but it’s a little more R&D work to put one of these chips into a watch. There would be a fair amount of customization. It’s definitely doable.