Be Wary of the Downside of IoT Success

A new "gray market" for fake IoT device components is emerging. IoT implementers must safeguard against counterfeit components and know how to handle them.

The runaway success of Internet of Things (IoT) devices presents fascinating ways to implement them within both customer-facing businesses and manufacturing plants.

However, there’s a problem with the associated product boom: a shortage of electronic components that’s led to an increase in counterfeiters creating fake parts.

Tagging and Tracing Systems Increases Visibility

Counterfeit components in IoT devices raise the chance that a product won’t perform as expected, or that it’s riddled with security flaws such as accidental (or even intentionally place) backdoors.

Solutions are being explored. A firm called HID Global is cutting down on component counterfeiting with a near field communication (NFC) tagging system, but a more industry-wide approach is needed.

The tags get placed on the device components during production and have advanced encryption elements that are reportedly impossible to copy. Then, a user can read them with a compatible smartphone and a complementary app by going through a single-step authentication process.

Some companies are also turning to blockchain technology to stop counterfeit parts from getting into IoT devices. Approaches exist that use NFC tags to feed data onto a blockchain ledger system. Advocates for this approach think that it could cut down on the amount of electronic waste that eventually gets repurposed for counterfeit products as well.

The Gray Market Could Spur Counterfeiting Practices

The “gray market” describes the practice of trading products through legal channels but in ways unintended by the manufacturer. If a company opts to outsource some of its manufacturing requirements for IoT devices, one of the consequences is that surplus products could be sold on the gray market for drastically discounted prices.

A counterfeiter could then acquire the gadgets, disassemble them and learn which components they should copy. The gray market issue often arises if a contractor produces extra IoT devices and secretly sells the leftovers. However, one thing device manufacturers can do is issue a set number of licenses for their IoT products that matches how many an outsourced company is contractually obligated to produce.

When an IoT device checks for a license while booting up, it could cease to function if the license isn’t legitimate. It’s crucial for IoT implementors to vet their parts suppliers thoroughly to avoid gray market issues.

Sometimes, there’s a push to source components as quickly as possible to meet market demands. In the United Kingdom, for example, electronic component sales climbed by 17 percent in 2017.

Although the drive for efficiency is understandable in a segment that’s growing as fast as IoT, businesses shouldn’t risk sacrificing the authenticity of their products by overlooking the suitability of supply chain members. The reputational damage that results could be severe.

SiliconExpert Technologies, a supplier of electronic component management tools, offers a data analysis platform that calculates the likelihood of a part being a copycat. It looks at market data, including shortages and price hikes, to make a determination. This proactive option could be ideal if people who work with IoT devices want to curb gray market activity as parts sold on illegal channels. Again, however, we need an industry-wide effort (not just a few companies) to solve this problem.

The IoT Boom Brings Various Implications With It

Analysts at the Pew Research Center conducted an in-depth study about how fast people have started using IoT devices. Some of the individuals who contributed their opinions pointed out how many of those who use IoT devices are so connected that they can’t imagine not using those gadgets—especially if they’re from a younger generation.

Some also chimed in to say that even though IoT devices have security risks that might make individuals or businesses hesitate to use them, it’s difficult for people to disconnect completely from IoT because it’s already so deeply integrated into everyday life.

However, one of the primary themes of the Pew research above was that increased regulation would make IoT devices safer to use, especially if governments start to punish bad actors. Since the infrastructure for IoT devices is still so new, it could take a while before such regulations get ironed out. Once they do, counterfeit parts may be subject to increased security measured. Manufacturers may have to verify and confirm that all of their components are genuine.

Copycatting Exceeds IoT

Copycat parts undoubtedly post security threats to IoT devices (and therefore IoT systems), especially since they often have security flaws from the start without counterfeit parts. Besides the problem of inauthentic parts making it into the supply chain, it’s possible to interfere with IoT security by physically opening device that doesn’t have tamper-proof exteriors. It’s then possible, for example, that sensors could report false data.

Going back to copycatting, IoT implementers need to recognize that imitation products show up around the globe. According to the International Chamber of Commerce, copycatting and piracy will take $4.2 trillion from the worldwide economy by 2022. Research indicates profit margins and financial stakes are two of the biggest factors that predict whether a product will have copycat competitors.

Besides, consumers that are particularly budget-conscious often prefer the lower prices of copycat items. They may decide that it isn’t worth waiting for the brand-name product or shelling out the money for it. Researching the costs of the authentic products and setting an IoT budget accordingly should help implementers avoid that situation.

Copycat Parts Won’t Go Away, but It’s Becoming Easier to Spot Them

It’s crucial for IoT implementers to remember that they can’t assume the devices they want to buy are free from counterfeit parts. Manufacturers may be completely unaware that their devices even contain those fake IoT device components.

Moreover, as people become increasingly fascinated by what IoT systems can do, they may not be as careful as they should be about avoiding IoT knockoffs, thereby increasing the demand for fakes.

Fortunately, for the individuals and companies that want to make sure they acquire and distribute products that are free from counterfeit parts, there are methods in place and other techniques in the works. Nonetheless, the industry needs to take more the issue of fake IoT device components more seriously. We need more transparency, accountability, and better authentication protocols across the entire IoT development stack.