Buying a diamond ring does not mean picking up the prettiest piece of jewellery within a certain budget. It involves making a conscious decision, considering whether the diamond is an authentic natural stone mined from the earth and legitimately sourced without environmental damage, protected fair labour practices does not involve any health and human rights abuses. The foundation for this scenario is being laid today.
With the near failure of the Kimberley Process, the struggle for transparency against the threat of lab grown or conflict diamonds and tighter revenue margins, the diamond industry realised that it needs to safeguard the business and creative resourcefulness seems to have emerged out of the contradictions.
Out of the duality of accusations and mistrust, the industry has emerged focussed on an innovative technology and is ready to put aside its differences to protect its customers and its business by providing the much-needed transparency of diamond sourcing.
Pilot Project
De Beers has taken the lead to initiate a pilot project
to work with the new blockchain technology, so far
used by banks and cryptocurrencies, that will be
adapted for the industry to enable an innovative
tracking mechanism for the diamond all the way
from the mine to the finger and each time it changes
hands in between.
Blockchain refers to an incorruptible digital public ledger of economic transactions that can be openly shared. The technology allows the creation of linked digital transactions, which are bunched together as permanent and ‘completed’ blocks, that are constantly growing and being updated and reconciled, with the most recent transactions being recorded and added to the block in a chronological order.
The key features of this technology that promote diamond source transparency and protect against tampering of records are;
• It allows digital information
to be only distributed, not
copied.
• There is no centralised
version of the records. This
means the database of
transactions is not stored
in any single location.
Information is hosted by
millions of computers
simultaneously, rather than
on a centralised processor for
record keeping.
• Transactions may be tracked
or publicly viewed on a
network, by anyone with
Internet.
Technology helps to create a digital record for every diamond that exits in the mine, using the serial number inscribed on the stone, the four Cs used to describe the stone as well as the other 40 metadata points that make up the diamond.
“The digitised thumbprint of the diamond, including its angles, cuts and pavilions and all of the crown are recorded into the blockchain. This entire data gets encrypted onto the same blockchain throughout its lifetime journey,” explains Leanne Kemp, Founder & CEO of UK-based Ever ledger.
The diamond frequently changes hands before it rests with the retailer. So, blockchain technology again helps every transaction to undergo a clearance process. A clear audit trail is recorded by multiple parties each time the diamond is exchanged, including the relevant paperwork like banking and anti-money laundering protocols as well as the Kimberley Process. Each subsequent movement along the supply chain gets encrypted onto the same blockchain.
Smart contracts, involving payments and delivery empower the blockchain throughout the diamond’s journey from the mine to the finger.
At no stage can any industry player attempt to ‘edit’ any linked block retroactively because errors would immediately show up as a red flag in subsequent blocks. This makes blockchain technology transparent, permanent, virtually unalterable and therefore immutable.
The best part is industry players need not be tech savvy to use blockchain technology.
Platform for All Players
De Beers will initially involve its own sight
holders as well as other diamond miners and
encourage industry players to use this technology.
Theoretically, this technology has the capacity
to provide the much needed supply chain
transparency. However, it is important for the entire
industry to participate to make the technology
backed digital ledger of diamonds truly immutable.
Otherwise, the exercise could be defeated.
De Beers is well aware of the significance of
participation by the entire industry.
Explains Prager, “We have designed this initiative as an open and inclusive platform for all members of the diamond industry to participate in, including other diamond producers. We are working with stakeholders from across the diamond value chain to ensure that the technology meets the needs of all users, right from ensuring that the platform is designed to integrate with existing systems and processes, so that data can be captured efficiently. Although participation in the blockchain is entirely voluntary, we believe the blockchain will deliver significant benefits that will encourage user participation.”
Prevent Fraud
Other industry players too, have visualised the
potential of blockchain technology to bring in transparency and safety to overcome the frauds
and mis-claims currently estimated at billions
of dollars.
States Everledger Founder & CEO, Leanne Kemp, “We are working with a range of industry players, including diamond manufacturers, certification houses and downstream retailers. We use the best of emerging technologies including blockchain, smart contracts, Internet of Things (IoT) and machine vision to create a hybrid model of innovative and effective solutions that records the immutable provenance of a diamond through a distributed ledger platform. A combination of public and permissioned ledgers is used.”
Decoded, this jargon means that the company uses technology to create a digital twin of the diamond as a permanent digital record that cannot be edited or altered without sending the warning bells ringing down the block.
Kimberley Process Under
Pressure
Blockchain technology has gathered a number
of followers. The industry has woken up to
the need for higher standards and greater
transparency with the inefficiency of the
Kimberley Process accused of having a limited
definition of conflict free, that did not account
for social, environmental and human rights
abuses related to mining and manufacturing
of diamonds. So while the definition of
conflict free under the Kimberley Process
may be expanded to include fair labour and
authenticity, the Kimberley Process too,under industry pressure, has turned to blockchain
technology.
The technology has the capacity to protect the supply chain from illegitimate trading and bring in transparency that allows industry players and customers to validate that the stone is clean, it has been sourced ethically and complies with all regulations.
Turning Trend
Underlining the significance of transparency, San
Francisco-based Brilliant Earth, an e-commerce
jeweller, has also partnered with Everledger to
provide its customers an immutable history of
authenticity and ownership.
States Carrie George, Director of Responsible Sourcing at Brilliant Earth, “Everledger’s blockchain-based technology solution shall be integrated into Brilliant Earth’s supply chain, to demonstrate a complete chain of custody and to establish a new standard for addressing social and environmental issues related to mining and manufacturing of gemstones and precious metals.”
Cover All Diamonds
For complete transparency, every diamond that leaves
the mine and is out there must be recorded. The
technology platform has the potential to register any
diamond on the blockchain. De Beers has just started
with its newly mined production and there are millions
of diamonds still out there. There is only a hint of a
long-term plan.
Prager informs, “Initially, the focus is on recording
a diamond’s journey as it passes through the value
chain, so we will start with the registration of only our
newly mined production across all sizes. However,
during the pilot, we’ll also be focusing on how to
include diamonds that have already left the mine.
Our hypothesis is that additional processes and
verifications would be required, as any diamond to be
registered on the platform must be Kimberley Process
compliant and include a record of when it was mined.
The process for including every diamond will be
tested through our industry engagements.”
Another advantage of a more modernised trading environment and technology backed transparency could be greater efficiency in the supply chain as reliance on paper-based records would reduce, thereby speeding up transaction time.
“In theory, the blockchain will streamline efficiencies in the value chain, and we believe it will ultimately reduce the time and cost of doing business for many users,” confirms Prager.
With efficiency and transparency, another outcome could be easier financing by banks when the major issue of lack of transparency between traders, financers, regulators and retailers is addressed. “The blockchain is an enabling platform that has the potential to foster trust for traders and lenders, increase transparency and trading efficiencies and, ultimately, lower the cost of doing business,” Prager agrees.
The De Beers pilot will run throughout the coming months, with a full launch expected later this year. After all, as Prager states, “The more users that participate in the platform across the full diamond value chain, the more effective it will be in further underpinning confidence in diamonds.”
The message is clear: Leveraging on this technology with its diamond Blockchain initiative, De Beers wants to provide consumers the confidence that their diamonds are natural and conflict free.
But, stray voices in the industry question that when De Beers accounts for only about one third of the global diamond production, how will encryption of a tiny proportion of diamonds with technology that is yet to prove its claim of being hacker proof, impact the industry? Will added costs be passed on to the unsuspecting consumer?
Yet, what is important is that there is a technology solution available for greater transparency, that has long been an industry bugbear, and the first step has been taken.
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