A synthetic diamond (or natural moissanite) and a mined diamond are indistinguishable without a professional jeweler. Consumer mistrust and a growing number of fakes adversely affect the industry. Blockchain solves the problem. New technologies will allow buyers to get full information about any gemstone by simply pointing their smartphone with the relevant app.
What causes Diamond Giants to suffer
International diamond consortium De Beers, despite persistently high sales, experienced a drop in income. By 4% from $6.1 bn in 2016 to $5.8 bn in 2017. Why?
“We suffered from an increase in fake diamonds,” Bruce Cleaver, СЕО at De Beers, admits. “We’ll launch blockchain to track our gems. The technology guarantees the origins of diamonds and would make the mining supply chain more efficient and transparent. It could reassure banks financing the industry.”
De Beers is turning to blockchain as the storage of all information to verify gems and trace their provenance. From mine to jewelry. This data will be available not only to sightholders, but also to retailers and buyers.
“The top benefit of using blockchain is the ability of this technology to assure consumers that their gems are authentic, naturally mined and conflict-free. We’ll choose the existing blockchain platform,” David Prager, Executive Vice President at De Beers, says. “In other words, project management will be, accordingly, delegated to a third party.”
In the previous chapter, we mentioned “conflict-free” diamonds. Let us explain what it means. A growing number of consumers want reassurance that their diamonds do not come from conflict zones. This trend is further evidenced by research from industry experts.
The so called “conflict or blood diamonds” are widely used to finance civil and inter-ethnic wars in Africa, the activities of terrorist groups. According to two non-governmental organizations, Global Witness and Partnership Africa Canada, there is evidence proving this kind of situation in Angola, the Democratic Republic of Congo, Sierra-Leone, and Liberia.
Today, it is firmly believed that tracing the provenance of “conflict” diamonds with employment of blockchain is the only chance to put a stop to funding rebels and douse the flames of conflict.
By the way, there has been much talk about the problem right after the release of Blood Diamond, a movie starring Leonardo DiCaprio. As a reminder, the setting of the movie is the civil war events in Sierra-Leone. The movie had such a strong effect that Canada took immediate action in respect of the illegal diamond market control.
Forget about papers
Let us assume that a mining company in war-torn Africa finds deposits bearing big diamonds. Sightholders review the raw material and offer it to large companies based in Europe or the Americas. This is followed by a supply chain of at least thirty elements, thus eroding trust. In this context, who can reassure buyers that the stones they are purchasing are exactly what they expect? The answer is blockchain!
“To begin with, forget about papers and all accompanying documents. No more of this. Once extracted, a diamond is personalized with QR code using laser marking. This primary information about the stone is instantaneously recorded on blockchain and from then on can never be passed off. Every element of supply chain from miner to end owner makes an entry in the register via smartphone: extraction site, original color, place of cutting and setting, certification, transportation, right of ownership. Since diary copies are stored in all hubs at a time and updated simultaneously, there is no risk of rollback or falsification.”
Information access solution will be similar to Etherscan. Information will be available by viewing to anyone interested using a public key and mobile app. However, it is the owner who holds the private key to title documents.
What is crypto-anchor?
There is an alternative to QR code known as “crypto-anchor.” This tiny computer smaller than a grain of salt is designated to connect real world objects and blockchain. It is intended for logistics applications and will cost less than ten cents. It comes as no surprise that diamond mining will be one of the pioneers of the “crypto-anchor” technology employment. The first (IBM-developed) prototypes are in place. What is better — crypto-anchor or QR code? There is no difference from the standpoint of the entire system operation. It is up to jewelers to decide.
Smart contract for diamonds
“Owing to safety and the possibility of tracing the provenance of every diamond, blockchain is, obviously, the next step in the development of diamond industry,” Igor Chugunov says confidently. “Transition to a new technology offers the potential for regaining trust as well as restoring enormous turnover in the business.”
Today, arranging the delivery of one piece of cargo necessitates executing about a dozen of bills of lading, agreements, customs documents. Bringing them together into one distributed register, in which compliance with all terms and conditions is controlled using mathematical algorithms, would automatically put an end to many problems and delays. No more need for assigning different numbers and codes to diamond cargo. A single blockchain cipher is sufficient to perform all customs clearance, carriage and execution operations in different countries.
Yet another advantage offered by blockchain to the industry is automated smart contracts, which decentralize control of counterparties’ discharging their respective obligations. What is it all about?
- Parties confirm their consent to the formulated terms and conditions of a smart contract using digital signatures;
- Contract compliance terms should take the shape of mathematical algorithms using a source code to describe all transportation and delivery service conditions. In other words, tranche is remitted as soon as cargo is received.
“The key objectives accomplished by smart contract technology in the diamond industry and logistics is workflow and regulation budget savings due to removing intermediaries. Plus more mutual trust among counterparties,” Igor summarizes.