Very few people know where their jewelry is from. I’m not talking about the brand or the location of the store you bought it from, but the origin of the gemstone. A lot of times, the sales person won’t even mention where it’s from, and even when they do, a statement like “it’s from South Africa” will stop you from asking more questions. As average consumers, we place trust in the brands we pick. Even if we’re convinced that we won’t be fooled by sales tactic, we often believe that the certification that comes with our gemstone is authentic.
Does it matter where the gemstone is from? You might ask. Personally, I don’t think it matters unless you’re buying gemstone as an investment instead of an accessory. However, the jewelry industry, a $140 billion industry that’s growing at 5% annually according to McKinsey, is constantly challenged by increasing consumer standards. In recent years, consumers are demanding more authenticity in products (i.e. no false grades on the certification) and more environmentally friendly practices in mining and manufacturing process. For instance, consumers and human rights activists pledged to stop the mining and trading of “blood diamonds,” which refers to diamonds that are mined in war zones and sold to finance conflicts. To avoid purchasing diamonds and other gemstones associated with inhumane mining processes, consumers today are demanding more transparency in the supply chain of jewelry industry. This is where the blockchain technology comes in handy.
Blockchain enabled solution
The use of blockchain technology in the supply chain allows one to track raw materials from the mine, to the refiners, through distributors and manufacturers, to the retailers, and finally to the customer. Every step of the way, the information is entered into the digital ledger and cannot be altered, making the entered data extremely safe. Currently, one of the leading jewelry company in the world, De Beers, is taking the initiative to employ blockchain technology to manage its supply chain. Together with Boston Consulting Group’s Digital Ventures, De Beers developed Tracr using the Ethereum blockchain framework. They did initial test on 100 larger diamonds and hope to expand the initiative to smaller diamonds.
Why it is important
However, as industry expert Andrea Hill pointed out, the implementation of blockchain technology in the industry is very challenging since most of the supply chain is not vertically integrated. Integration of blockchain technology must happen at every stage of the supply chain for the technology to be useful. At the moment, it is still hard to convince smaller supply chain partners to standardize the data entry process. Even though there are many challenges, the importance of these initiatives should not be overlooked. In a business where trust is central to the success, it is reassuring to consumers that large corporate players are improving their practices to retain and attract clients with ethical concerns.
While standardization helps company establish trust among customers, it might also hurt their power to price discriminate. I believe that even though the focus on traceability does not equal full price transparency, it will have implications on the pricing of end products. For example, consumers place higher monetary value on famous brands, think Cartier and Tiffany, because consumers assume these brands’ raw materials are of higher quality and manufacturing processes are more humane. However, it is likely that these luxury jewelers acquire the raw materials from the same source as less-known brands do. If the supply chain information is made available to consumers, we might be less willing to pay premiums for products of the same origin. On the flip side, companies that address consumers’ ethical concerns might be able to benefit more from growing consumer confidence. At the end of the day, blockchain technology is merely a tool that helps establish trust between corporations and their customers.