The meteoric rise of blockchain technology has greatly contributed to the digital revolution. It is believed that the technology will someday achieve massive adoption across major sectors and it would be responsible for handling a greater part of the world’s exchange of value and information.
To some, the fact that Bitcoin comes to mind on mention of blockchain seems to suggest that the technology is ‘not there’ yet. However, blockchain technology is not synonymous with Bitcoin; one of its numerous applications is in the development of digital currency (cryptocurrency), Bitcoin being an example of such.
Although blockchain technology was initially developed as a public distributed ledger for verifying and recording Bitcoin transactions, it later became clear that blockchain technology offered limitless applications than a P2P digital currency system: it could be used to store any information of value, essentially creating the internet of value.
Blockchain technology employs a system of distributed ledgers to securely and immutably store data in containers called blocks. Several use cases are constantly being discovered, with new blockchain platforms popping up now and then. One of the innovations developed to harness the full potential of blockchain technology are smart contracts. Smart contracts are self-executing blocks of code that enable seamless, automatic and secure exchange of value (tokens) on blockchains.
Borne out of a need to eliminate third parties, smart contracts and tokenization work together, enabling nodes to perform trustless transactions. This implies that contracts can be drafted between individuals and preset actions executed automatically once set conditions have been met, without the need for a third party to verify the contract. So, for instance, a homeowner putting her house on rent could tokenize the tenancy agreement and create a smart contract to execute once the funds have been sent to a unique wallet address. The tenant would then get a digital access key after the payment is verified.
In 2013, Vitalik Buterin proposed Ethereum, an open-source platform with a low entry barrier to enable programmers to easily develop and deploy decentralized applications (dApps). The development was funded through a crowdsale between July and August 2014 and the platform went live before the end of July 2015.
The development of smart contracts opened blockchain technology to previously undiscovered use cases beyond digital currencies. Decentralized applications began to be developed in different industries, ranging from agritech, healthcare, aviation, government (especially voting and election management), and even the diamond industry.
Impact of Blockchain Technology on the Diamond Industry
Just as with any major industry, blockchain has a lot to offer the diamond industry from its vast array of groundbreaking features. This can be summarized into three T’s: transparency, traceability and tokenization.
In an age where the global diamond market is taking necessary measures to ensure sustainability and eco-friendliness by eradicating the conflict (or blood) diamond trade and being ‘ecologically accountable’, blockchain technology seems ― and has proven ― to be the best approach.
The blood diamond trade continues to be a drawback for the industry, even with the implementation of the Kimberley Process. The Kimberley Process Certification Scheme involves local governments working with international organizations to ensure every diamond batch shipped from participating regions is certified.
Let’s face it, though: humans are generally less trusting of (centralized) organizations these days; they trust the tech more, since they can get an insight into what’s happening behind the scenes. Apart from that, the certification scheme is convoluted and intricate, with an awful lot of proceedings and players leaving much room for bad actors―even though they claim to have a 99.8 percent success rate.
The process could be more streamlined by implementing blockchain technology to provide real-time data, from the mine to the jeweler’s. Blockchain eliminates a central authority by serving as a single source of truth where nodes work have to work together (reach consensus) to verify transactions. This would ensure a fully transparent mining process, guaranteed to eliminate bad actors.
Blockchain offers an immutable record of stored data, which implies that once the whole process is logged, it cannot be retroactively tampered with. All mining data (timestamp, output, value) will be immutably logged on the blockchain. As such, diamond batches could be easily traced back to their origins so owners can have full confidence in the traceability of their ‘clean’ diamonds.
Also, auditing is fundamental to establishing provenance across the diamond supply chain, and blockchain provides a platform for audit and regulatory compliance.
Gold is generally preferred as a store of value by investors, mainly because there’s an easier way to standardize its value. Diamonds are also a valuable natural resource, and they can easily overtake gold as the preferred choice for investors because they’re portable and easy to grade.
Blockchain proffers a viable solution, with an immutable decentralized ledger designed to keep track of each diamond’s data (including its value and provenance). To streamline the process, the diamonds could be grouped into sets of equal value, and each set packaged and logged on the blockchain. Once this is done, users can track diamond trades and movement across the supply chain using the unique IDs on each set.
In another scenario, once information on each diamond batch has been registered on the blockchain, the value can be tokenized. The token can then be used as a transfer of value for purchasing diamonds. That way, traders can verify the diamonds’ provenance and ascertain whether they were ethically sourced.
All in all, blockchain technology can effectively resolve current drawbacks experienced in the diamond industry, particularly sustainability and provenance. This will surely open more ways for disruption across the industry for a clean, sustainable diamond trade.
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