Blockchains are forever: DLT makes the diamond industry more transparent


Diamonds are among the most valuable gemstones in the world, and the global diamond industry has managed to stay afloat despite being partially overshadowed by the emergence of modern stocks and new virtual assets.

The diamond industry, however, seems to be undergoing a paradigm shift lately – incorporating modern technologies such as blockchain to improve the production, tracking and end sales of diamonds.

Leanne Kemp, CEO of independent technology company EverLedger, highlighted the need for blockchain integration in the industry to improve tracking of a stone’s provenance.

Speaking on the issue of manipulation of data regarding the provenance of a diamond four years ago, Kemp noted that “we are seeing falsification of documents where a stone has been claimed within similar timeframes with multiple insurers.”

While it has yet to provide a direct solution to all of the diamond industry’s concerns, blockchain is being used to address a few by facilitating transparency that tracks where diamonds come from. This is primarily aimed at suppressing sales of “conflict diamonds”. Diamond mining company De Beers Group has highlighted the potential of blockchain in the industry for increased accuracy, trust and transparency when it comes to determining the origin of a diamond.

The diamond industry maintains its distinction

Despite being hit by the Great Recession of 2008, which saw the general stock market crash by an unprecedented margin, the diamond industry has managed to maintain its importance despite a noticeable decline in global production. of rough diamonds.

The idea of ​​integrating blockchain into the industry – which has only been introduced in recent years – is likely to awaken widespread interest and further improve global production.

The years leading up to 2008 saw a steady increase in the production of rough diamonds. According to data from the German database company Statista, from 2005 to 2008, global production of rough diamonds never fell below 160 million carats.

Following the economic decline of 2008, however, average production over the past decade has averaged 142 million carats with 116 million carats produced in 2021. The year 2017 saw the highest turnover of the decade, with 152 million carats of diamonds produced.

Around 99% of the global diamond mining process is carried out in nine countries, with Russia, Botswana, Democratic Republic of Congo, Australia and Canada respectively considered to be the top five countries involved. Diamond mining is almost monopolized, with companies such as ALROSA and De Beers controlling much of the industry.

Ethical concerns about the diamond industry abound

There are several reasons why investors don’t seem to be flocking to the $68 billion business that is the diamond industry, especially lately.

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As lucrative as it is, ethical concerns about the backbone of the diamond industry are widespread. This has scared off potential investors, especially in a time like this when investor behavior is increasingly influenced by the moral and ethical stances of consumers.

According to Johannes Schweifer, CEO of Crypto Valley’s CoreLedger, security and transparency challenges, as well as ethical concerns plague the diamond industry. For more than a decade, there have been allegations of a link between diamond mining and regional hostilities, as seen in parts of Africa. Schweifer told UKTN:

“The biggest problem in the diamond industry has always been transparency. Most gemstones are not able to tell their origin stories. But what if your wedding ring stone is actually a blood diamond, wouldn’t you want to know? Knowing the origin and ensuring transparency of the “finger mine” can not only help you sleep better, but it can also save lives.

Conflict diamonds, otherwise known as blood diamonds, are diamonds mined in territories controlled by rebels opposed to a legitimate government and subsequently used to finance these rebel movements.

Diamond diggers in Sierra Leone. Source: UKTN

Some cases of unethical use of blood diamonds were evident in the 1990s in countries such as the Democratic Republic of Congo, Angola and Sierra Leone. Evidence has proven that these diamonds were mined and used to purchase arms and ammunition for military and paramilitary movements.

Besides the sale of diamonds to fuel conflict, numerous reports of unscrupulous labor tactics being used to exploit workers at mine sites have surfaced. Child labor also appears to be widespread in the majority of these regions.

In addition, the diamond industry has been criticized for the patent monopoly that exists in controlling the process of mining, distributing and selling diamonds. This has fueled concerns of an existing cartel dictating the flow of the industry.

Additionally, the industry seems to be riddled with issues such as environmental concerns of mining, unsafe working atmosphere, and insecurity, to name a few.

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Where traditional methods end, blockchain begins

In light of the blood diamond problem, global mining giant De Beers has announced the pilot for its Tracr blockchain program, which will ensure the company does not manipulate blood diamonds, including in the distribution and sale. This announcement was made in January 2018.

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However, De Beers would not be the first to make plans to track diamonds in order to solve the problem of conflict in the distribution of diamonds.

Almost 20 years ago, in 2003, the United Nations created the Kimberley Process certificate system in an attempt to inhibit the flow of blood diamonds into the global diamond market. This decision was taken following the Fowler report of 2000 which showed that blood diamonds were still used in the financing of the conflict by the National Union for the Total Independence of Angola.

However, the Kimberley Process has been condemned by organizations such as the Canadian non-governmental organization IMPACT and Global Witness, a London-based NGO that seeks to prevent the exploitation of natural resources and human rights abuses. man, among others. They alleged inefficiency.

Speaking to the UKTN in 2011, the founding director of Global Witness, Charmian Gooch, noted that “nearly nine years after the launch of the Kimberley Process, the sad truth is that most consumers still don’t know where do their diamonds come from”.

Gooch noted that the initiative failed three separate tests, particularly in addressing unique concerns in Ivory Coast, Venezuela and Zimbabwe, with his NGO having left the process.

Additionally, IMPACT cited a failure to provide accurate reporting on the origins of diamonds and a “false trust” given to consumers as reasons for its criticism of the Kimberley Process. Joanne Lebert, executive director of IMPACT, noted this when the NGO pulled out of the initiative in January 2018.

IMPACT withdrew from the process a few days after the announcement of De Beers’ Tracr. Tracr was tested in early May 2018 with initial plans to launch later in the same year and a vision to make the platform accessible to the global diamond market.

In the pilot, De Beers announced that it was able to successfully track 100 high-value diamonds as they traversed the conventional journey from their birthplace, mine and ultimate retailer.

“Blockchain technology and tokenization can provide a way to split ownership – instead of taking all the risk on one stone, one can spread the risk across many investors. Even the assessment and evaluation process can even be outsourced or shared. From an investment perspective, tokenization is a great way to open up diamonds to the average person,” Schweifer added.

Tracr uses an identification tag that De Beers has dubbed Global Diamond ID, specific to each diamond, which identifies individual diamond attributes such as clarity, color and carat weight. Unique information specific to a particular diamond, noted by its identifier, is then recorded in a public ledger that Tracr uses to track the diamond’s progress along the distribution chain.

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Tracr was officially launched earlier in May, with De Beers noting that the initiative is already integrated into its business module globally. Around a quarter of De Beers’ production by value has already been recorded on Tracr in its first three Sights of 2022. A Sight is a term for a sales event with a respective lot of diamonds being offered for sale.

De Beers also highlighted some of the main benefits of the blockchain used, which involve immutability, security, data security, privacy, transparency, and speed. According to De Beers, the blockchain should be able to “register one million diamonds per week on the platform”.

Blockchain increases transparency for each party involved

De Beers isn’t the only company working on blockchain-tracing solutions for diamond provenance. IBM unveiled the TrustChain Initiative in April 2018 in conjunction with an association of jewelry companies.

The TrustChain initiative was created with the aim of increasing transparency for consumers by tracking the origins of jewelry using IBM’s blockchain platform.

On January 12, 2021, diamond marketplace Rare Carat partnered with EverLedger to provide more transparency about the origins of diamonds on its platform using EverLedger’s blockchain.

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The global diamond industry is strong despite its many challenges and dark past. Like finance and a host of other sectors, blockchain has proven useful in improving the diamond industry, especially in solving problems related to the origin of diamonds.

The appropriate record to be used to trace the provenance of jewelry must be immutable and transparent. Therefore, a public registry without a central point of control should be used. Otherwise, the whole idea of ​​a transparent assessment is dead on arrival, as was allegedly noted in the Kimberley Process.

“When it comes to transparency, the biggest beneficiaries of blockchain are consumers and authorities. Ultimately, this will keep the industry at a higher level and hopefully improve working conditions for miners as well. In a business as murky and dangerous as diamonds, that can really be seen as an advantage,” Schweifer said.

He added that diamonds are value-dense assets, so “it’s almost impossible for the average person to own a big, investment-grade stone.” Even for those who can afford them, diamonds are a tricky investment, as it takes a lot of experience to avoid being cheated or losing money.