DLT makes the diamond industry more transparent

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

However, the diamond industry seems to be undergoing a paradigm shift lately, incorporating modern technologies like blockchain to improve the production, tracking and eventual sale of diamonds.

Leanne Kemp, CEO of independent technology company EverLedger, emphasized the need to integrate blockchain into the industry to better track the provenance of stones.

DLT makes the diamond industry more transparent
DLT makes the diamond industry more transparent

Speaking about the manipulation of diamond provenance data four years ago, Kemp noted that “we see document manipulation when a stone has been claimed by multiple insurers over similar periods of time.

While it hasn’t directly provided a solution to all of the diamond industry’s concerns, blockchain is being used to address some of them by facilitating transparency that helps trace the origins of diamonds. The main goal is to stop the sale of “conflict diamonds”. Diamond mining company De Beers Group has pointed to the potential of blockchain in the industry to increase accuracy, trust and transparency in determining a diamond’s provenance.

The diamond industry maintains its distinction

Despite being hit by the Great Recession of 2008, which saw the entire stock market plummet on an unprecedented scale, the diamond industry has managed to remain relevant despite a notable drop in world diamond production.

Launched only in recent years, the idea of ​​integrating blockchain into industry is likely to reignite interest among the majority and further improve global production.

In the years before 2008, the production of rough diamonds increased steadily. According to the German database company Statista, world production of rough diamonds never fell below 160 million carats between 2005 and 2008.

However, following the economic downturn of 2008, average production over the past decade has been 142 million carats, with 116 million carats produced in 2021. 2017 was the highest sales of the decade with 152 million carats of diamonds produced.

About 99% of the world’s diamond mining takes place in nine countries, with Russia, Botswana, the Democratic Republic of the Congo, Australia and Canada being the top five countries. Diamond mining is almost monopolized, with companies like ALROSA and De Beers controlling a large chunk of the industry.

Ethical concerns abound regarding the diamond industry

There are a few reasons investors aren’t flocking to the $68 billion diamond company, especially recently.

As lucrative as it is, ethical concerns about the backbone of the diamond industry are widespread. This has deterred potential investors, especially in times like these, when investor behavior is increasingly influenced by consumers’ moral and ethical positions.

According to Johannes Schweifer, CEO of Crypto Valley’s CoreLedger, security and transparency issues as well as ethical concerns are plaguing the diamond industry. For more than a decade, it has been claimed that there is a link between diamond mining and regional hostilities, such as those seen in parts of Africa. Schweifer explained to Cointelegraph:

“The biggest problem in the diamond industry has always been transparency. Most gemstones can’t tell their origin story. But what if the stone in your wedding ring is actually a blood diamond? Don’t you want to know? Know the origin and who Ensuring visibility from lead to finger can not only help you sleep better, it can save lives.”

Conflict diamonds, also known as blood diamonds, are diamonds mined in areas controlled by rebels opposed to a legitimate government and subsequently used to fund those rebel movements.

Diamond prospectors in Sierra Leone. Source: AP

Some cases of unethical use of blood diamonds were uncovered in countries like the Democratic Republic of the Congo, Angola and Sierra Leone in the 1990s. Evidence showed these diamonds were mined and used to purchase weapons and ammunition for military and paramilitary movements.

In addition to the sale of diamonds to fuel the conflict, numerous reports have surfaced of unscrupulous labor tactics used to exploit workers in the mines. Child labor also appears to be widespread in most of these areas.

In addition, the diamond industry has been criticized for the existing patent monopoly over control of diamond extraction, distribution and sale processes. This has fueled concerns about the existence of a cartel dictating the flow of the industry.

Additionally, the industry seems to be plagued by issues such as mining environmental issues, hazardous work environments, and insecurity to name a few.

Blockchain begins where traditional methods end

In light of the blood diamond issue, global mining giant De Beers announced the pilot of its Tracr blockchain program, which will ensure the company does not handle blood diamonds, particularly in distribution and sales. This announcement was made in January 2018.

However, De Beers would not be the first to make plans to trace the diamonds to solve the problem of the diamond distribution conflict.

Almost 20 years ago, in 2003, the United Nations established the Kimberley Process certification scheme with the aim of preventing the influx of blood diamonds into the global diamond market. This decision was made after the 2000 Fowler Report which showed that blood diamonds were still being used to fund conflicts by the National Union for the Total Independence of Angola.

However, the Kimberley Process has been condemned by organizations such as the Canada-based NGO IMPACT and Global Witness, a London-based NGO that, among other things, seeks to prevent the exploitation of natural resources and human rights abuses. They claimed invalidity.

Speaking to the BBC in 2011, Global Witness founding director Charmian Gooch observed that “almost nine years into the Kimberley Process, the sad truth is that most consumers are still unsure where their diamonds came from. “

Gooch pointed out that the initiative failed three different tests, particularly when addressing unique concerns in Côte d’Ivoire, Venezuela and Zimbabwe, as his NGO dropped out of the process.

In addition, IMPACT cited underreporting of the origin of diamonds and the “false trust” placed in consumers as reasons for its criticism of the Kimberley Process. Joanne Lebert, Managing Director of IMPACT, pointed this out when the NGO withdrew from the initiative in January 2018.

IMPACT withdrew from the case days after De Beers’ Tracr announcement. Tracr was trialled in early May 2018, with initial plans to launch later that year and a vision to bring the platform to the global diamond market.

In the pilot, De Beers announced that it was able to successfully track 100 high-quality diamonds as they progressed through the traditional path from their birthplace, the mine, to the final retailer.

“Blockchain technology and tokenization can offer a way to share ownership: instead of risking it all with a single brick, you can spread the risk among many investors. Even the rating and evaluation process can be outsourced or shared. From an investment perspective, tokenization is a great way to make diamonds accessible to the lay public,” added Schweifer.

Tracr uses an identification tag that De Beers has dubbed the Global Diamond ID, which is unique to each diamond and identifies the individual diamond’s attributes such as clarity, color and carat weight. Information unique to a particular diamond as indicated by its ID, are recorded in a public ledger that Tracr uses to track the diamond’s progress through the distribution chain.

Tracr was officially launched in early May, and De Beers noted that the initiative is now integrated into its business module globally. About a quarter of De Beers production by value has already been registered on Tracr in the first three sights of 2022.

De Beers also pointed out some of the main advantages of the blockchain used, including 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 everyone involved

De Beers isn’t the only company working on blockchain solutions for tracing the origin of diamonds. IBM launched the TrustChain initiative in April 2018 in partnership with an association of jewelry companies.

The TrustChain initiative was founded with the aim of increasing transparency for consumers by tracing the provenance of jewelry using the IBM blockchain platform.

On January 12, 2021, diamond marketplace Rare Carat partnered with EverLedger to use the EverLedger blockchain to bring more transparency to the origin of diamonds on its platform.

Despite its many challenges and dark past, the global diamond industry is world-class. As in finance and many other sectors, the blockchain has proven useful to improve the diamond industry, especially in solving the problems related to the origin of diamonds.

The right ledger for tracing the provenance of jewelry needs to be immutable and transparent, so a public ledger with no central point of control should be used. Otherwise the whole idea of ​​transparent assessment is dead, as allegedly demonstrated in the Kimberley Process.

“When it comes to transparency, consumers and governments are the biggest beneficiaries of blockchain. Ultimately, this will bring the industry to a higher standard and hopefully improve conditions as well.” can really be seen as an advantage,” said Schweifer.

He added that diamonds are high-value assets, so “it’s almost impossible for the average person to own a large, investment-grade stone.” Even for those who can afford it, diamonds are a tricky investment that requires a lot of experience not to get scammed or lose money.

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