How Can Blockchain Ensure Purity of Diamonds?
Blockchain will disrupt the way many industries handled transactions and their supply chains. The concept of blockchain diamond consortia takes blockchain leadership one step further. Application of blockchain in any infrastructure is much simpler than one might think. You can easily create APIs to an integrated blockchain network from existing apps and data and quickly build a user interface. Developers can automate tasks that used to take weeks now do them in minutes. Even the diamond world is leveraging blockchain.
Need for blockchain in the diamond industry:
The diamond industry has been in desperate need of a system to bring transparency and accountability to the industry which had been run in the most traditional of ways based primarily on mutual trust. This much-needed transparency can be underpinned by using the most transformative and exponential opportunity of our times — blockchain.
Diamonds, like most other valuable items, rely on records of origin, identity, and custody to prove authenticity and provenance. Clearly, without provenance, we do not know where an item has come from, who owned it, and what its true value is. So the diamond industry is the perfect place to start.
There was an immediate need to create a single point of truth so that all the stakeholders along the supply chain — from producers to cutters to bankers and insurers — had the ability to have shared visibility of records. One that validates simultaneously and securely with business, an audit trail for diamonds that could prove provenance, track transactions and ensure ethical trade. This is what the blockchain does at its core. It is a shared ledger technology that allows participants in a business network to transact assets where everyone has control but no one person is in control. The benefits, therefore, include securability, immutability, speed, and scale. We gain in time, cost, and trust.
What is the Kimberly process?
130 years in the making, and boasting an incredible set of numbers, rough diamonds are transformed out of the ground at 15 billion dollars annually. As they pass through the pipeline and reach the retail, its net worth is 72 billion dollars in value. Now we have a love of luxury and there is clearly no denying it. But of course, at the very core, we have a concern for ethical trade. So in the year 2000, the UN came together and they formed the Kimberly process. It was a three depth validation system alongside 81 countries in the world to solve this problem. It was a landmark decision to put in place a platform to ensure that blood diamonds and conflict stones were no longer traded around the world. The mandate was hugely successful. 99.8% of all the countries came together to ensure that this network was created.
Problems with the traditional method of transactions:
While the Kimberly process was a shining moment for the success for the diamond industry, the world still relies on paper-based certification. With this comes a slew of problems. These could be document-tampering, fraudulent claims, synthetic stones that are falsely identified, and financing. The media reports these problems time and again, and there is no better time for blockchain to be operationalized.
So what’s a blockchain, and a blockchain diamond consortium?
The concepts are actually pretty simple and dilute to three main things — business networks, assets, and ledgers. Business networks are ecosystems of exchange, a supply chain, a series of interconnected business transactions. The diamond industry has this at its very core. It formed an alliance over 130 years, binding together contracts with a gentleman’s handshake, a sheet of paper, and a promise to pay. Now, assets, they can either be digital or physical, and physical assets like diamonds can be created digitally. The third aspect — the ledger, is where transactions are coordinated and encrypted. It is simultaneously available to all participants.
When we combine these three elements, we change the way we trade. we can introduce instant audibility and trust in our production chains, in the lifecycle of an asset, in the transactions and contracts between participants of a network.
One of the most valuable outcomes of implementing this technology in the diamond industry is the establishment if blockchain diamond consortia, such as Diamante. In the unified marketplace it provides to industry participants, trade can be carried out using cryptocurrency (DIAM in the case of Diamante) which itself is a highly secure digital money. Since each cryptocurrency has a unique identity that renders it traceable on the blockchain network, transactions settled using it are devoid of the possibility of fraud or duplication. With members of the consortium ranging from miners to manufacturers and retailers, tracing the provenance of a diamond registered in the network becomes quick and hassle-free. This sort of a setup increases trust and efficiency in the industry that has long suffered from the unethical infiltration of artificial diamonds in the supply chain.
