Are you familiar with the film “Blood Diamonds”?
Well, let me tell you what it is about and why it can relate to blockchain technology.
Blood Diamond, directed by Edward Zwick and starring Leonardo Di Caprio, is not based on a true story in the strictest sense: Danny Archer and Solomon Vandy are fictional characters, but they represent a sadly true reality in Central African countries, particularly Sierra Leone, Angola, and Zimbabwe, where the smuggling of so-called blood diamonds, also known as dirty diamonds, is documented. The term "blood diamonds" refers to diamonds mined in a war zone and sold clandestinely to fund the so-called African warlords. The term was coined in the 1990s, when the West shed light on the harsh reality of diamond smuggling and the United Nations passed the first resolution against Angola, imposing sanctions that forbid the purchase of diamonds from that country. Angola now produces and trades diamonds legally, but during the 1990s, when the country was in the grip of a civil war, more than 20% of the country's diamond market was used to fund the conflict.
How can this issue be resolved? And what is blockchain's relationship to your diamond ring?
For a long time, traceability has been a thorn in the diamond industry's side. The presence of "conflict diamonds" in supply chains prompted the launch of the Kimberly Process, which was established by the United Nations in 2000 " to ensure that diamond purchases were not financing violence by rebel movements and their allies seeking to undermine legitimate governments."
Even though 81 countries signed on to the process, including all major producing, exporting, and importing nations, it has not been successful. It is based on a participant certification system and a paper-based transaction record. Corruption and smuggling are rampant, and it is rare to be able to trace a diamond's provenance back to its country of origin, let alone the mine from which it was sourced. Blood diamonds are still an issue today. Document tampering, fraudulent claims, falsely identified synthetic stones, and double financing are all difficult to detect. There is an urgent need for a single point of truth so that all parties in the supply chain, from producers to cutters to bankers and insurers, have shared access to records documenting the mining, manufacturing, and sale of diamonds.
Consumer’s demand for transparency, longer product lifecycles, and an expanding used market rife with counterfeits have all created conditions for new solutions, with blockchain technology being unquestionably one of the most promising.
Consumers purchasing diamonds (including diamond rings, necklaces, and so on) are all concerned about the diamond's authenticity, origin, and quality. The traditional method of certifying diamonds is to issue paper certificates that include numerous details. However, there are a few issues with these paper documents. For starters, they can be imitated. A genuine certificate can be used to authenticate a "fake" diamond, or a "fake" (and manipulated) certificate can be issued for a diamond. Second, the attribution information is unclear. It is worth noting that in the case of diamonds, every involved step can make a difference, and craftsmanship is also essential. It is critical to have complete information about the diamond, from its origin and sourcing to each involved step. Furthermore, when customers visit jewelry stores to purchase diamonds, it takes a very long time for the sales associates to present the details, to demonstrate the authenticity of the diamonds using a piece of the lens and explain this and that. This imposes a "non-trivial shopping cost" on consumers and creates a barrier to purchase for those who are impatient to wait. Unfortunately, in the past, these difficulties were difficult to overcome.
This is where blockchain technology comes into the game. Blockchain in conjunction with digital signatures and machine-to-blockchain software allows for the secure recording of diamonds and other goods provenance. The movement of a product recorded on the chain from its origin to the present can be easily viewed by users. This transparency adds value to the product at every stage of the supply chain, as well as when it is purchased by the consumer.
Consequently, a startup named “Everledger” was founded in 2015 to bring transparency to the diamond marketplace. Everledger collaborated with IBM to create a blockchain-based on open-source Hyperledger software. In addition, the company developed a software to interface with the scanning, modeling, and cutting equipment used in gem manufacturing, allowing these highly calibrated and precise instruments to automatically generate and store data relating to the manufacturing process directly on the blockchain. Each of the approximately 1.6 million diamonds now stored on Everledger's blockchain is identified by 40 metadata points and a high-resolution image of the diamond. Everledger's protocol allows users to enter data such as the time and date of the process, as well as the name of the artisan performing it, at each stage of the manufacturing process. Retailers can enter information about any diamond-containing jewelry piece, such as store location and warranty details. Customers can view the complete provenance by logging in with their credentials.
The value of luxury items, such as diamonds, but also fine art, bottles, or cases of fine wine, watches, and other jewelry, is heavily influenced by their provenance. Everledger and the parties who have agreed to participate in Everledger's blockchain believe that creating such a record increases the prices they can charge for the diamonds they produce and track all along the supply chain and at retail.
Nevertheless, blockchain can hardly solve all the industry’s problems at once. As Everledger founder Kemp told Cointelegraph, there will always be room for fraud — for instance, she argued, diamonds could go offline and disappear from the ledger, and there’s always going to be black markets. “It's up to the governance controls to help to reduce that, not eliminate it”.
Written by: Anna Danilova