Editor’s Note
This article explores how blockchain technology is poised to combat longstanding issues in the diamond industry, from unethical mining to fraud. By creating transparent and immutable records, it offers a promising path toward greater accountability and trust.
Crimes surrounding diamonds never cease. From child abuse in the mining process to selling lost diamonds by manipulating certificates, these issues arise because diamonds are so valuable. However, such tragedies are likely to decrease in the future as a blockchain wave sweeps through the diamond market.
Diamonds are the hardest natural mineral with exceptional brilliance, which is why they are exceptionally expensive among numerous gemstones. The factors determining a diamond’s price are diverse, due to limited mining output and the need for complex cutting techniques. Prices generally vary based on the so-called ‘4Cs’: Color, Clarity, Cut, and Carat weight. There are over 40 types of data just to verify uniqueness, such as origin, processing company, and circulation frequency. It’s safe to say no two diamonds in this world are identical. This rarity drives up their value.
The problem is that all sorts of crimes occur around this beautiful gemstone, including counterfeiting, theft, smuggling, and insurance fraud. The insurance industry alone spends about 53.6 trillion won annually on diamond-related incidents. Moreover, diamond crimes often escalate into international issues. Forced child labor and other human rights abuses are rampant in the mining process, and diamonds are frequently used to fund weapons purchases in conflict zones.
Of course, the diamond industry has intensely grappled with preventing this. A prime example is the launch of the ‘Kimberley Process’ certification system in 2002, which assigns an ID to each diamond. This process involved 81 major countries that distribute and consume diamonds, agreeing to only circulate diamonds that have undergone the Kimberley Process.
Nevertheless, diamond-related crimes haven’t disappeared 100%. This is because the documents certifying diamonds were ‘paper’. The more meticulously certificates were made, the more cunning the techniques of criminals who forged or altered them became.
Everledger, a UK-based startup, was created to solve this problem. The company conceived an effective solution: ‘blockchain’ technology. Let’s delve deeper. The traditional diamond distribution process was complex. From manufacturing to verifying relevant laws and regulations, numerous parties including banks, lawyers, accountants, and public officials were involved. The time and cost involved were enormous.
Everledger’s solution was different. It placed the complex diamond distribution process onto the IBM blockchain system. Data related to individual diamonds was registered in a ‘block’. This included not only serial numbers but also product details like color, clarity, cut, carat, size, and shape. This block is shared with all diamond exchanges participating in the blockchain. Every time ownership changes from A to B, and then from B to C, all transaction records are left in the system.
All blocks are linked forward and backward. To forge or alter them, all these records would need to be modified, creating a structure that is virtually impossible to counterfeit or tamper with. It also makes it easy to transparently track a diamond’s distribution path from start to finish.
It also solved countless administrative procedures required in the diamond distribution process at once. IBM’s artificial intelligence (AI), Watson, acted as the ‘lawyer’. A search for just the ‘Kimberley Process’ yields 73 compliance obligations, which Watson verifies in an instant. It enabled the pre-evaluation and management of requirements demanded by public institutions.
Furthermore, it rolled up its sleeves to combat crime. For example, consider a fraudster who falsely reports a diamond as ‘lost’ to receive insurance money without actually losing it. If the insurance company registers a photo of the reported lost diamond on the blockchain, the fraudster is caught when trying to sell the diamond. The technology utilized here is ‘Watson Visual Recognition’, an AI technology that meticulously analyzes and identifies images.