Diamonds.
The more precious the asset, the higher the probability of people committing crime to gain a share in it. Diamonds are no exception. The $80 billion diamond industry suffers from the problem such as theft, fraud, diamond-fueled conflict and more. Can blockchain technology be the answer?
Conflict Diamonds & Kimberley Process
The darker side underneath the sparkle of a diamond was first revealed in the 1990’s when the UN Security Council declared that diamonds were being used to fund and perpetuate conflicts in Angola and Sierra Leone. This was a disturbing and challenging revelation. The diamonds traded to fuel civil wars and fund armed rebels started to be called “conflict” or “blood” diamonds. The issue captured the attention of international bodies and governments and they started working towards breaking the link between the “illegal trade of rough diamonds and armed conflict” to restore the faith in the purity and grandeur of the diamond.
To give these efforts a formal structure, the UN General Assembly urged countries to finalize an “international certification scheme for the valuable gems.” Subsequently, in 2003, Kimberley Process – a joint initiative by governments, industrial bodies and civil counterparts - was adopted to ensure that the consignment of rough diamonds entering the international markets was “conflict-free.”
Over the past years, the Kimberley Process has managed to curb the entry of ‘blood-diamonds’ into the system. According to diamondfacts.org, “Today, more than 99% of the world's diamonds are now from conflict free sources and are officially traded under the UN mandated Kimberley Process.” This has been a good achievement, but more needs to be done as diamonds mined in war zones or inhuman conditions continue to reach the international markets in addition to problems such as insurance frauds or genuinity checks especially for online shoppers.
Blockchain, The Solution?
The blockchain technology which powers bitcoin is a method of recording data (such as transactions, agreement, contracts) just like in a ledger book but in digital, decentralized and meddle-proof format. The blockchain technology is seen a solution to multiple problems and thus various governments and industries – music, media, banking, insurance, diamond, healthcare - are exploring its potential.
Drawing upon the distributed ledger technology, Everledger provides an immutable permanent record for the certification and transaction history of diamonds which can be used for verification for insurance companies, owners, claimants and law enforcement. According to Everledger, £200 million is spent by insurers for tackling fraud each year while £100 million is paid out in relation to jewellery theft. Everledger has over 850,000 diamonds on blockchain.
Now, the globally recognized Kimberley Process is looking to embrace the blockchain technology. According to the recently released Kimberley Process mid-term report 2016, “The KP Chair’s office held talks with the members of The Blockchain Council of the Dubai Prime Minister’s office and researched how blockchain technology can be used to prevent conflict diamonds from entering the market.”
As a strategic initiative, the Kimberly Process (KP) Chair 2016 has proposed the blockchain technology to combat fraudulent activities and enhance security measures. The technology can be adopted and adapted to eradicate the issue of false KP certificates as well as minimize the impact of human error while uploading crucial data. The report said, “The KP Chair’s office is committed to the examination of its benefits and is working on a potential pilot project that would use blockchain technology to monitor KP statistics.” An update on the project will be provided in November 2016.
Final Word
The loopholes in the existing system allow manipulations, fake certificates, conflict diamonds, sale scams, security concerns, insurance frauds in diamond trading processes. The blockchain technology has the potential to change the nerve center of the Kimberley Process which sits at the heart of the world diamond industry.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
