“The technology most likely to change the next decade of business is not the social web, big data, the cloud, robotics, or even artificial intelligence. It’s the Blockchain, the technology behind digital currencies like Bitcoin.” – Harvard Business Review1
Blockchain is a distributed database that maintains a continuously-growing list of records called blocks secured from tampering and revision.2
It is a globally distributed ledger that can be run on millions of devices and open to anyone, and it can be used to securely moved and stored anything of value, including money, intellectual property, and even votes. On Blockchain, the trust is established through mass collaboration and clever code. It can remove the middleman and ensure trust between strangers, as it is difficult to cheat.
Many companies are betting big on this next game-changing technology, and financial institutions are of course at the forefront of this new game, as the new technology can help reduce transaction costs and complexity of financial transactions, and improve transparency and regulation. But it can also extend well beyond financial services. Here I would like to share an interesting example of how Blockchain can be used to potentially transform the diamond industry.
Everledger and Diamond
Trust and ethics is a problem in the diamond industry. The diamond industry has long faced problems with reporting the origin of a diamond and authenticating its ID and grading. Traditionally documented on paper, but sometimes it’s still difficult to trace the diamond’s true origins and providence. People may ask Where did the diamond come from? Was it blood diamond? Who owns it? Who bought it? Where is it now?
Everledger, a startup founded on Apr 2015 and based in London, is leveraging the blockchain technology to establish a global platform that is secure enough to enable people to access all the related information and address the trust and ethics problems. Everledger is using IBM’s infrastructure – LinuxOne to build a digital global ledger that tracks and protects items of value. They use cryptography to keep secure and accurate records of each transaction occurs during a diamond’s lifespan, and once a transaction occurs, it will be added to the history and cannot be removed or edited without multiple checks. Therefore, this platform can enable trust, transparency, and security of diamond business.
Everledger is building up relationships with major certificate houses around the world, where they grade and certify each of the diamonds. Everledger creates a digital DNA for each diamond and writes all of the information into blockchain. The blockchain platform records the chronology of a diamond’s ownership and is customized to incorporate the relevant integrity markers, which are calculated from 40 data points related to each diamond alongside the four-Cs (which stand for Cut, Color, Clarity, and Carat-weight). Once such information has been uploaded into the blockchain, the record is tamper-free, it’s immutable and can therefore be trusted.
The blockchain is immutable, fast and scalable, and it brings trust and transparency to diamond trading. In the future, people can know the diamonds origins, every owner of a diamond in the history, its 4Cs and 40 metadata points. This can not only benefit customers, online retailers, and vintage diamond market, but also Everledger can work with insurance companies when diamonds are reported stolen, and with Interpol and Europol when diamonds are crossing borders and entering black markets.
Insurance fraud is a global problem, it costs insurance companies 45 Billion a year and 65% of them claim go undetected 3. A large portion of this amount comes from the diamond industry. By creating transparency in the industry through easy access to all doc umentation, secure history of transactions, real-time updating, fraud can eventually be eliminated.
Additionally, this platform can put a stop on concerns over blood diamonds. Blood diamond is diamond mined in a war zone and sold to finance an insurgency or terrorism. By tracing the origin of a diamond with blockchain, we can judge whether a diamond is blood diamond or not.
Everledger is now still in its experimental stage, and their CEO mentioned that they will add two additional assets into its ledger: fine art and luxury goods.
The process is not easy, which requires making all the players through the value chain, from manufacturers, traders, and retailers to insurers, to buy in the concept and practice of blockchain. Moving forward, I think Everledger should speed up its relationship establishment with the major players in Diamond’s value chain, as well as insurance companies and even government to roll out its practice on diamond. In the long term, Everledger can consider how to build up the standards (which are more complicated) to track and offer fraud prevention for fine arts and luxury goods.
Word Count: 786
- The Impact of the Blockchain Goes Beyond Financial Services, https://hbr.org/2016/05/the-impact-of-the-blockchain-goes-beyond-financial-services
- Wikipedia, https://en.wikipedia.org/wiki/Blockchain_(database)
- Everledger company data, http://www.everledger.io/
- Everledger Is Using Blockchain To Combat Fraud, Starting With Diamonds, https://techcrunch.com/2015/06/29/everledger/