From Artisanal Mining And The Comptoirs Business In Africa To Blockchain Traceability: A Brave New Diamond WorldMarch 22, 18
From De Beers to the midstream, the diamond industry is embracing blockchain technology to give consumers assurance on several issues: that their diamonds are clean, not synthetic, and not treated, and that they are identifiable all the way back to the point of extraction. In little more than a year, the idea of using blockchain technology to monitor diamonds – from mine to consumer – has gained enormous traction.
Blockchain is a highly secure, proven technology that records data in a tamper-proof digital ledger that can never be erased. A diamond blockchain initiative can provide a single, indisputable record for every diamond that is registered on the platform – thus giving consumers complete assurance about the diamond they have bought.
The development of blockchain is particularly interesting from the point of view of the trade in artisanal and alluvial diamonds. To what extent is this sector ready to accommodate this new development? Two-thirds of the world’s rough diamonds come from Africa, with six countries – South Africa, Botswana, Namibia, DRC, Angola and Zimbabwe – accounting for the bulk of this production.
As much as 20% of the world’s gem-quality diamonds are produced by artisanal miners – people who dig for diamonds using rudimentary equipment. Often the whole family is involved, including children. There are 1.5 million artisanal miners in Africa and South America, working in 18 different countries, and in conditions that are hard, dirty and often dangerous. Nevertheless, artisanal mining contributes heavily to the livelihood of millions of people.
Diamantaires and companies bought diamonds in Africa until about 15 years ago in a highly informal and often challenging manner. Some countries had just ended long-lasting conflicts. In countries where the world’s largest mining company, De Beers, did not have a presence, diamonds mined in the artisanal and alluvial sector were difficult to regulate. Indeed, the internal trading chain in artisanally mined diamonds was, and still is, largely conducted informally, without paperwork or record keeping, thus making it largely untraceable.
At or near mine sites, groups of unlicensed buyers often acquire diamonds directly from the diggers themselves. These pit-side buyers, known locally as traffiquants (traffickers) or négociants (traders) work with simple scales and have limited capital. They sell their diamonds, either to a comptoir (counter) or more likely to a larger, and more established buyer with a shop in a regional center or capital. In any case, neither will demand identification from those from whom they buy goods and few – whether licensed or not – keep records. The right to export comes with a comptoir’s licence. In many cases, each buyer exports his diamonds to his own overseas customers under the name of the comptoir.
How will the artisanal sector change its way of working as the diamond trade undergoes revolutionary changes? The new keyword in recent times is traceability. This requires compliance and transparency at every step of the chain of custody, from production to export and all the way through manufacturing to retail. If, at each stage of the chain of custody, the tracing mechanism is not in place, the jewelry industry and the consumer are left with a product that does not fit their requirements for guaranteed ethical, responsible sourcing. But in a blockchain environment, each buying/selling event is registered on the so-called chain that automatically becomes a ‘block’ that represents this unique information, data or characteristics about a diamond as it passes along the value chain.
The advantages are clear: consumers can be confident that the diamonds are conflict-free; bankers and other lenders to the diamond trade will have confidence in their customers’ businesses; fraudulent insurance claims will not be possible; the confidence of industry members generally in their dealings with one another will receive a boost; and all members of the pipeline will be confident that their diamond is real.
Blockchain can also be used to deal with the increasing problem in recent years of lab-grown diamonds being included illegally in parcels of diamonds. That's because it gives all members of the diamond pipeline a solid way of knowing exactly where the diamond in question was mined and how it passed through the supply chain.
Blockchain platform Everledger has created a blockchain diamond registry, which uses more than 40 characteristics of each diamond to create a unique identification marker for it. That marker is logged into the blockchain system every time the diamond changes hands, beginning at the mine it originated from and continuing through the global supply chain.
Industry observers say the blockchain revolution has come at exactly the right time. In the United States alone, the aging baby boomer generation will be transferring $30 billion in wealth to their children and other heirs in the coming years. With social responsibility and a desire to know the provenance of items they are buying an important part of the buying decisions of millennials, for example, blockchain's focus on traceability could help diamond jewelry sales in a difficult consumer demographic.
De Beers has announced that it will be creating a blockchain system that will cover all of the parts of their global diamond business. A blockchain-based technology will facilitate greater tracking of its diamonds. "In a world of fleeting connections and disposable luxury, diamonds must stand for enduring value that is grounded in confidence," said De Beers CEO Bruce Cleaver, adding that consumers expect to know more about their luxury goods, the route they have travelled, their authenticity, and whether they have been a force for good in the world.
The Antwerp World Diamond Centre (AWDC), a considerable player in the global industry, is also investigating the use of blockchain technology.
Meanwhile, Gaetano Cavalieri, President of CIBJO, the World Jewellery Confederation, points out that more cumbersome due-diligence systems that have been created may disadvantage smaller and medium-sized companies which lack the resources to put them in place. However, a cloud-based blockchain platform has the potential of eliminating financial barriers of entry.
Russian diamond mining firm ALROSA is also looking into blockchain, saying a successful traceability system would allow the industry to deal with issues of conflict diamonds and undisclosed lab-grown stones.
Other examples of diamonds produced in a traceable way include efforts by Rio Tinto Diamonds, which provides an audited mine-to-polished chain of custody for stones from its Argyle mine with a Canadian Diamonds program. Meanwhile, Dominion Diamonds' CanadaMark promises a pure and natural origin for its natural and unheated diamonds. And taking the process another step forward, Dominion will be integrating the Sarine Diamond Journey into its CanadaMark website, which will let consumers monitor the development of their diamonds from mine to retail. The system provides images of the diamond, following its journey along the supply chain.
In the colored gemstones industry, the Gübelin Gem Lab and blockchain company Everledger announced that they have signed a partnership "to create new transparency levels in the gemstone industry".
And in the midstream market, Indian companies Dharmanandan Diamonds and Hari Krishna Exports have adopted blockchain to improve traceability of stones through the supply chain. Dharmanandan has partnered with technology company Everledger to place its diamond-tracking data onto a blockchain platform. Meanwhile, Hari Krishna has incorporated blockchain into its updated mobile app for diamond buyers.
At the other end of the pipeline, jewelry retailing giant Chow Tai Fook last year launched the Chow Tai Fook T Mark, a new jewelry brand with diamonds exclusively from its ‘T Mark Touch’ collection.
Along the same path, Signet Jewelers, the biggest jewelry retail chain in the United States and with chains in Canada and the United Kingdom has created the Signet Responsible Sourcing Protocol for Diamonds. All businesses are expected to take responsibility for their supply chains, especially with respect to human rights and labor practices.
Clearly blockchain and traceability cannot be avoided, especially with the participation of the large mining companies and the midstream section of the pipeline. With about 20% of global supply still being mined by the artisanal market, where trade is carried out without records or paperwork, this part of the industry is likely to be at risk if it does not become a part of the blockchain revolution.