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Blockchain Comes to the Diamond Trade

Words by 3p Contributor
Investment & Markets
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By Logan Yonavjak

A diamond is forever, but the negative impacts on people and planet don’t have to be. The diamond industry has been struggling for decades to make its supply chain more ethical, environmentally friendly, and transparent. Could blockchain technology be the solution we’ve been waiting for?

Blockchain technology, the same technology that underlies bitcoin, collects and records information -- including physical characteristics, source and history of ownership -- into an immutable digital ledger. This helps ensure the authenticity of information, making it more difficult to conceal corruption or counterfeiting along a product’s journey through the supply chain.

This is a useful innovation for the luxury goods market. Essentially, blockchain technology can be used to trace the origins and verify the authenticity of goods – and in the case of diamonds and other rare earth minerals, to ensure that they originate from sustainable sources.

The current industry standard is “conflict free” diamonds. However, jewelers that offer this standard are limiting themselves to the Kimberley Process’s definition, which narrowly defines conflict diamonds as ‘diamonds that finance rebel movements against recognized governments and applies only to the trade of rough diamonds. This is insufficient, claims Brillant Earth, because there are many other opportunities for abuse and human rights violations between the mine and the jewelry counter. The Brilliant Earth website notes bluntly “The Kimberley Process misleads consumers and does not attempt to stop the worst abuses in diamond mining.” Blockchain is the latest attempt to keep the diamond supply chain free and clear.

Brilliant Earth was founded in 2005 after co-founder Beth Gerstein struggled to find a responsibly sourced diamond engagement ring for herself. Beth partnered with her Stanford classmate, Eric Grossberg, who also believed that responsibly sourced jewelry could be an effective tool for social change. Thirteen years later, Brilliant Earth has emerged as a global leader of ethically-sourced fine jewelry and a leading e-commerce jeweler, with a mission to cultivate a more ethical, transparent and sustainable jewelry industry.

The company’s fine jewelry is handcrafted from recycled precious metals, and is set with beyond-conflict-free diamonds and colored gemstones that already meet high standards of social and environmental responsibility.

Initially, Brilliant Earth sold only Canadian diamonds, which were just becoming available at the time. Gerstein and Grossberg personally researched mining operations in Canada’s Northwest Territory.

Since then, the company has expanded their offerings to include gems from other points of origin.

In 2016, a third-party auditor conducted an independent verification audit of Brilliant Earth’s chain-of-custody protocols to verify practices to identify the country of origin for the natural diamonds Brilliant Earth offers from Canada, Botswana Sort, and Russia. In 2017, the company also hired a Director of Responsible Sourcing to focus exclusively on improving sourcing and auditing practices. Last but not least, the company takes back jewelry for recycling and actively engages with industry partners to identify opportunities to decrease waste and increase the available recycled content.

Blockchain technology provides another opportunity to further improve diligence and sourcing practices. In January 2018 Brilliant Earth partnered with Everledger, an emerging technology enterprise that uses a global digital ledger, enabled by blockchain technology, to securely track and trace the verified provenance of high-value assets, like diamonds.

Everledger is built with Hyperledger’s open-source technology and securely hosted within IBM. Media reports have also tied this technology to recent collaborations with Walmart and Maersk.

Since early 2018, Brilliant Earth and Everledger have been pilot-testing this system for Brilliant Earth’s supply chain to provide stakeholders with an indisputable history of authenticity and ownership along the market journey of a diamond.

“By integrating Everledger’s blockchain-based solution platform into Brilliant Earth’s existing due diligence practices, the company hopes to establish a next-generation standard for addressing social and environmental issues related to mining and manufacturing of gemstones and precious metals,” says Beth Gerstein.

This partnership comes at an inflection point for the diamond industry, given renewed criticism of the limited impact of the industry’s Kimberley Process (KP) certification.

Everledger’s approach will augment Brilliant Earth’s existing screening process. The company begins by carefully selecting the countries that supply their diamonds. Then, they use chain-of-custody protocols to carefully vet and approve each diamond supplier. Their diamond suppliers are required to demonstrate conformity to these chain-of-custody protocols in their supply chain, and verify documented due diligence of the origin of diamonds from countries including Canada, Russia, and Botswana.

By integrating Everledger’s blockchain-based solution platform into Brilliant Earth’s existing due diligence practices, the company hopes to establish a next-generation standard for addressing social and environmental issues related to mining and manufacturing of gemstones and precious metals--

Essentially, the Everledger blockchain system can enable the supply chain to more seamlessly and securely provide the necessary documentation and verification on origin, standards and practices. This application can extend from a particular mine or mining company to the broader diamond industry, including diamond manufacturers, gem laboratories, and wholesalers.

Over time, Brilliant Earth also plans to move into the application of blockchain into colored gemstones and precious metals. In fact, Everledger recently announced a partnership with Gübelin Gem Lab to utilize blockchain to drive further transparency in the colored gemstone industry.

While blockchain is a tool that can increase transparency in the industry, it will be most effective when implemented by multiple parties from private sector actors, government agencies, and non-profit organizations. Current due diligence systems can engage with blockchain to include their information and expand the reach of their data.

Other well-known players in the rare earths market are also getting involved in Blockchain. De Beers Group is also investing in a platform to span the entire diamond value chain in order to provide confidence and assurance for all stakeholders. The Antwerp World Diamond Center (AWDC), representing the largest diamond trade hub worldwide, has been in discussion with De Beers Group around collaboration around this platform.

The implementation of blockchain won’t happen overnight, but when it does, it will serve to enhance existing efforts toward responsible sourcing. Layering information on the blockchain will help validate how products flow through the supply chain and provide greater consumer assurance around responsible sourcing.

Originally published in CR Magazine - Summer 2018

3p Contributor

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