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Blockchain, Supply Chain

Blockchain is Bringing a Revolution in the Global Diamond Industry

Traceability, in recent times, is a significant contributor to buying patterns- especially among young ethical consumers. Decentralized blockchain technology can make this possible throughout the entire diamond supply chain- from mining to jewelry retail.

Global Diamond Industry in 2021

Worldwide production of rough diamonds dropped to 111 million carats in 2020, as a result of Covid-19. It was a 20% decrease compared to 2019. Medium or large-scale diamonds constituted one-fourth of the total production volume(carats). But, they also yielded 70-80% of the total diamond valuation. Major sites of diamond production include Russia, Botswana, Australia, Congo, South Africa, India, China, and Brazil. Only 20% of rough diamonds attain gem-quality certification. 

The Diamond Supply Chain

A diamond passes through several hands prior to its purchase as a jewelry item. The industry features one of the most complex supply chains in the world. For example, a diamond originating from a mine in Africa or Russia is initially shipped to India (92% of all diamonds are cut and polished in Surat). The diamonds are then transported to bourses (diamond exchanges) at Antwerp, Dubai, or Israel for trading or brokering. Finally, the precious stones are transferred to retail stores worldwide. 

Challenges of the diamond industry

The diamond industry faces several challenges. The prominent ones include:

  • Determining the place of its origin.
  • Quality authentication and grading.
  • Difficulty in confirming unethical diamond sources, or “blood diamonds”. 
  • Shortage and high capital cost for diamond merchants.
  • Complicated supply chain spanning throughout the globe. 

Why are Blood Diamonds banned? 

Conflict diamonds or blood diamonds mostly originate in war-torn nations of Africa. Unethical mining practices are common, including forced child labor and human rights violations. Revenues generated from their sales finance insurgents opposing the nation’s ruling governments. This creates severe turmoil and unrest. The relation between the illegal diamond trade and 3rd world disputes was first highlighted in the Fowler Report- an UN-sanctioned commission report headed by Robert Fowler. 

Kimberley Certification

The Kimberley Process Certification Scheme(KPCS) started in 2003 with an aim to remove the worldwide spread of conflict diamonds. The multilateral process currently consists of 56 participating nations and is mandated by the United Nations. Participants observe regulations for diamond import/export. Exporting nations certify conflict-free rough diamond shipments. Transparent practices are ensured, along with agreeing to share critical information pertaining to diamond shipments. KPCS implementation has resulted in 99.8%  removal of illegal diamonds. 

Drawbacks of KPCS 

While the Kimberley Process is extensive, doubts can be easily cast regarding the authenticity of the certification. A non-participating nation can easily smuggle its rough diamonds to a legal participant. The “blood” stains can be easily removed by cutting and polishing. Rough diamonds are verified through the Kimberley process, not independent gems.  

Blockchain-based Diamond Supply Chain

Loopholes in KPCS can be rectified with efforts to enhance traceability. This is where blockchain comes into the picture. The decentralized network consists of features that make it immune to data tampering. Transaction records are available for public access- providing a one-stop solution for diamond provenance. 

Read: Role of Blockchain in Providing Efficiency and Transparency in Supply Chain Management

Advantages of a Blockchain-based Diamond Supply Chain

Blockchain implementation ensures:

  • Guaranteed diamond traceability
    High-definition images and multi-parametric metadata of diamonds are recorded at each stage- from mining to retail. A consumer can be truly assured of the diamond’s place of origin- thanks to Smart Contracts within the blockchain network.
  • Swift functional payment system
    The blockchain network features faster payment transfer options between members. Cross-border transactions finish within seconds. High-speed blockchain networks can process 1 million parallel transactions.
  • A unified common marketplace for consortium members
    The common marketplace promotes transparency. Supply and demand details/requirements can be easily recorded in the decentralized ledger. Some blockchain networks also offer a line of credit- subject to acceptance from all the Consortium members.
  • High-security trading features
    A decentralized blockchain network is immutable and tamper-proof.
  • Secure trade privacy for safekeeping business information
    Since data is decentralized and encrypted, blockchains add a protective layer over business-sensitive information.
  • No central organization owns the network
    A decentralized network has no central authority. It relies on a consensus-based governance structure. Thus the interests of all consortium members are protected.

Read: How Blockchain is Improving the Global Mining Industry

Use of Blockchain in Diamond Industry

Luxury jewelers and top players in the diamond industry are quickly adapting to blockchain-based networks. Collaborations or consortiums featuring several companies share and exchange information over the decentralized network. Recorded transaction copies are copies stored in the ledger and shared within the network. The data cannot be altered and includes everyone- from every stage. HashCash Consultants, a major blockchain development company, offers specialized services tailormade for diamonds. The consortium consists of over 250 firms and enterprises involved in the entire diamond supply chain worldwide.

Final Thoughts

Current generation consumers value social welfare, sustainability, transparency, and traceability. Assurance of ethical mining, trade, and retailing practices is important in this age.

A proper channel to address customer security concerns is essential to improve sales figures. Blockchain technology fortifies the Kimberley loopholes and offers better transparency, security, data safeguarding, and traceability for both businesses and consumers.

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