Today’s diamond industry is fraught with ever-growing challenges, including those associated with transparency, privacy, traceability, compliance and trust. Compliance costs and issues associated with the Kimberly Process, which is used to track diamonds from mine to consumer using a paper trail, contribute to low visibility and control of origin. In turn, this drives uncertainty about ethics and product authenticity among consumers. Increasing pressure from buyers to be certain that the diamonds they use to mark milestones are conflict-free has become a driving force in the need for change. Blockchain technology, often associated with cryptocurrencies, aims to correct the nefarious diamond industry by using its inherent real-time reporting capabilities.
“Conflict diamonds” tell the story of a dark journey with malevolent characters who sell and trade them to fuel foreign wars and promote illicit trade. Contributing additional complexity to the diamond trade is the proliferation of machine-made lab grown diamonds.
The introduction of blockchain, also known as “distributed ledger technology,” provides immutability, speed and security, which creates the ideal platform for tracking and protecting high value assets and critical data. This is achieved through a decentralized distributed database that maintains a continuously-growing list of records called “blocks,” that are secured from tampering and revision without the need for central authority.
Blockchain can provide the necessary means to track a diamond from the earth to the end consumer using a digital fingerprint with encrypted data on an indelible tamper-proof ledger.
Blockchain, through a combination of public and permissioned ledgers, allows complete viewing accessibility to the provenance of the diamond, but also controls the access to private and confidential information for permissioned users only. It allows for a transaction to be recorded permanently on a database shared among computers without relying on a third party to authenticate or to process it. The information becomes accessible anytime, from anywhere, by anyone with a secure key, but it cannot be edited. A consumer involved in a transaction can verify the information independently. Each step in the chain allows for an auditable step which ultimately can be verified by third parties.
Major diamond corporations have started deploying blockchain technology by introducing proprietary software to assist in tracking diamonds from the earth to the end consumer. It is only a matter of time before this technology becomes the standard by which diamonds are traded.
To learn more about this significant and growing wave of change, contact Brian Nuzio, CPA, Principal at BNuzio@Friedmanllp.com.