“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 Review
Like most businesses, diamond retailers are steadily expanding – if not moving – their operations to the digital realm of the world wide web, and rightly so. The new age of diamond consumers belong to a generation that is always on the move, pressed for time, and have too many things going on in their lives to dedicate to any one task – such as purchasing a piece of jewelry – the sort of time perhaps their parents could. Considering the lifestyle of their target demography of consumers made up of mostly young working individuals, diamond companies have resolved to present to them the sort of shopping platform in tune with their needs. Although the general idea one has of e-shopping sites, especially for luxury items, is that they are vulnerable to frauds, this perception is obliterated when the sites are built on blockchain technology.
Blockchain is a distributed network with nodes that are spread all over the globe, depending on the size of the network. At the core of this technology is an immutable ledger that keeps a record of every transaction, validated by automated smart contracts, taking place within the network. This includes transactions at every step of the supply chain from the mining company to the cutting and polishing centers, certification labs, points of imports and exports, manufacturers, and retailers. Tracing the provenance of the diamond, therefore, becomes easy and reliable. To generation-Z this is an important aspect since the socially responsible consumers seek insurance that they, in any form, are not contributing to civil conflict in diamond producing regions.
Blockchain has emerged as an innovation that could potentially revolutionize the way the diamond industry functions. It brings in a new era of transparency and accountability that had until now not been explored in the sector to its full capability. Since most of the documentation – legal as well as related to buying and selling – is done by a pre-programmed computer protocol – smart contracts – it has opened up a new prospect of a benefit for consumers. The removal of middlemen, primarily lawyers, banks, brokers, and several processing units present in the 6 – 8 stages between the excavation of a diamond and the display window at a retail store, consequently removes the fees they charge in for their contribution to the value chain. This significantly brings down the final price at which the diamond is sold. Enhancement of regulation and reduction of complexity of financial transactions are a couple of other benefits to this.
Of course, the advantage of cutting costs is not limited to just the consumers of the precious stones. It extends to online retailers, the vintage diamond market, insurance companies that cover stolen jewelry and loose stones, and even the law or order departments responsible for countering diamond-related illegal activities.
In the case of the insurance industry, fraud is a global problem that costs insurance companies $45 billion per annum, with 65% of the claims going undetected. The diamond industry is a major contributor to these numbers. Blockchain, however, is steadily reversing this predicament by giving easy access to documentation to secure the history of the transactions of the diamond and real-time updates of future change of ownership of the missing items.
Online exchanges built on blockchain technology are a recent addition to the economics of the diamond industry and present an alternate venue for trade in polished diamonds. These exchanges function around the clock allowing purchasers to procure diamonds any time of the day. A major segment of the sellers comprises of dealers in polished diamonds and small cutting and polishing businesses. Online, time-limited auctions, take-it-or-leave-it offers, and direct negotiations between trade participants are some of the forms of online transactions. Negotiations and trade taking place on a blockchain network create trust amid strangers conducting business among themselves, as all the trade participants are authenticated by stringent KYC and AML protocols. This practice is intrinsic to cryptocurrency exchanges and blockchain diamond consortia.
The supply chain network of the diamond industry spans across global markets, and therefore decisions relating to the supply chain also become international strategic decisions. In the present day, a majority of the mining companies are publicly owned and they are minutely scrutinized by investors. The results of these assessments become a part of public record. Blockchain has made the business activities of the middle market (made up of more than 5,000 players operating on a wide range of business models) less opaque, compact, and streamlined, weeding out unnecessary expenses. As a result, becoming a proud owner of a diamond is close to becoming a reality for more people.