In fall of 2017, DEEP Centre founder Anthony Williams worked with the Blockchain Research Institute to explain how a blockchain startup called Everledger is helping to eradicate the problem of conflict diamonds, which has exacerbated human suffering and stripped developing economies of valuable resources without proper compensation. Published in early 2018, you can now download the full case study, and/or read an extended excerpt below.
Diamonds on the Blockchain excerpt
For decades, the diamond industry has deliberately and carefully crafted a brand for diamonds as objects of love. Highly successful marketing campaigns targeting old and young couples alike have ensured that diamonds are an essential and ongoing part of romantic relationships. Meanwhile, diamond suppliers like De Beers operate quietly in the background, attracting little public attention. Yet, the image portrayed by De Beers and other diamond suppliers stands in stark contrast to the frequently harsh realities of the diamond supply chain.
In countries such as Angola, Zimbabwe, and the Central African Republic, where oversight is scant and crime and corruption are rampant, diamonds continue to provide hard currency for rebel groups and terrorists to purchase weapons and wage war on elected or internationally recognized governments. [i] The result, according to investigative journalists and human rights observers, is prolonged conflicts and terrible human rights violations.[ii] Violence, mutilation, and even kidnapping (as a means of military recruitment) have destroyed the social and economic foundation in many countries where diamonds are mined. Ironically, a precious natural resource that has enriched diamond producers has also produced some of the harshest living conditions in the world.[iii]
Like other valuable natural resources, a well-managed diamond trade is a potentially lucrative driver of economic development, providing the funds required to improve living conditions, to create jobs and build social infrastructure. However, the brutal civil wars and human rights violations that diamonds fund in some producing regions are completely at odds with the purity of the images sold to consumers.
Growing public exposure made it essential for the diamond industry to deal with the conflict diamonds issue before further damage could be done. Two years of lengthy discussions between the diamond industry, 50 countries, and several NGOs, produced the Kimberley Process (KP): a voluntary agreement that established a certification and tracking mechanism for diamonds that can ensure their origins are known.[iv] The system, which went into effect in 2003, includes a “chain of warranties” that creates an audit trail for any given diamond that stretches from the mines where they are unearthed to the jewelers’ shop where they are cut and polished. The transparency of the certification process, and a commitment to independent monitoring, was intended to establish trust that meaningful action is being taken to reduce the flow of conflict diamond into the supply chain.
Today, KP has fifty-four participants representing 81 countries, which account for 99 percent of the global extraction, trade, and manufacturing of diamonds.[v] Despite its widespread adoption, there are differing views on how effective the Kimberley certification process has been in eliminating the problem of conflict diamonds. Conflict diamonds are estimated by the diamond industry to account for as much as 3.7 percent of the world’s multibillion-dollar rough diamond trade. KP claims its certification process has been successful in eliminating 99.8 percent of these conflict stones from the legitimate diamond trade.[vi]
NGOs such as Global Witness and the Diamond Development Initiative, on the other hand, claim the share of conflict diamonds is closer to 20 percent and have documented a long list of apparent instances of non-compliance, smuggling, money laundering and human rights abuses occurring in countries that claim to comply with the KP’s voluntary requirements.[vii]
Founded in 2015 by Leanna Kemp, Everledger is the first company to build a global, digital ledger that tracks and protects valuable assets throughout their lifetime journey. Everledger starts by collecting an asset’s defining characteristics, history, and ownership to create a permanent record on the blockchain. This digital incarnation, or thumbprint, is used by various stakeholders across a supply chain pipeline to form provenance and verify authenticity. The problems associated with conflict diamonds made the global diamond supply chain the perfect test case for Everledger’s digital ledger.
Everledger’s core value proposition is putting the entire diamond supply chain onto the same digital network, creating a single version of the truth for all parties involved in the diamond trade. Using the Hyperledger-based IBM Blockchain on LinuxOne, Everledger’s platform meets the diamond industry’s requirements with a hybrid technical model that combines the high security of the public blockchain with permissioned controls in private blockchains.
The process of adding certified diamonds to the digital ledger starts at the diamond sorting offices in places like India, Israel, and Belgium where Everledger creates what Kemp calls a forensic view of each individual diamond. Using machine vision, Everledger records 40 metadata points to create a unique thumbprint of each stone. The diamond’s unique physical properties, along with key details such as its place of origin and chain of custody, are then added to the blockchain, creating an audit trail to make each stone completely traceable.
If Everledger fulfills its ambition, every diamond that makes its way to legitimate international markets will have a secure digital record on the blockchain. To date over 1 million diamonds have been uploaded to Everledger’s digital ledger. Master certificates of the Kimberley Process certified rough diamonds are also digitally stored on the blockchain.
As for what’s next, Kemp believes there are a wide range of valuable assets for which an indelible digital incarnation can establish provenance, increase trust and lower transactions costs in trading relationships. “Our goal is to expand into more markets where provenance matters and continue our sustained efforts in enabling radical transparency along the supply chains,” said Kemp.[viii] The key is knowing when and where provenance and transparency matter. From there, Everledger can build a business model around each of the use cases and sector solutions it develops with industry partners. The company expects to generate revenue by selling the data its collects about valuable assets, charging for search and recovery of data, and potentially licensing its platform to third-party developers.
[i] “The Game of Stones,” Global Witness, n.d. https://www.globalwitness.org/en/campaigns/central-african-republic-car/game-of-stones/, accessed 23 Nov. 2017.
[ii] Aryn Baker, “The Fight Against Blood Diamonds Continues,” Time, Sep 7, 2015 Vol 186 No 9.
http://time.com/blood-diamonds/, accessed 15 Nov. 2017.
[iii] The Central African Republic (CAR), for example, is among the poorest and most fragile states in the world. Yet its rivers and soil are rich in both gold and diamonds. But rather than fueling development, these riches have been plundered by those in power—and by violent rebel groups wishing to seize it. While the international community—including the Kimberley Process—are working with CAR’s government and diamond companies to establish legitimate supply chains, a Global Witness investigation found that smugglers and traders operating in CAR are thriving in a parallel black market. Several traders spoke openly to undercover reporters of the ease with which diamonds could be smuggled, and some spoke openly of working with international dealers. Ironically, many smugglers market their illicit diamonds using Facebook Messenger and WhatsApp to connect directly with opportunistic buyers in a virtual global supply chain for conflict diamonds. “The Game of Stones,” Global Witness, n.d. https://www.globalwitness.org/en/campaigns/central-african-republic-car/game-of-stones/, accessed 23 Nov. 2017.
[iv] https://www.kimberleyprocess.com/en/about/ retrieved November 16, 2017.
[v] The 28 member states of the European Union are represented collectively by the European Commission. For the full list of Kimberley Process participants, see: “Participants,” Kimberley Process, n.d. https://www.kimberleyprocess.com/en/participants, accessed 16 Nov. 2017.
[vi] “What is the KP,” Kimberley Process, n.d. https://www.kimberleyprocess.com/en/what-kp, accessed 16 Nov. 2017.
[vii] See, for example: Diamond Development Initiative http://www.ddiglobal.org/artisanal-mining/issues and Global Witness https://www.globalwitness.org/en/campaigns/conflict-diamonds/, accessed 17 Nov. 2017.
[viii] Leanne Kemp, interviewed by author, 30 Nov. 2017.