HOW TRACEABILITY, PROVENANCE AND BLOCKCHAIN TECHNOLOGY ARE BECOMING THE NEW MANTRAS IN ROUGH DIAMOND TRADING

By: Ernie Blom, President, World Federation of Diamond Bourses

Traceability of the origin of rough diamonds was at the heart of the Kimberley Process when it was established in 2003. Many efforts were undertaken to develop protocols, which would guide KP Participants on the issue of traceability of production.

The idea of marking diamonds is also more than 10 years old, with the best-known marks being Forevermark and the Canadamark. And, earlier still, there was Lazare Kaplan’s Pegasus Overseas Limited (POL) initiative with General Electric. All these initiatives can be traced back to the concept of enhancing consumer confidence in diamonds.

Tracing of origin and traceability today seems to be the new mantra globally. This goes for producers of plastic, like Unilever, or manufacturers of clothes such as Levi’s. It is unlikely that the diamond industry will be able to escape this global trend.

Consumers do care about what they’re buying, and they want to be assured that their purchase is making a positive contribution. Diamond companies should be providing those assurances regardless of the rivalry with synthetics. It has become quite clear that the diamond and jewelry brands able to garner growth in today’s challenging environment are those investing in technology and telling a meaningful story.

The first company to establish sourcing protocols is also the largest retailer in the world, Signet Jewelers from the United States. Not long after that, Chow Tai Fook, the 2nd largest retailer and the number one in the Far East, followed the same path with its T-Mark.

Hence, it seems to be more and more likely that a differentiation in the origin of diamonds will be coming sooner rather than later. At the top of the pyramid, will be branded and traceable diamond producers stressing how clean and sustainable their production is. At the lower end, and possibly even at par or under, the synthetic producers, will be all the rough diamond producers which do not provide any branding and do not have any traceability of their origin.

For countries like Angola, DRC, Zimbabwe and CAR, the challenge will be to have an in-depth look at how to organize proper traceability and at the same time assuring corporate governance of mining production.

A recent announcement by Alrosa about a possible cooperation with Endiama on the introduction of Catoca Mine corporate governance rules indicates that this matter is also at the very top of the agenda of the Russian diamond producer.

At the JCK Show in Las Vegas, Alrosa unveiled the latest contribution to the diamond tracking trend, creating a place-of-origin program that will provide consumers and traders with in-depth provenance information, complete with a personalized video. The company said it will soon launch a program in which an 'electronic passport' will accompany a diamond, providing information about the physical characteristics of the diamond as well as its age, the place and date of extraction, when and where it was cut, and the name and background of the craftsperson that fashioned the stone. Alrosa will roll out the system of electronic passports with 2,000 diamonds.

Blockchain technology was brought to the attention of the broader diamond community in 2016 under the chairmanship of the United Arab Emirates as Kimberley Process Chair.

One of the most prominent companies in the world involved in Blockchain technology in the diamond trade is Everledger. Everledger’s CEO Leanne Kemp is a prominent speaker and personality in the new environment of tracing back mined diamonds to the first point of extraction and following particular stones to the end consumer.

Individual diamond wholesalers have engaged with the Gemological Institute of America on similar programs.

Recently, De Beers has announced that it has engaged in Blockchain and developed a system called “Tracr” which would provide a single immutable record of the diamond. Several Sightholders have been asked to participate in the exercise.

At the moment it is limited to larger stones, but in its communication, De Beers wants to have a widespread application of this system throughout the goods which are distributed through the De Beers channels.

In June, the company launched an online resource called the Tracr Community. This aims to foster the education and collaboration of industry participants, enabling them to share information and tools. It will also serve as a knowledge base for data standards, technical readiness and process best practices that will allow for seamless integration with the Tracr platform.

Further, in what is undoubtedly in the same spirit, the De Beers Group announced it would start providing enhanced transparency regarding diamonds purchased from its Sight sales by introducing a “diamonds from DTC” source of origin claim. The idea is to support its customers by providing a factual statement about provenance that Sightholders and Accredited Buyers can use for diamonds purchased from Sights.

Starting with diamonds purchased at the third Sight of 2019, and subject to entering into a license agreement, buyers will be able to apply the claim to their Sight- sourced diamonds and pass it on to their customers along the value chain. In turn, subject to meeting certain criteria, trade participants will be able to use the “diamonds from DTC” provenance claim across the value chain down to the consumer level.

As 98% of all diamonds sold are below 7 pts., this technological revolution will not come overnight. At the same time non-branded diamonds without origin traceability may eventually receive lower prices in the same way that a Uniqlo shirt will not match the price of an almost similar shirt from Dior.

From the midstream, which is the World Federation of Diamond Bourses with its 30,000 members worldwide, this new development comes at a difficult time. At a time of a credit squeeze, lack of profitability, and rough and polished prices heading downward, there is little money for marketing and sustainability projects.

There is, however, no miracle formula to counter the changes that are on the way. It will be a choice between jumping on the train or missing it.

The WFDB has accepted and embraced the fact that Blockchain is here to stay, but it has to be practical and available to each and every member who wants it, not just a select few.