Can 'Blockchain Tech' Eradicate Blood Diamonds?

Leaders of the global diamond industry have been working together for many years to eliminate the circulation of blood diamonds—stones that fuel violent conflicts through their sale, but they continue to be bought and sold.

Kimberley Process (KP) Chair Mr. Ahmed Bin Sulayem recently released a mid-term report about the organization’s activities in Dubai. Some of the initiatives included visits to diamond mining countries in Africa, valuation seminars, and putting under consideration a proposal for using Blockchain Technology in the diamond industry for greater security.

The Blockchain Technology, relatively unknown among industry circle, is described as an internet-based book-keeping system that “provides a permanent record of financial transactions”. This is viewed as an effective way of keeping track of the journey of diamonds through the value chain in order to ensure they are “clean”. Whenever a transaction is made, it gets placed in a “block” of data and included in an ever-growing chain, which is continually downloaded onto every bitcoin user’s computer. The Blockchain is publicly viewable, meaning that it is not only exceptionally transparent, but can never be altered.

“We have introduced the possibility of using Blockchain Technology to create a seamless and continued global process for the KP certification scheme,” Mr. Bin Sulayem says.

The Blockchain Technology is a fraud detection system with a big-data overlay from closed sources like insurers and law enforcement agencies. The aim is to create security by applying a bitcoin Blockchain encryption system to catalogue and establish the provenance of specific diamonds. Consumers would always want to know whether they’re purchasing a “conflict diamond”- also known as a “blood diamond” is a legit one, or one grown in a lab.

A “bitcoin Blockchain” is a shared encrypted public ledger. All confirmed transactions are added to the existing Blockchain’s history. The Blockchain automatically verifies any pending transactions, insuring the bitcoin is only used by the actual owner. This insures the integrity of the virtual currency by providing an unchallengeable ledger of transactions.

Jean-Marc Lieberherr
Jean-Marc Lieberherr

Talking to G2J through email, the CEO of Diamond Producers’ Association (DPA), Mr. Jean-Marc Lieberherr says, “This is very interesting subject. The best way to date to eradicate Conflict Diamonds is the Kimberley Process.  It has been successful to date.  We need to focus on its impeccable implementation and in the System of Warranties.”

“The key question raised by Blockchain Technology as applied to diamonds is to see if we can increase transparency and trust in transactions, transacting parties, and in product provenance.  Everything that helps with transparency and trust is good. However, there are many hurdles and considerations. It is a long process that requires large participation within a network to deliver the benefits, which is not easy as joining the network is not a trivial thing.  Also, you have to count with the involvement of regulatory bodies who will – especially in the case of diamonds – want to be involved in the design.  There is also always a risk of this kind of networks being circumvented for fraudulus activities.  In other words, easy to say, not easy to do, and probably many years down the road,” he adds.

Of course, the Blockchain Technology, though in use, is still in its infancy. Once proven, this groundbreaking technology has the potential to protect the world against fraud and piracy by its unequalled ability to authenticate any item, virtual or otherwise.

Given that all this data is digitally encrypted, hacking here would always remain as a concern. This may produce more tech-savvy criminals who would find ways to crack, alter or destroy the origin of an established item, or even assign its authenticity to a different item. However, the Blockchain might just be a good first step.

Posted by Suresh Chotai