Deploying blockchain in the gemstone and jewelry industries

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More than half of U.S. consumers say they stop purchasing from companies they believe are unethical, according to a 2015 survey by market research firm Mintel. The survey also found that more than three-fifths of consumers say ethical issues are becoming more important in purchasing decisions.

Those are important concerns for companies that operate in the jewelry market. Consumers want assurance that the diamonds, gemstones and precious metals that make up the pieces they purchase are ethically sourced. They want to know the materials aren’t mined by children or forced labor, and that the materials don’t come from conflict zones.

Blockchain technology offers the potential to ensure the authenticity and provenance of gemstones and precious metals. “The transactions and data points in the jewelry supply chain become ‘blocks’ that represent unique information that once verified, becomes part of a permanent chain that ultimately is the entire digital record for the piece of jewelry,” says Marla Hedworth, global business lead for the jewelry, precious metals and gemological industries at safety certification firm Underwriters Laboratory.

“Blockchain is a way of securely storing information and transactions in a way that they cannot be altered or erased without everyone who has access to the records knowing about it,” says Tom Moses, executive vice president and chief laboratory and research officer with the Gemological Institute of America. Once a customer purchases a gemstone accompanied by a blockchain record, they can access that stone’s transaction history and grading information.

Along with the provenance of different pieces of jewelry, blockchain can be used to share additional information, such as the grading of a stone.

Jason Kelley, general manager of blockchain services with IBM, recently noted in a blog post that diamonds, jewels and gold often move through a complicated supply chain, making it difficult to identify their sources. Blockchain can help more effectively manage the transactions within a supply chain, as the entire jewelry ecosystem — miners, manufacturers, wholesale suppliers and retailers — are linked on a single digital platform.

In addition to providing authentication and provenance, blockchain technology can enhance security, says Tiffany Stevens, president and CEO with the Jewelers Vigilance Committee, a trade organization that focuses on compliance with laws and regulations across the industry. Given their small size and high value, diamonds and gemstones are tempting targets for thieves. Currently their movements often are tracked manually; blockchain offers a tracking system that’s both more efficient and can indicate where a gemstone is at all points in the process.

In addition, if a stone is stolen and the thief tries to sell it, the blockchain record will indicate its provenance. “I’m optimistic about what blockchain might do,” Stevens says.

Along with the provenance of different pieces of jewelry, blockchain can be used to share additional information, such as the grading of a stone: Moses says GIA is using blockchain to securely provide information from its diamond grading reports to consumers.

MULTIPLE INITIATIVES

Several heavy hitters in the jewelry industry have announced blockchain initiatives since the start of 2018. They include TrustChain, a cross-industry initiative using blockchain to trace the provenance of finished pieces of jewelry across the supply chain. Its members include Rio Tinto Diamonds, Asahi Refining, Helzberg Diamonds, IBM, LeachGarner, The Richline Group and UL. They’ve been working together since early 2017, Hedworth says.

TrustChain tracks and authenticates diamonds and precious metals through all stages of the supply chain, providing digital verification, physical product and process verification and third-party oversight. It uses distributed ledger technology to establish a single, shared and immutable record of transactions, documenting quality assurance, social and environmental responsibility and authenticity within a single digital platform.

In addition, TrustChain pairs blockchain technology with traditional methods of authentication, including physical product and process verification and third-party oversight and governance, Hedworth says.

TrustChain initially will track six styles of diamond and gold engagement rings; Hedworth says the commercial model is still under development and will be ready for participants in 2019.

A partnership between jewelry group Chow Tai Fook and GIA will use blockchain technology to deliver secure digital diamond grading reports to consumers. The diamond grading information for Chow Tai Fook’s T MARK diamonds will be written directly to a blockchain ledger shared between Chow Tai Fook and GIA. The unique record of the diamond’s information will then be transferred to the final customer.

A test of the service will take place in selected Chow Tai Fook stores in Hong Kong before expanding to other locations at the end of 2018. The initiative was developed with blockchain systems provider Everledger and is secured by the IBM Blockchain Platform.

In January, De Beers Group announced its development of blockchain technology, called Tracr. Tracr “digitally tracks a diamond across the diamond value chain,” says Tom Montgomery, senior vice president of strategic initiatives, providing a single, tamper-proof, permanent record that assures a diamond is conflict-free and natural.

As a diamond travels along the value chain, a unique Global Diamond ID is automatically created on Tracr, which stores individual diamond attributes such as carat, color and clarity. Tracr consolidates the data into an immutable digital trail. To support the process-based tracking, Tracr will also use images and a diamond’s physical properties to verify authenticity. “The system verifies the uploaded data at each key milestone of a diamond’s journey,” Montgomery says.

A full launch of Tracr is slated for later in 2018. The initial focus has been on diamonds greater than 10.8 carats, although they’ve also started tracking some stones of between 5 to 10 carats. De Beers will expand that to stones of 2 to 5 carats in the coming months, Montgomery says. In May, De Beers announced that Signet Jewelers would be the first retailer to join the pilot.

COMMUNICATION AND COST

One key to the successful and widespread implementation of blockchain throughout the jewelry industry will be ensuring the various systems being developed can communicate. “A piece of jewelry may have diamond, metal and colored stone,” Stevens says. “We want to show where everything came from.”

Another question is how the costs of the blockchain systems will be covered. TrustChain was designed as a permissioned, private, open source blockchain; Hedworth says all responsible jewelry firms, suppliers and retailers will be welcomed to the TrustChain initiative in 2019. “The consortium has received a tremendous response from the announcement of TrustChain and have many organizations who are seeking participation,” she says.

The goal of enabling as many firms within the industry as possible to be part of these initiatives should act as a lid on charges, Stevens says. Those that participate can use it as part of their branding and show they’re able to verify the jewelry they’re offering was ethically sourced.

One potential obstacle to the widespread adoption of blockchain is the generally “old school” nature of the jewelry and gemstone industries, Stevens says, noting that it’s been built largely on the trust developed through face-to-face conversations and handshakes. “To fast forward to blockchain is a big leap,” she says.

However, the organizations behind the initial initiatives have been undertaking education about blockchain. That should lay the groundwork for greater acceptance throughout the industry and help ensure purchasers of gemstones and jewelry know what they’re getting.

Karen Kroll is a business writer based in Minnetonka, Minn.

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