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Blockchain Brings Transparency to the Diamond Market, Encouraging Investment in the Precious Stones

Diamonds are undergoing a phenomenal shift in its perception of being considered as a mere object of rare beauty to a repository of financial power. The delay in this movement could be attributed to similar attempts which were made in the 80s. That, unfortunately, resulted in the depreciation of value, thereby fueling the apprehension of the diamond industry in viewing the precious stones as alternative forms of investment. The recent emergence of initiatives in the diamond industry, however, is indicative of the gems playing a bigger role in the investment market sooner than expected.

Consider the success of IDEX, for example. The international diamond exchange operates in important diamond hubs including Antwerp, Mumbai, Ramat Gan, and New York. The leading online trading platform has more than 7,000 professional traders active on its system regularly, and it features more than three-fourth of the supply chain inventory. IDEX prices and data is looked on as one of the industry standards. The rising confidence of prominent organizations in the idea of diamond exchange is evident in Mediagrif Interactive Technologies buying out Polygon, which is a top active online trading network for qualified jewelry professionals. Polygon was established in 1984, and has since facilitated its members to explore unique trading opportunities.  

August 2017 witnessed India Commodities Exchange (ICEX) launch a futures market of 1-carat round diamonds and followed it up with 0.5-carat and 0.30-carat futures contracts as well. The 1-carat diamonds had the following specifications - H color, VS2 clarity, and triple Excellent, devoid of black or dark inclusions. De Beers International Institute of Diamond Grading & Research (IIDGR) were made responsible for grading the diamonds, and Malca-Amit provided vaulting services. These contracts could be traded throughout the day on every workday.

ICEX delivered $129,000 worth of diamonds - 26.27 carats in weight - as a settlement at the closing of the first contract. However, the contract period itself saw a total of 5,382.08 carats valued at nearly $27 million. Although the percentage of delivery against the total traded quantity was a modest 0.53%, it indicated the potential of this market. It also revealed the convergence of the future and spot market prices.

Singapore-based SDiX is another example active in the market. It pioneered electronic exchange for trading investment-grade diamonds and lists collections of diamonds contained in sintered zirconia cases with a unique optical signature recognition system and serial number each which are valued between $100,000 and $200,000. This list is also referred to as the “Diamond Bullion”. The 1 or 2 carats of diamonds in the Diamond Bullion are issued by the Singapore Diamond Mint Company (SDM), and they possess DEF color, VVS1- VS1 clarity, and triple Excellent, with no fluorescence. The GIA certified diamonds are inscribed with IIDGR’s proprietary table inscription.

The diamonds that are chosen by ICEX in SDIX for investment strike a balance between rarity and availability. To be more precise, while VVS and VS quality diamonds are rare, they are also available enough in the market for its sale in the futures or trading markets to not have any significant impact on its prices.

CEDEX.com adds to the list of new initiatives that are using technology to conflate the diamond industry with new financial markets to create new financial offerings. It aims to build a transparent and secure marketplace to sell and invest in diamonds. The platform implements blockchain technology to determine the value of diamonds and rates its asking price which is then listed on an exchange. Investors have the options of putting their money in a single diamond, a share of a high-value stone, or shares in a collection of diamonds.

Another platform using the blockchain technology to trade in diamonds is Diamante Blockchain Consortium. It provides a unified marketplace for players in the diamond industry ranging from mining companies to manufacturers, certifiers, retailers, and end-consumers. These entities can interact with one another directly and promote trade in diamonds. Diamante Blockchain Consortium also has an exchange platform and a native digital asset, DIAM, which can be used for transactions as well as trade.  

The idea that investment in diamonds is exclusive to the rich or millionaire investors is highly misplaced. One can attribute the hesitation people have towards investing in diamonds because of lack of proper research in the past led many to find out the “diamonds” they invested in were actually crystals of very less value. Investors thus need to do thorough background checks of the assets they are interested in.  

This has become hassle-free with technological innovations like blockchain, which is basically a decentralized distributed ledger that stores every transaction taking place in a blockchain network. The records of these transactions are verified by a computer protocol called smart contracts and are permanently archived in the immutable ledger. These properties make it a crucial element that makes supply chain management transparent and reliable. On a blockchain platform, one can easily see where a diamond was mined, cut, polished, manufactured, its certification, and past prices. As a result, estimating the price of a diamond and how it will evolve in the future becomes easy for an investor. The liquidity of investment is also radically increased when cryptocurrency is used to trade.

Industry leaders have realized the way to increase investment in diamonds is by eradicating the doubts shrouding the diamond market. One of the most significant steps in that direction has been the adoption of blockchain.

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Auction Houses In Blockchain Consortia Could Provide More Organized Service

Some of the biggest and most significant sales in diamonds are made at auction houses. Take two of the auction giants, for example, Christie’s and Sotheby’s, both of which aggressively focused on luxury jewelry sales in 2017, resulting in over $1.1 billion in combined sales.  Christie’s contributed $556.7 million and Sotheby’s $551.3 million to this massive sum. The items auctioned off included “The CTF Pink Star,” that sold for more than $71.1 million ($1.19 million per carat) at Sotheby’s Hong Kong. The internally flawless fancy vivid pink diamond weighing 59.60-carat smashed all records of the highest price ever for a jewel.

Auctions by nature draw a lot of attention, and diamond auctions are especially followed by many. When a diamond of special value sells for a record price, the event makes front page news, providing the public full details of the sale results. While this goes to increase awareness and desire for precious stones in the market for investors as well as for collectors, it also brings the most precious concentrated assets one can possess under the radar of the black market.

Supply chain Management with Blockchain

Auction houses have much to benefit from moving its operations to the secure and transparent environment of a blockchain network, and the easiest route to achieve this is by becoming a part of a blockchain consortium specializing in luxury items such as jewelry.  

The process that goes behind auctioning a diamond is a complicated one, involving many steps. The gems (and jewelry pieces containing it) that can run into multi-million dollars price range may or may not be sourced from a trader, depending on which it will possess a lab certification. Generally, when a diamond does not come from a trader, it does not have an accompanying certificate. To prevent confusion, the auction house conducts a firsthand assessment of the concerned diamond, decides if it worth holding an auction for, and subsequently sends it to a gemological laboratory for a grading report. GIA has found a clear preference by Sotheby’s and Christie’s, who often ask the lab to create a Monogram for diamonds of special value. A Monogram is basically a book containing a detailed description of a gem, including extensive background information, and a collection of high-quality photographs. The idea of compiling a monogram is to furnish well-rounded specifications of the diamond before it goes up for sale.  

For an auction house and their potential clientele, being a part of a blockchain jewelry consortium simplifies provenance tracking of every item registered item in the decentralized ledger. The distributed database assigns an encryption hash code to the details of the items registered on the data cache, making it permanent and immutable. Since the blockchain is continually reconciled in real-time, every participant of the blockchain network is assured the same set of information about an item at any given time or place.

Blockchain and Valuation of Diamonds

Auction houses evaluate the diamonds it sells, and they put it a lot of research before determining a starting price. This involves a delicate process that starts with a comprehensive understanding of the tentative cost for such a diamond would sell for in the market, applying its vast knowledge of diamond industry pricing, and of historic and recent prices of similar diamonds. It will look into the market history of the stone – whether it was sold before, and at what price. The fame of a previous owner also adds to the diamond’s value. In a blockchain jewelry consortium, these components would readily be available, and the source infallible.

This sort of easily available details is of interest not only to diamond traders but also private investors and institutional buyers who are concerned with their return on investment. The two categories of consumers gravitate toward different price ranges – traders limit themselves to lower buying prices, whereas investors tend to buy more exclusive diamonds. This happens because traders look to resell quickly, and investors think of long-term profit.  

Blockchain Diamond Consortium for better Marketing

Blockchain diamond consortium and blockchain jewelry consortium are on the rise and are seeing the growing participation from players across the gems and jewelry sector. Diamante Blockchain Consortium, for example, has members who include mining companies, cutters, polishers, traders, certifiers, retailers, and end-customers. For an auction house, marketing operations on a similar blockchain network more target oriented, and make reaching a people thoroughly invested in diamonds more precise. Potential buyers in the common platform would be able to look up diamond-related reports, its irregularities, a price guide pertaining to an auction.

Participating in blockchain jewelry consortia is a win-win situation for auction houses as well as for the diamond community as a whole. For the auction house, it provides a space for precision marketing, scope to assess consumer demands and asset management, and operate on a transparent supply chain. For a buyer, he or she gets a fair to a thorough knowledge of a gem before it goes on sale. The benefits of blockchain are immense in this industry, and the technology is speculated to be adopted by leading institutes even more in the coming years.

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