When shoppers buy an engagement ring from online jewelry retailer
Brilliant Earth
,
they can filter through the usual diamond specifications—cut, color, clarity, and carat—-and the assurance of obtaining an ethically sourced diamond.
But customers looking for further proof that their diamond was refined ethically can add an extra filter: blockchain-enabled. While blockchain diamonds may sound futuristic, the technology allows consumers to see detailed information about an ordinary diamond’s journey, from where it was sourced and manufactured to pictures of the rough diamond and its original lot number.
For
Brilliant Earth
(ticker:
BRLT
), using blockchain to bring transparency to the opaque world of diamonds was a no-brainer, said CEO Beth Gerstein. “When I was getting engaged, I would go into different jewelers, and I’d ask, ‘Where does this diamond come from?’ I never got a straight answer,” she said.
The company partnered in 2018 with Everledger, a blockchain-based digital ledger platform, to roll out its blockchain-tracking system. Brilliant Earth now lists upward of 10% of its diamond inventory on the blockchain, and plans to keep increasing that number. The online jeweler declined to say how much blockchain certification adds to its cost of producing a piece of diamond jewelry.
Brilliant Earth could use some luster with investors. Its stock has lost over 55% this year, battered by pessimism against speculative growth stocks due to expected interest rate hikes. More recently, shares took a hit when Russia invaded Ukraine and the U.S. placed sanctions on Russian miner Alrosa, the largest miner in the world that accounts for 90% of Russian diamonds, and 28% of global mined diamonds. In response to the invasion, Brilliant Earth has removed all Russian diamonds from its website.
Blockchain is emerging as an attractive option for other companies that are looking to emphasize their compliance with ESG guidelines . It’s especially popular in industries that have fielded questions over environmental and human right concerns across their supply chains, such as the fashion industry, the chocolate and coffee industries, and even lithium-ion batteries—the driving force behind electric vehicles.
Retail giant
Walmart
has used blockchain technology from
IBM
to increase transparency and traceability in the supply chain for leafy greens and bell peppers. Blockchain makes it easier to pin down specific batches in case of a recall or regulatory requests for information, the company said.
As a digitally distributed, immutable, and decentralized ledger, blockchain makes it easier for companies to record transactions and track assets in a network—-and share that information with customers, suppliers, and investors with the assurance that it hasn’t been tampered with.
“What blockchain has done is combine all of that together in a single killer protocol that enables us to be able to connect globally this information and synthesize it, secure it and enable its truth to be a single version globally,” said Everledger CEO Leanne Kemp.
Proving sustainability standards has been challenging for the diamond industry, which has been plagued with concerns over “blood diamonds,” or rough diamonds sold by rebel groups to fund conflicts, money laundering and terror financing, said Cormac Kinney, CEO of Diamond Standard, a start-up trying to standardize the trading of diamonds.
Even large mining companies have struggled to certify exactly where a diamond was mined, cut, and polished from start to finish. The first time a diamond was digitally tracked from mine to store was in May 2018, when mining giant De Beers announced it had followed the journey of 100 high-value diamonds using its blockchain-powered platform called Tracr.
“The diamond industry is one of the last remnants of, really, the 1900s, where the entire industry is dark,” Kinney said.
Consumer sentiment, especially among younger generations, is rapidly shifting in favor toward jewelers with transparent and socially responsible supply chains, said Cowen analyst Oliver Chen. In an annual filing with the Securities and Exchange Commission,
SIG
) identified changing consumer attitudes as one of the key risks to its business, especially if they were negatively influenced by concerns over the source of raw materials, the impact of mining on the environment, labor conditions in the supply chain, and the impact of production on local communities.
Blockchain won’t be a panacea for the diamond industry’s sourcing dilemma. Perhaps the biggest challenge is changing the opaque nature of the diamond industry itself, right down to the definition of what entails an “ethical” diamond. Most diamond retailers and miners comply with the Kimberley Process, a United Nations initiative that creates oversight to prevent the trade of conflict diamonds. Some critics point out that the Kimberley Process doesn’t encompass other human-rights violations that occur throughout the diamond-supply chain.
Still, blockchain certification represents a big change for a secretive industry. Diamonds are unique by nature, allowing blockchain software to easily capture the physical identity of a diamond and turn it into a digital asset that can be logged into the blockchain. Once it’s on the blockchain, that record is indelible and anyone with access to the chain can see it.
When Brilliant Earth buys a blockchain-enabled diamond from a mining operator, the diamond’s unique identifying characteristics are automatically logged onto the blockchain. That record follows the diamond throughout the cutting and polishing process and right down to the moment a consumer purchases the stone—an event that also gets logged in the blockchain, cementing the new owner’s possession of both the physical and digital asset.
Tracr, De Beers’ blockchain-tracing initiative, also uses robots to scan and log a diamond’s unique data point to turn the gem into a digital asset before selling it to a rough diamond buyer.
“Due to the fact that blockchain uses a distributed ledger, where all participants validate the accuracy of the data, the technical traceability solution provides assurance in a way that wasn’t previously possible,” a De Beers spokesperson said in an email.
Write to Sabrina Escobar at sabrina.escobar@barrons.com