Kimberley Process pilots a blockchain for tracking the world’s diamonds

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The recently published inaugural Kimberley Process (KP) mid-term report highlights key initiatives and includes a section dedicated to blockchain technology, detailing a proposal “which explores the use of blockchain technology to help enhance security measures.”

“The KP Chair’s office is committed to the examination of [Blockchain technology’s] benefits and is working on a potential pilot project that would use Blockchain technology to monitor KP statistics.”

– Kimberley Process Mid-term report

The Kimberley Process Certification Scheme (KPCS) is an international effort to keep conflict diamonds out of circulation. Created in November 2002 and entering into full use in 2003, the Process sets out the requirements for controlling rough diamond production and trade.

The Scheme imposes extensive requirements on its members to enable them to certify shipments of rough diamonds as “conflict-free” and prevent conflict diamonds from entering legitimate markets.

Participants can only legally trade with other participants who have also met the minimum requirements of the scheme, and international shipments of rough diamonds must be accompanied by a KP certificate guaranteeing that they are conflict-free.

Participating states must meet minimum requirements and put in place national legislation and institutions – export, import and internal controls – and also commit to transparency and the exchange of statistical data.

“The Kimberley Process (KP) is a joint governments, industry and civil society initiative to stem the flow of conflict diamonds – rough diamonds used by rebel movements to finance wars against legitimate governments.”

– Kimberley Process

The KP Chair rotates annually, and this year the KP chairmanship is held by the UAE’s Ministry of Economy, Ahmed bin Sulayem. Bin Sulayem was appointed by Sultan bin Saeed Al Mansouri in January, coinciding with the start of the KP Chairmanship.

The UAE is the first Arab nation to hold the KP Chair, which oversees the implementation of the KPCS, the operations of the working groups and committees, and general administration and facilitation of the KP worldwide.

KP members account for approximately 99.8% of the global production of rough diamonds. The World Diamond Council, which represents the international diamond industry and civil society organisations, participate in the KP and have played a major role since its outset.

While the KP is open to all countries that are willing and able to implement its requirements, there are currently 54 participants representing 81 countries, with the European Union and its Member States counted as a single participant.

Forged documents accompanying rough diamonds have always been the program’s achilles heel, making it so that diamonds born out of some of the worst human suffering can make it through the cracks, and end up being sold at legitimate outlets worldwide. The KP program has worked for over a decade to fight this problem, but has not yet prevailed.

“The KP Chair’s office in collaboration with the UAE KP office discovered that Blockchain could be immensely important to the future of the Kimberley Process, and help to eradicate false KP certificates and reduce the impact of human error while uploading data significantly.”

– Kimberley Process Mid-term report

Bin Sulayem first discussed the possibility of using a blockchain for the KP process during a series of talks held with the members of The Blockchain Council of the Dubai Prime Minister’s office earlier this year.

The Council had already researched how Blockchain technology could be used to prevent conflict diamonds from entering the market at the time, and convinced Bin Sulayem and the UAE KP office that “Blockchains could be immensely important to the future of the Kimberley Process, and help to eradicate false KP certificates and reduce the impact of human error while uploading data significantly,” according to the report.

Despite global diamond sales declining sales in general, problems with the supply and production pipeline are starting to eclipse the decline and create a scarcity of diamonds on the market.

According to an independent Global Diamond Industry 2015 report by Bain & Company, commissioned by the Antwerp World Diamond Center (AWDC), the rough-diamond supply-demand balance will be tight in the near future. The long-term outlook for the diamond market remains positive, “with demand expected to outpace supply starting in 2019.”

“Rough-diamond production volume fell by 4% globally in 2014 to slightly less than 125 million carats. […] Botswana’s continued production growth was not sufficient to offset a major drop in production from Zimbabwe caused by deterioration of its existing alluvial deposits and lack of investments and expertise to enable deeper mining operations.”

– Bain & Company

Blockchain technology may be able to provide more benefits than simply establishing a permanent public record of diamonds, and the KP office has been incorporating them into their pilot test.

On top of simply recording the origin of each diamond, a blockchain can record their entire chain of ownership transfer over its lifetime. It can also tie that information to a description and insurance information to tell law enforcement any pertinent data about a stolen diamond if needed.

Blockchains can also save money by replacing physical certificates for each stone. Providing customers with a certificate of authority using digital signatures can save both time and fees, while making the entire lifecycle of each diamond more efficient and secure.

Blockchain startup Everledger has been highlighting this particular opportunity for over a year now, although the company’s name is not mentioned in the KP mid-term report. Everledger is exactly the kind of service that is needed to track all of the world’s freshly-mined diamonds on the blockchain.

The KP Mid-term report did, however, mention that blockchain service providers are being consulted with for some level of involvement. “The KP Chair engaged with Blockchain technology providers to adapt this technology to the Kimberley Process Certification Scheme,” the report stated.

The pilot program will continue at least until November when the next report is due. “An update on the project will be provided at the Plenary meeting in November 2016,” the Mid-term report explained. With any luck, the service provider will be named at that time and we can learn more about the specific type of blockchain technology being tested.

This article was originally published on Brave New Coin.

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