Case 11: Blockchain Can Prevent The Circulation of Blood Diamonds

Leanne Kemp, Founder and CEO, Everledger

Everledger applies blockchain technology to help reduce blood diamond transaction

The diamond industry is highly susceptible to criminal activity. Gems are small and easy to transport in a covert manner, transactions tend to be confidential, and diamonds retain their value for many years. As such, diamonds are involved in money laundering and terrorist financing on a global scale.
Efforts to stem this illicit activity have included tracking diamonds with paper documents to certify their provenance. But document
tampering is widespread — indeed, documents are sometimes created to cover up illegal transactions — and several countries with
a major diamond trade still have insufficient legislation to guard against these crimes.

 

To combat this, the diamond industry is beginning to implement a system called Everledger, based on block chain technology, which establishes a digital ‘passport’ for each diamond. This records its provenance, travel, and transactions with a unique cryptographic ‘fingerprint’.

This system has three stages:
• Establish an e-ID (electronic identity) for each diamond, by digitising its attributes and a laser-inscribed serial number onto an authoritative block chain ledger

• Assign a digital passport to the diamond to record its travel, transaction history and provenance

• Detect and guard against illegal activities or fraudulent behaviour

By using an immutable block chain to hold this data, the ledger could provide transparency around all diamonds, revealing their origin, trail of ownership, and the processes they might have undergone. This ledger can act as a single version of verifiable truth about diamonds for the industry, governments, consumer markets, border control and law enforcement agencies. The system also enables the use of smart contracts — terms and conditions relating to the sale and transport of the diamonds that can be carried out automatically. By using a block chain to create a distributed ledger, smart contracts can be tracked and used to verify business relationships and agreements. The block chain’s transparency offers a way to enforce the contract, whether it is related to changes in ownership of the diamond, financing of the diamond, its insurance policy, registered rights title and so on. Authenticating the transaction, along with documentary proof of authenticity, provides a vital evidentiary trail for government and law enforcement.

The system also enables the use of smart contracts — terms and conditions relating to the sale and transport of the diamonds that can be carried out automatically. By using a block chain to create a distributed ledger, smart contracts can be tracked and used to verify business relationships and agreements. The block chain’s transparency offers a way to enforce the contract, whether it is related to changes in ownership of the diamond, financing of the diamond, its insurance policy, registered rights title and so on. Authenticating the transaction, along with documentary proof of authenticity, provides a vital evidentiary trail for government and law enforcement.

 

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