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This week, two important news from the precious metals industry broke down. Firstly, the world's largest diamond company, the Russian Alrosa, has joined a blockchain project to improve transparency. Secondly, the largest bank in the world, JPMorgan, would start using its blockchain to tokenise gold.
In fact, the blockchain has opened the way to both the gold and diamond industries, complex ecosystems that rely heavily on supply chains, where the load passes through dozens of geographic locations before arriving at their destination. . Technology has helped to prevent corruption and improve quality by tracking precious resources in every milestone of their journey, from mine to the retailer.
Blockchain can help the gold industry – and there is demand for technology
On October 19, the London Bullion Market Association (LBMA), an over-the-counter wholesale market for gold and silver trading, announced its plan to modernize and improve transparency in the industry – with the 39; blockchain help.
The technology could help to exclude the metal that is "mined or illegally traded or used to finance conflicts" from the global supply chain. In fact, this seems to be a problem for the entire sector: for example, in March 2017, the FBI accused three NTR Metals employees of importing $ 3.6 billion of gold from South American countries, refining them, selling them and then send the earnings to "Drug traffickers".
Therefore, as per Reuters, in March 2018, LBMA has asked its 144 members, including the world's largest gold refiners, banks and retailers, to submit proposals on how to draw gold from mines to their destination final and prevent counterfeiting of gold bars.
The association has received 26 proposals "from companies ranging from startups to large technology companies" in return, said LBMA's executive director, Sakhila Mirza, to Reuters, without mentioning any particular name other than IBM. While the association did not insist on the use of the blockchain, "more than 20 of the 26 responses" reported having embraced the technology in their draft drafts.
Now, LBMA plans to outline the guidelines for approving and monitoring technology providers, Mirza added:
"We need to establish criteria and standards that help us understand what a credible blockchain solution is […] Once these have been appropriately established, the result would be a selection of service providers that meet the minimum standards ".
According to the director of the LBMA executive council, a draft of the localization system standards will be discussed in the first half of 2019.
JPMorgan intervenes to symbolize gold
On October 29th, Financial Review reported that JPMorgan, the most valuable bank for market capitalization in the world, used its business version of the Ethereum blockchain that supports the use of smart contracts – called Quorum – to reduce the number of gold bars.
The quorum was announced for the first time in October 2016 as part of the Ethereum Enterprise Alliance (EEA). The US bank presented a blockchain-based system that aims to "significantly reduce" the number of parts needed to verify global payments, reducing transaction times "from weeks to hours". The move came just a month after JPMorgan's CEO, Jamie Dimon, famously called Bitcoin "a fraud" that "will not end well", a comment he has recently completed saying he does not "shit" on the cryptocurrency while adding that " blockchain is real ".
According to the Financial Review, JP Morgan mentioned the idea of "tokenizing" assets at the Sibos conference held in Sydney on October 22-25. The head of JPMorgan's blockchain initiatives, Umar Farooq, elaborated the concept:
"You wrap a gold bar in a tamper-proof case labeled electronically, and they can trace the gold bar from the mine to the end point – with the case of use, if you know it's a Socially responsible mine, somebody will be willing to pay more spread on that gold against if you do not know where it comes from.The diamonds are another example. "
The "tokenization" therefore implies the tagging of physical resources and their monitoring on registers distributed as Quorum, the company's private blockchain. The concept not only promises greater security guaranteed by blockchain solutions, but could also reduce risks and eliminate intermediaries – such as brokers and exchanges – from the negotiation process.
"Responsible Gold": another attempt to tokenize gold
A somewhat similar solution was introduced by the US Emergent Technology Holdings in February 2018, when the fintech company announced its "Responsible Gold" supply chain along with "G-coin", a digital token allegedly supported by "responsible gold ".
As per the press release, the "Responsible Gold" chain is an authorized blockchain that tracks the responsible gold "from mine, to the refinery, to the vaulting". It aims to provide "a 100% guarantee on the origin of gold" by digitally recording each phase of the supply chain with the help of "cryptographic seals" attached to gold.
In an interview with CNBC, Mitchell Davis, Emergent's Chief Commercial Officer, argued that the company's approach was "fundamentally different" from other projects, partly due to its focus on "gold" responsible in a responsible way ".
"G-coin", in turn, was created in collaboration with the NYSE-listed Canadian mining company called Yamana Gold. A currency is presumably equivalent to one gram of "responsible sourcing gold" and is anchored at the spot price of gold.
Problems in the diamond industry – and existing blockchain solutions
The history of the blockchain in the diamond industry could be traced back to May 2015, when the Australian entrepreneur Leanne Kemp founded Everledger – a global digital register for diamonds powered by distributed Ledger technology (DLT). One of its main objectives was to tackle the problem of "blood diamonds": minerals extracted from war zones and sold to finance oppressive regimes.
An immutable ledger would allow access to a complete account of the history of a particular diamond and eliminate the possibility of falsifying documents, as each milestone in the destination of the gem would be recorded.
In January 2018, De Beers Group, a large international company specializing in exploration, extraction and retailing of diamonds, introduced a similar initiative, albeit on a wider commercial scale. The company announced it was reviewing the blockchain to improve the transparency of the diamond value chain and to obtain permanent digital records for every diamond registered on the platform.
De Beers added that an initial test of conceptual proof was successful and led to a working prototype. The CEO of the company, Bruce Cleaver, stated in a press release:
"Diamonds have lasting value and represent some of the most significant moments in life, so it is essential to ensure that a diamond is conflict-free and natural.Using the blockchain technology, we will provide an additional level of security to consumers and industry participants, with every diamond registered on the platform with an eternal record like the diamond itself ".
A week after the announcement of De Beer, Impact, a Canadian NGO, abandoned the initiative of the Kimberley Process (the process established in 2000 to prevent "bloody diamonds" from entering the mainstream diamond market), claiming that the global agreement has not been at the height of its goals. The move highlighted the urgency of the problem in the sector.
Tracr: success with diamond tracking
On May 10, De Beers claimed to have traced 100 high-value diamonds from the mine to the retailer using blockchain. According to the press release, this was the "first time the path of a diamond has been digitally traced from my retail".
De Beers also announced the launch of its blockchain initiative called Tracr. Reportedly "open to the entire diamond industry," the platform was developed in collaboration with five major diamond producers: Diacore, Diarough, KGK Group, Rosy Blue NV and Venus Jewel.
Tracr assigns a unique "Global Diamond ID" that records the individual characteristics of the diamond as carat, clarity and color. The data are then recorded on an immutable digital ledger. After that, Tracr verifies the data at each milestone of the diamond destination.
The company's move attempted to improve consumer confidence and citizens' confidence that their diamonds were not in conflict, as well as increasing efficiency in the supply chain, as it was designed to complement the regulations and the existing schemes within the industry: the Kimberley Process Certification Scheme, the World Diamond Guarantee System and the Code of Conduct of the Council responsible for jewelry.
The CEO of the De Beers group, Bruce Cleaver, underlined the importance of the initiative for the industry:
"The Tracr project team demonstrated that it can successfully track a diamond through the value chain, providing a guarantee of traceability of activities in a way that was not possible before.This is an important step forward made possible by the close commitment of the participants Pilots who share our commitment to industry progress and innovation ".
On October 29th, the main Russian mining company Alrosa joined the Tracr project, further increasing its potential for the industry. Alrosa is considered the world's largest producer of rough diamonds in terms of carats; together with De Beers, the two companies produce around half of the world's offer.
As Alrosa's CEO Sergey Ivanov told Mining Weekly, the company's move was motivated by the belief that industrial collaboration is essential for "a common goal".
IBM also works with jewelry industry leaders to monitor precious metals
In late April, a consortium of jewelery industry leaders announced the TrustChain initiative in collaboration with IBM, which developed a blockchain network to trace the origin of finished jewelry.
The TrustChain initiative includes the refining of precious metals Asahi Refining, the jewelry retailer Helzberg Diamonds, the precious metal supplier LeachGarner, the jewelry manufacturer Richline Group and the independent verification service UL.
Based on the IBB Blockchain Platform and the Hyperledger project, the initiative is designed to track and authenticate diamonds and precious metals from their place of origin to their point of sale. It provides "digital verification, verification of products and physical processes and supervision of third parties", with the aim of assuring customers that their purchases of jewelry are ethically purchased.
By applying the technology, the consortium of companies intends to digitize the processes, establish a shared and unchanging record of transactions within the network and allow access to reliable data in real time. Mark Hanna, Richline Group Chief Marketing Officer, commented on the initiative:
"TrustChain is the first blockchain of its kind in our industry, designed as a solution that combines IBM's leading blockchain technology with responsible sourcing, verification and governance by third-party organizations, led by UL as an administrator."
According to the announcement, the product will be available to consumers by the end of 2018.
Diamonds are also tokenized
In May 2018, the blockchain startup D1 Mint Limited, the creator of the cryptographic resource D1 Coin, announced that it was working with two major players in the diamond industry to symbolize the gems.
Thus, D1 Mint Limited signed an agreement to purchase 1,500 investment grade diamonds, worth $ 20 million, from global veteran KGK Diamonds. The rough diamonds were supplied by Alrosa.
D1 employs a pricing algorithm to determine the price at which encrypted investors can redeem their diamond tokens selected from their diamond pool at any time, using technology to translate the value parameters of traditional industry, or the shape, carat, cut and clarity of the diamond.
While the diamond industry has seen a stagnant demand among retailers, with diamond jewelry spending remaining flat at around $ 80 billion annually since 2014, according to a De Beers study, Alexei Chekunkov, member of the board of directors of Alrosa, remains optimistic – his company believes that the innovation of the blockchain can transform the industry of precious gems making natural diamonds an investment investment class with a wider appeal in " various groups of investors, pushing a higher demand ".
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