Blockchain use case analysis on tracking diamonds from mine to jewelry retailers (De Beers Sa)

, ,
Blockchain use case analysis diamond tracking

Blockchain use case analysis on tracking diamonds

De Beers Sa is an international corporation with USD 6.1 bn in revenues specializing in everything about diamonds: exploration, mining, retail, and trading. Chances are high that your engagement ring comes from one of their mines. Diamonds require at least a billion years under extremely high pressure to form naturally. How can a 10 year old technology such as the blockchain make a difference here? De Beers Sa announced that they started to track diamonds on their way from the mine to the retail outlets using the blockchain. This is my blockchain use case analysis on tracking diamonds.

WHAT is this about?

De Beers Sa tracks diamonds from mines to jewelry retailers on the blockchain.

HOW is it done ?

A unique ID, a fingerprint is calculated from the physical properties of the diamond. One such ID is generated for each diamond. Physical properties of the diamond include weight, color, clarity, size, etc. When combining all these generating an ID is similar to a hash function, every single diamond will result to a different ID. Calculating the ID from the same diamond will always yield the same ID. In computer science this property is called deterministic. To illustrate, the ID 261b152862d1d614014496a63 is generated for the parameters [clarity=2, color=6, weight=245, mine=294]. This ID is then registered on the blockchain. Registered means that a transaction is written to the blockchain and that this transaction included the ID 261b152862d1d614014496a63 in on one of the fields of the transaction. The blockchain itself is a concatenation of such transactions.

Since the individual blocks on the blockchain are in deterministic order to each other, the blockchain itself takes care of the time-stamping. For example, if the transaction including the ID of the diamond was included in block 5633148 of the Ethereum blockchain we can use https://etherscan.io/blocks to check at what time this block was generated.

Blockchain use case analysis on tracking diamonds how does it work

Suppose all diamonds mined by De Beers Sa are documented this way. It is then an easy exercise to trace the diamond back from the retail outlet to the mine. Whenever a diamond shows up in the supply chain everybody can measures the physical properties re-calculate the ID and checks if that diamond (i.e. that ID) was registered before with the blockchain. If not, the diamond was injected into the supply chain from an unknown source.

WHY this makes sense?

Supply chains can become complex, especially when sourcing from different countries. The gemstone industry has an painstakingly complex supply chain. Among other ethical considerations, small-scale mining has been tainted with rumors of child labor. The industry is working on different fronts to clean up its image and rebuild its reputation. Regarding additional transparency, this blockchain use case makes sense because

  • The blockchain acts as a tamper proof digital record in this case. Once a diamond is recorded on the blockchain it will remain there forever. Due to the technical foundations of blockchain technology it is extremely hard to change these records. While you can perform a “DROP TABLE X FROM Y” to remove a database on your standard corporate IT setup, deleting the blockchain is almost impossible.
  • Not only De Beer Sa can use the information. Each supplier and even customer does not need to rely on the information given by De Beer Sa. Instead, they can check by themselves if the diamond was registered on the chain before. In current supply chains this is often not possible as the data resides in proprietary IT backends that are controlled by one company. Not so with a (public) blockchain,  where everyone can read all entries and append new information.
REALITY CHECK

Supply chain use cases have to deal with the oracle problem. How do you know if the real-word data, in this case the physical properties of the diamond, were entered correctly? Garbage in, garbage out still holds true in the blockchain age. It is true that the blockchain creates trust among participates due to the consensus algorithm that ultimately decides on a single version of the truth. That promise quickly ends when the blockchain reaches out to the physical world. In the De Beer Sa use case this is what you need to believe in to make it work

  • The personnel registering the diamonds on the blockchain are trustworthy. How can De Beer Sa prevent that wrong information intentionally or unintentionally was used as inputs to the function that generates the ID? For example, if the diamond was registered with the property “mine=281” how can we be sure that the diamond really comes from this particular mine? While the blockchain helps to minimized the required trust once registration is done, a few weak links will still remain.
  • Everyone in the supply chain needs to agree on how the ID is calculated. In complex supply chains, a few dozen suppliers are working together and aligning them on one methodology is easier said than done.
  • If the primary goal is to be transparent to end customers we are also facing the educate the customer problem. To convince customers that the diamonds of their engagement rings aren’t fake or were used to finance war, De Beer needs to educate its customers about the blockchain and why this information ca be trusted. A simple “Checked by Ethereum” sticker will not do the trick.

Interestingly, most of these points hold true for all use cases of the blockchain that deal with digital representations of real-world items. Everyone needs to agree on how the link from the trust-less blockchain to real-life works.

COST estimation (outside-in)

I would assume that the following team-setup is required to implement this use case (without integration into existing legacy IT systems)

  • 1 Experienced product owner with understanding of blockchain and the business of De Beer Sa
  • 2 Blockchain developers to (i) develop the smart contract that represents the diamond and (ii) come up with the deterministic ID function
  • 1 Diamond supply chain expert (part-time)
  • 1 Diamond measurement expert that assists in selecting the parameters to generate ID from
  • 2 front-end developers, 2 backend developers

Duration to develop pilot-use case: 4-5 months.

Blockchain use case analysis on tracking diamonds further data points
  • Idea, Pilot, or in Production: Pilot, 100 diamonds were tracked through manufacturing process to a final retailer. Plan to go into production in 2018.
  • Blockchain technology used: Ethereum (assumption)
  • Industry | Function : Mining | Supply Chain
  • First time use case was reported: May 2018
  • Link to announcement: https://www.bloomberg.com/news/articles/2018-05-10/de-beers-tracks-first-gems-from-mine-to-shop-using-blockchain
  • Included industry players: De Beers Sa (https://en.wikipedia.org/wiki/De_Beers). The De Beers Group of Companies is an international corporation, operating in 45 countries, and specialises in diamond exploration, diamond mining, diamond retail, diamond trading and industrial diamond manufacturing sectors. The company is currently active in open-pit, large-scale alluvial, coastal and deep sea mining.
  • Internal project name: Tracr
  • Related projects: Everledger  (https://www.everledger.io) – at least they started in the earlier days with a similar value proposition, now expanded to different asset classes
About the author

Dr. Thomas Reinbacher is computer scientist and management consultant and works as independent adviser in Munich and Beijing. If you want to work with me or have more information on that particular use case,  please find me on http://dr-reinbacher.com/

Disclaimer: This Blockchain use case analysis on tracking diamonds is an outside-in analysis, provided without warranty or any claim for completeness. All information presented herein is given strictly on a non-reliance basis and under the exclusion of any responsibility or liability, in particular with regard to loss or damages and/or administrative and regulatory sanctions.