Diamonds and Bitcoin – precious gems seem to have nothing in common with the volatile cryptocurrency at first glance. But IBM wants to change that: the technology corporation has started a pilot project to document pieces of jewelry and is working with the same technology used to “produce” and manage Bitcoin. How does that work?
Authenticity, genuineness, credibility – customers’ trust is the basis of business in the luxury industry. Whether it is the watch industry, leather goods, jewels, art, etc. – customers expect that the price premium of a luxury product will be justified by a certain claim to exclusivity. In many cases, customers can feel, see, or experience this in other ways, for example through the use of particularly high-quality materials or designs. Nevertheless, counterfeiters make life difficult for luxury companies. Studies show that alone the online sale of fake luxury items caused a loss of USD 30.3 billion in 2017. This does not include the loss of reputation when customers are disappointed by the inferior quality of what appears to be a genuine product.
Luxury brands can react to the constantly increasing perfection of counterfeits by offering transparency. Specifically, this can mean strict monitoring of the production processes and reliable verification of the authenticity of all materials so that customers will continue to trust luxury brands in the future. For this purpose, IBM is making use of the blockchain, the decentralized data archive, which is the basis of cryptocurrencies such as Bitcoin.
IBM’s idea with the blockchain for luxury items is designed to solve an extremely complex task: digitally “generating” trust in the quality and authenticity of the product. To this end, the supply chain for the production of a series of engagement rings is continuously documented by all parties involved. The advantage: although a company does not completely manufacture the product itself, the origin and quality of the product can be traced. Jewelry is a perfect example of this. It combines valuable raw materials with a complex, artistic manufacturing process. IBM and the other companies participating in the pilot project are hoping for many positive effects from the indelible storage of information on the blockchain:
The IT giant launched the blockchain concept called TrustChain in the spring of 2018 as a proof of concept. The life of each engagement ring is continuously documented on the blockchain – from the mine to the gem cutter, goldsmith, and jeweler – to protect against counterfeits and to offer more transparency with regard to the production conditions. To document all the stations, high-resolution photos are also stored in the blockchain, as are digitized purchase receipts, certificates of authenticity, and product information. The authenticity of the documents is monitored by the independent expert company UL.
“It is the first end-to-end industry application on the blockchain that focuses on trust,” said Jason Kelley, IBM’s responsible manager. This digital mechanism saves not only paper, but also time. This is particularly the case when doubts lead to a new examination of the documents: “If there is a conflict, you don’t have to call and trace the process manually, so to say. By clicking on a trusted chain, you can immediately see what happened,” explained Kelley.
The participants in the TrustChain initiative include the precious metal supplier LeachGarner, the precious metal processor Asahi Refiner, and the jewelry producer Richline Group. It is somewhat ironic that Richline Group is a company owned by perhaps Bitcoin’s most vocal critic: investor Warren Buffet. His statement that Bitcoin is “rat poison squared” caused quite a sensation. Now he holds an investment, through Berkshire Hathaway, in the corporate group that uses the blockchain technology for the model use case.
According to TrustChain, the companies participating in the pilot project are already testing and documenting their raw materials and base products. Consequently, the way this is documented is the only thing that changes for them. They only expect additional work in the test phase when the new processes are being learned. Once everyone is familiar with them, the project participants expect the individual review processes to be handled more efficiently in the medium to long-term. This could actually have a positive effect on costs.
The proof of concept is still running, by the way. The TrustChain pieces of jewelry should be offered in selected shops of Helzberg Diamonds in fall 2018. The jeweler is also owned by Berkshire Hathaway, incidentally.
Once these rings are on sale, the initiative wants to roll out TrustChain more widely in 2019. It hopes to receive support from other companies in the industry. This would be a significant step toward greater security and transparency in the jewelry industry and possibly a first, comprehensive application of the blockchain outside of the crypto community.