Blockchain for diamond traceability — BE Blockchain & Elikia Diamond

Elikia Diamond, a diamond dealer from Antwerp, launched its first collection of diamond jewelry physically linked to NFTs on the Ethereum blockchain. The goal is to guarantee the authenticity of the jewelry and transparency in the exchanges in addition to funding the modernization of the mine in the Democratic Republic of Congo through the pre-sale of NFTs. The goal of this initiative is to propose a new standard in terms of transparency in the industry.

By leveraging blockchain technology in a new industry, BE Blockchain and Elikia have highlighted the potential for innovation and positive change for the sector.

A market under high pressure

Money laundering and conflict financing are major issues in Africa. These practices constantly plague the sector. Belgium, and more specifically Antwerp, has often been in the crosshairs. Hans Merket’s report, “Belgium’s Fight Against Conflict Diamonds: An Assessment of the Country’s Diamond Sector Controls from a Global Perspective” provides a comprehensive examination of this phenomenon. For example, whether it is the “Monstrey” fraud or the “HSBC leaks” and more broadly the confirmation of the money laundering structures revealed in the 2013 Offshore Leaks and the 2015 Panama Papers, these are colossal sums of money that are being discussed…

Since 2018, transactions involving diamond dealers, drug cartels, and banks have laundered billions. Consequently, this creates a major global concern. The world’s biggest diamond scandal of recent years also has ties to Belgium. It is the Punjab National Bank (PNB) scam, India’s largest fraud case, estimated at $1.8 billion, which was revealed in 2018.

Limits of the Kimberley Process

However, efforts have been made, the Kimberley Certification Scheme (KP) was introduced in 2003 to prevent conflict diamonds from entering the regular rough diamond trade. This system requires participating countries to certify that their rough diamond exports do not come from conflict areas. The objective is to prevent the trade in “blood diamonds”. Miners extract these stones in war zones and sold to finance armed conflict or terrorism.

However, the KP remains insufficient. In fact, large importers like Dubai are less cautious and more likely to grant certification. If trading centers or producing countries with weak internal controls allow conflict diamonds to enter the legal supply chain, they receive the KP seal of approval. Other KP participants can do little to detect it, no matter how stringent their controls.

Indeed, investigations by Belgian authorities are limited to the paper trail that accompanies diamond shipments entering or leaving the country. The complexity of diamond supply chains and corporate structures, which typically span multiple jurisdictions and many complex business relationships, makes it relatively easy for smugglers to conceal wrongdoing and ensure that documents presented in Belgium pass scrutiny.

In terms of public-private collaboration, the Antwerp World Diamond Centre (AWDC) has made considerable progress in engaging industry, which has traditionally been resistant to regulation. However, the AWDC’s influence on the actions of individual companies is limited.

The biggest challenge for Belgian authorities is to detect and prosecute conflict diamond smuggling networks. These networks could exploit loopholes in other jurisdictions to contaminate the global diamond trade — including Antwerp.

The authorities should also include new strategies and efforts to address the root causes of diamond-related conflict and violence along the supply chain.

This lack of transparency about the origin of diamonds leads to a lack of confidence on the part of buyers and ultimately to a decline in the value of diamonds. The market also faces a liquidity problem because the majority of diamond buying and selling transactions are private. As a result, investors are finding it difficult to resell their diamond inventory and to provide authentication documents.

Elikia Diamond: from the mine to the customer…

To address these challenges, non-fungible token (NFT) technology offers a promising solution. NFTs are digital assets stored on a blockchain to verify the ownership and authenticity of both digital and physical objects. In the diamond industry, NFTs can serve as “proof of ownership and origin” to track a diamond’s journey from mine to customer, providing full transparency and traceability. The potential of NFTs in the diamond industry to set a new standard for transparency makes them a promising solution to the challenges currently facing the industry.

Mr. Sese Bomboko founded Elikia Diamond, son of Mr. Justin-Marie Lokumba Bomboko, one of the signatories of the Declaration of Independence of the Democratic Republic of Congo. When Mr. Sese Bomboko took over his father’s mining company in 2013, he aimed to offer diamond jewelry directly from the mine. This led to the launch of the Elikia Diamond Project in Antwerp, Belgium. With complete control of the process from the mine to the end customer, Elikia Diamond aims to bring the mining sector closer to its end customers, and advocate for transparency and traceability.

Mr. Bomboko’s vision is to modernize the diamond industry and set new standards in transparency and market accessibility. He is one of the AWDC’s dedicated ambassadors.

When Elikia contacted BE Blockchain, they were looking for a way to raise funds to upgrade the mine through pre-sales of their diamond jewelry. Initially, their approach was to sell ERC20 tokens that offered discounts on jewelry purchases. Recognizing the problem, BE Blockchain came up with a more effective solution, namely an INO (Initial NFT Offering). The concept is to sell Mintpasses, which provide access to an NFT title to a piece of diamond jewelry. The idea was to replace ERC20 tokens, which lacked utility, with NFTs physically linked to diamonds through a serial number.

A process that promotes transparency

The goal is to organize a sale of a first collection of 2520 Mintpasses, each of which is linked to an NFT. We associate this NFT with a specific piece of jewelry from the collection that Elikia will produce, much like a gift certificate. At the time of purchase, the buyer has the option to choose a specific category, such as a ring, earrings or pendant, and a quality level from three different options: level 1, 2 or 3, depending on the purity, color and size of the stone. 

How the Mintpass Works

Mintpasses contain random stones of varying sizes and purities. Therefore, buyers might purchase an exceptional stone. However, the 3 levels prevent excessive variation. The system links the randomly selected NFT to one of the Mintpasses in the chosen quality level and category, creating a unique and transparent pre-funding process for purchasing high quality diamond jewelry.

Digital Certificates and Blockchain Recording 

With Elikia’s solution, all diamonds extracted in Congo receive two certificates : the Kimberley certificate and the mining certificate attesting to their origin. They are then sent to Antwerp where Elikia cuts the diamonds with a certified laboratory. Subsequently , a third document is produced, the laboratory certificate containing the serial number that will be engraved on the diamond itself, invisible to the naked eye. The blockchain records these 3 certificates and linked to the NFT title when the jewel is put on sale. The blockchain then allows to trace all the exchanges of the NFT. A database directly linked to each NFT will record the delivery status of each jewel.

In other words, the NFT linked to a piece of jewelry will contain not only the same serial number of the diamond but also its characteristics (caras, size, color, purity) and the 3 certificates. In this way, any potential buyer can be reassured about the origin of the diamond, where some diamonds resulting from conflicts or illegal trafficking have landed in jewelers without being able to trace their origin.

Conclusion

BE Blockchain helped Elikia Diamond propose a new transparency model for the market. Indeed, the integration of NFT technology proved to be a solution that could address the main challenges of the sector, such as the lack of liquidity and the difficulties in providing authenticity documents during the purchase. Of course, the solution does not solve everything, and it will still require the cooperation of the various players to “play the game” of transparency, but it does have the merit of highlighting “healthy” diamonds over others.

The diamond industry is known for its conservatism. Despite this, African countries are showing increasing interest in blockchain technology. which would make it easier for them to connect with their end customers. The use of NFTs physically linked to diamonds offers customers the assurance that the stones they are buying are authentic, ethically sourced and of the highest quality. It is highly likely that other diamond companies will adopt similar solutions in the future, making blockchain technology and NFTs an integral part of the diamond industry.