Blockchain technology is coming to the jewelry industry, and it’s coming fast. Ultimately, this means absolute trace-ability of every element in the jewelry supply chain; from the mine, to the refinery, to the alloy manufacturer, to the production company, the retailer, and on to the consumer. But we’re still years from that level of supply chain cooperation. You may have heard of blockchain technology as the technology behind internet currencies like Bitcoin. But blockchain can be used to track any virtual or physical good from one place to another, as long as all the participants in the chain-of-custody have access to a blockchain platform, and reliably enter their transactions into it. This type of supply chain transparency will go a long way to reassuring consumers concerned about the jewelry industry’s impact on the world, and will be a huge relief to jewelry businesses everywhere that are struggling to buy and manufacture responsibly.
So how does it work? If you’ve ever watched a police procedural television show, you’ve seen how evidence is passed from hand-to-hand, carefully recording each person who touches it along the way. Evidence is bagged, tagged, and signed off on at each step, to preserve the integrity of the evidence from collection to trial.
That’s what blockchain does. It tracks raw materials – like gold or diamonds — from the mine, to the refiner (for metals) or gem cutter, through distributors and manufacturers, to the retailer, and on to the consumer. Only, instead of keeping a paper log, the raw material is assigned a serial number, and data is entered into the supply log, or digital ledger, as it moves from place to place, throughout the material’s transformation. Blockchain systems cannot be edited and they are extremely secure, so the data that is entered for each step of the process is permanent.
Having a hard time picturing this? Let’s walk through one possible scenario. Imagine a bucket filled with lumps of gold, freshly dug out of the ground. The family* that works this piece of ground has been certified; they’re not using child labor, and they are fully trained in and practicing safe and environmentally sound practices. *(Tens of millions of artisanal miners make up most mining operations around the world.)
That bucket of gold is bagged, sealed, and assigned a serial number. The person managing this process signs into a blockchain application on her smartphone, and logs the batch. After this step, the raw gold moves on to the next stage in the supply chain.
Things get a little more challenging at the next step. The gold moves along to a refinery, which typically refines huge lots of gold from dozens of sources in each batch. Now, the serialized raw gold must be refined as an isolated batch, to maintain visibility to its point of origin. The refiner logs into his company computer system, which communicates with the blockchain platform, and identifies the batch before and after refining. The refined metal is repackaged, along with the original serial number. Then it moves on to a production facility.
Let’s say that production facility is making wire. The refined gold stays together as a serialized batch. When the production manager takes possession of the refined gold, he uses his tablet to enter the batch information into his company computer system — which communicates with the blockchain platform. Now imagine the end of this process: Large coils of shiny gold wire sitting on a pallet. Each coil’s tag includes a bar code that reaches back to the original serial number, and the computer system communicates with the blockchain app that the refined gold has been transformed into wire.
The wire coils are shipped off to manufacturers and distributors, who enter the serial numbers into their computer systems as part of the inventory receiving process. Many distributors don’t sell entire coils of wire – they sell the wire in varying lengths to smaller producers. Each order of wire they ship is accompanied by the serial number of the batch – which was stored in their ERP system and automatically communicated with the blockchain platform. The bar code that prints on the product tag, invoice, and packing slip contains the digital links to the original raw gold.
Jewelry manufacturers enter the serial number of each length of wire into their own inventory receiving systems – which transmit logs to the blockchain platform. They transform the wire into finished jewelry. Once they produce each final jewelry item, they log the serial number of the gold that went into it – along with the serial numbers of any other metals or gemstones that were used. The consumer who buys the piece can be assured about the provenance of the materials that were tracked through the blockchain, and can even learn about the origins of each element.
Blockchain technology is fully developed and is in use — this is not science fiction. The challenge will be enlisting supply chain operations – many of which are still very manual. Supply chain partners must have the will to standardize processes and to write procedures for their computer systems to transmit relevant data to the blockchain platforms.The Jewelry Industry Now Has Two Blockchain Initiatives
Two significant blockchain initiatives are taking on these challenges for the jewelry industry. De Beers announced in May of 2018, “An immutable and secure digital trail was created for a selection of rough diamonds mined by De Beers as they moved from the mine to cutter and polisher, then through to a jeweler.” The blockchain platform De Beers has committed to is Tracr, which De Beers developed with Boston Consulting Group’s Digital Ventures, using the Ethereum blockchain framework. Their initial test was on 100 larger diamonds (most diamonds traded in the world are melee, which are diamonds between .001 to .15 carats and between .6mm to 3.5mm in diameter). De Beers owns or controls most of its supply chain, making compliance in this early test relatively easy to achieve. Expanding the initiative to smaller diamonds and other supply partners will be a bigger challenge. De Beers has reported that their platform will be made available to the rest of the diamond industry by the end of 2018.
Another jewelry blockchain initiative, led by Richline Group, Inc., is using IBM’s TrustChain platform (which is built on the Hyperledger Fabric blockchain framework). Walmart partnered with IBM in 2016 to use TrustChain to protect the security and safety of food supplies, making it possible for them to quickly trace the origin of food products when food safety issues arise. Berkshire Hathaway’s food distribution organization, McLane Company, was one of the partners involved in the Walmart effort. When Richline, the jewelry manufacturing and distribution company owned by Berkshire Hathaway, entered the blockchain arena, they also chose IBM’s TrustChain.
According to the Trustchain website, “this is a unique collaboration that leverages IBM’s technology and the UL, independent third-party verification, together with five diamond and jewelry companies that represent the entire supply chain: Rio Tinto Diamonds (diamond supplier for Proof of Concept only), Leach Garner (precious metals supplier), Asahi Refinery (precious metal refinery), Helzberg (US jewelry retailer) and the Richline Group (global jewelry manufacturer).” The TrustChain initiative is intended to include the full range of jewelry materials, from gemstones to metals.
An interesting aspect of the TrustChain initiative is the inclusion of Underwriter Labs (UL). UL has a long history as an independent (3rd party) verifier of supply chains. This adds another layer of confidence to the TrustChain platform. Like the Tracr initiative, the TrustChain initiative plans to welcome “all responsible jewelry firms, suppliers, and retailers” in 2019.
Both the Tracr and TrustChain initiatives are being developed by their sponsoring companies on behalf of the jewelry industry. There will be no charges to join either system, though all blockchains require minimal transaction fees for the networks to function. Individual companies will be responsible for updating their processes and writing their system integrations to the blockchain platform. Both platforms can readily communicate with modern ERP and stock-tracing systems, and will likely introduce integration “layers” for jewelry supply chain partners to tap into.
Both Tracr and TrustChain have also put privacy controls in place throughout their platforms. This means that companies can participate in the platform without exposing sensitive data like pricing. Traceability, and not full transparency, is the goal of these systems.
As De Beers and Richline Group have surely discovered by now, blockchain technology is only part of the traceability battle. In order for supply chains to share traceable data, each company along the chain must have developed repeatable, uniform processes and must manage those processes with discipline and consistency. This type of process control is the exception, not the rule, and is the reason that major corporations like Walmart and McDonalds own significant percentages of their supply chains — right down to the farm. It is easier to wrangle a wholly-owned vertical supply chain into compliance than to get small, less sophisticated businesses to practice the disciplines necessary for traceability.
The worldwide jewelry industry has far more cottage businesses than sophisticated corporate players. But as consumers demonstrate growing concern for the origins of all things – from apples to diamonds – the industry must be prepared to offer traceability as an option. And companies that tap into consumer demand for product confidence will discover a wealth of differentiation opportunity as a reward for their efforts.