How can blockchain protect a girl’s best friend? | #GuestOfTheWeek

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When buying a diamond, you look for the four Cs: carat, cut, clarity and color. One company is working to add a B to the equation: blockchain.

Everledger, a permanent ledger for diamond certification and related transaction history, is partnering with International Business Machines Corp. to apply blockchain technology to the diamond supply chain in an effort to add transparency to transactions and authenticate diamonds from the mine to your finger.

Generally associated with bitcoin, blockchain technology manages transactions. The technology records each transaction as it occurs, creating a block of numbered transactions connected to the previous records. The process of blocking adds a fingerprint to the transactions and creates an irreversible chain.

Dave Vellante (@dvellante) and Stu Miniman (@stu), co-hosts of theCUBE, SiliconANGLE Media’s mobile live streaming studio, interviewed Leanne Kemp, founder and chief executive of the London-based startup, Everledger, during the IBM Edge 2016 conference in Las Vegas in September to find out how blockchain can manage a supply chain(*Disclosure below)

Listed as one of Dave Vellante’s Top 10 theCUBE Interviews in 2016, this week theCUBE features Leanne Kemp as our Guest of the Week.

Solving fraud in the diamond market

Kemp, a self-proclaimed nerd, spent 25 years working in emerging technology. For the past 10 years, her employment focused on the jewelry and insurance industry, and it was in this field she found the opportunity to solve the problems plaguing the diamond industry.

The problems include providence, fraud and document tampering. “When you mix all of those together, you have a pretty potent formula for black market trade, and sadly some of that trade is really running into terrorist-funded activities. So, it’s a pretty big problem. … Diamonds, of course, are one of the vehicles for anti-money laundering, and if we can reduce some of those problems, it’s worth getting out of bed for,” Kemp remarked about her company’s determination to secure the supply chain.

According to Kemp, due to holes in the value chain, there is a lack of visibility and providence, and counterfeiting in luxury goods are a $1.7 trillion problem — and the diamond market makes up $50 billion of the latter in the insurance industry alone.

Everledger is bringing transparency to a once-opaque market using blockchain technology. Due to the level of fraud that runs rampant through the industry, Kemp believes she has found the solution to reduce that amount of fraudulent transactions through transparency.

“When I saw the emergence of bitcoin, I understood where that application could lie, but because I wasn’t from a banking background, it was patently obvious to me that I could decouple the currency from the ledger and really use the currency as a vehicle or tokenization of assets. And the assets are diamonds, a girl’s best friend, so why wouldn’t you protect your assets,” Kemp reasoned as the basis of developing her business.

However, Kemp said Everledger is an emerging technology company, not a blockchain company. Working with IBM, the company is using the very best of blockchain and smart contract and machine vision as an enabler to identify fraudulent related activities and reduce them in the marketplace. “We are just starting with diamonds, but it can be anything that is appreciable in value,” said Kemp.

The cost of nascent tech

There are two parts of the diamond market: rough and polished diamonds. Once mined, diamonds begin the cycle international trade. There is a spot-inspection process by a licensed gemologist, which includes applying science and machinery. However, blocked data impedes the opportunity to connect machines to the Internet of Things.

“Some of these machines have been in existence and have been highly calibrated, and they have precision, but that data is often black boxed,” Kemp revealed. “It’s not indeed ledger[ed] or stored for the public or interoffice view. One of the things we have enabled is the ability to take all of those data points, 40 metadata bytes, as well as the reputation for the expert opinion, and lay that data into the blockchain.”

The hope is that over time, large aggregated datasets will make it possible to factor in a reputation score, for the gemologist, the machine, and the validity of a diamond.

The development of blockchain and bitcoin is rooted in providing anonymity to users who want to avoid banks and government. Everledger is adopting the technology to trace a diamond’s path by offering a secure and synchronized record of transactions throughout the supply chain to provide more clarity to the process.

Before working with IBM, Kemp had some trepidation about applying new technology because she did not want to base the business on nascent technology with heightening promises only to be disappointed. She explained that in the very first 12 months of Everledger, the company onboarded a million diamonds, and most people were ecstatic with this success. Kemp, however, shivered at the thought of what this would mean for her business as it scaled.

“If it went from 1 million to 10 million to 15 million and then into rough [uncut diamonds] to be able to track 320 carats of rough diamonds across 80 countries around the world. So, when you’re a startup and faced with some of the largest organizations and governments around the world, you want to be able to look towards a technology innovator like IBM that has been around and reinvented itself over and trusted for 100 years. And the transactional trust is at the very core of this fabric,” Kemp asserted.

It is evident that the process of tracking the diamond supply chain needs security. Everledger is tapping into IBM’s resources in all aspects of the process, including container technology.

“The security really needs to be from the ground up, at the root source, all the way through to the front end. And there is no other partner that is doing that. IBM has really taken the time to sew together the right security fabric,” observed Kemp, calling out Donna Dillenberger, IBM Research global leader of enterprise systems, for deliver security quickly.

Watch the complete video interview below to learn more about the beginning of the startup and be sure to check out more of SiliconANGLE and theCUBE’s coverage of IBM Edge 2016. (*Disclosure: Some segments on SiliconANGLE Media’s theCUBE are sponsored. Sponsors have no editorial control over content on theCUBE or SiliconANGLE.)

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