NFTs could help solve diamond certification fraud
Diamonds may be a girl’s best friend, but unfortunately, the billion-dollar diamond industry is rife with scandal and fraud. There have been a number of cases where lab-grown diamonds have been graded as natural diamonds. An example of this was seen last year when the International Gemological Institute analyzed and graded a 6.18ct lab-grown diamond, which was previously claimed to be a natural diamond on its Gemological Institute of America (GIA) report.
It was also reported in 2005 that the Gemological Institute of America — which is one of the most trusted sources for evaluating gemstone quality — was accepting bribes to upgrade its GIA reports. According to sources, a lawsuit was filed against GIA in 2005 due to payments being accepted to “upgrade” the quality of diamonds submitted for grading.
In addition, consumers are able to resubmit a diamond for examination at GIA for any reason. This is known as a follow-up service. As a result, diamonds can be associated with multiple grading reports. This can be problematic for consumers since they may not be receiving original diamond certificates upon purchase.
NFTs as a single source of truth
Unfortunately, diamond certificate fraud is becoming more common. Regions like India have even developed new frameworks to combat fraudulent activities, as seen in the Diamond Charter drafted last year. While innovative, industry experts have also started looking toward blockchain technology to help solve this growing problem.
Specifically speaking, nonfungible tokens (NFTs) may serve as a solution when it comes to preventing diamond certification fraud. Mike Moldawsky, founder and creator of Diamond Dawn, told Cointelegraph that diamond certification reports should be placed on a public blockchain network to ensure that documents can’t be manipulated. “Having a diamond certificate as an NFT on the Ethereum blockchain can ensure immutability, proof-of-ownership and visibility for both retailers and consumers,” he said.
In order to demonstrate this, Moldawsky explained that Diamond Dawn is a high-level NFT art project that will place 333 GIA-certified diamonds on the Ethereum blockchain as ERC-721 tokens. Privately invited participants will then be able to purchase these diamonds as NFTs. According to Moldawsky, participants will be able to purchase a limit of one diamond NFT, with weight varying between 0.4-0.8 carats, for the price of 4.44 Ether (ETH). Once an NFT is bought, a smart contract will automatically send the diamond’s GIA certificate to the Ethereum blockchain, serving as proof of ownership and verification.
Given the rise of NFTs tied to physical counterparts, Moldawsky further remarked that NFT holders will have the option to create a tangible art piece containing a GIA-certified diamond via the Diamond Dawn website.
“NFT holders will start with a digital rough diamond and evolve their NFT on the blockchain (on-chain) with a process that mimics precisely the in-real life natural diamond process. Ultimately, the collector will need to decide whether they want to keep their diamond digital or burn it and transform it into its physical form,” he elaborated.
According to Moldawsky, such a process is also meant to raise awareness around the notion that digital NFTs can become scarce over time and, therefore, more valuable. “As more collectors decide to claim the physical art piece and burn the NFT, this will reduce the total NFT supply. As a result, digital NFTs will become more rare,” Moldawsky explained.
He added that the digital diamond artworks have all been created by artist David Ariew, who recently sold his first artwork at Sotheby’s Contemporary Art Evening for $224,000, alongside famous artists such as Banksy and Basquiat.
My collaboration piece with Jia Aili, “The Road Ahead” just sold for $224,000 in the @Sothebys Contemporary Evening Auction! I’m at a loss for words. Thank you so much to @triple_x_space and a massive congrats to @raoulmarks as well! You guys are incredible!! pic.twitter.com/oeff7zUuku
— David Ariew (@DavidAriew) April 27, 2022
In either case, though, Moldawsky explained that Diamond Dawn’s diamond certificates will remain on the Ethereum blockchain. “If a user chooses to create a physical diamond art piece, they will receive the paper GIA certificate in addition to the certification on the blockchain network. The goal of the project is to demonstrate proof-of-ownership, transparency and immutability of diamond certificates,” he remarked.
Olivia Landau, a GIA-certified gemologist and co-founder of The Clear Cut — a digitally native diamond engagement ring and fine jewelry company — told Cointelegraph that her firm is also using NFTs for diamond certification after launching an NFT platform on the Authentic blockchain network in January. She said:
“NFTs give couples purchasing an engagement ring the option to have all of the diamond’s certificates, insurances, images and even their proposal story stored safely on the blockchain for years to come, eliminating the worry of hanging onto hard-to-replace paper copies.”
Landau added that the purpose behind the NFTs offered by The Clear Cut is to digitize and authenticate a diamond’s GIA report and insurance documents. “The Clear Cut’s NFTs are not intended to be resold on secondary marketplaces,” she said.
According to Landau, clients who purchase a diamond ring from The Clear Cut will have the option to buy a corresponding NFT for an additional $500, which is to be paid in fiat rather than in crypto. She noted that existing clients will also have this option.
“In the beta testing phase, over 90% of clients expressed initial interest in this new NFT function. Customers will receive a hard copy of their GIA certificate and a copy of it will be stored digitally, ensuring its value for life,” she said.
Will NFTs replace traditional diamond certificates?
NFTs as digital diamond certificates may be innovative, yet it remains questionable if this concept resonates with the mainstream.
For instance, Moldawsky pointed out that he believes more education around blockchain is needed in order for traditional organizations to understand the potential behind NFTs. “We need to ask GIA why they haven’t gone digital yet. Once that conversation is initiated, we can explain why blockchain technology is transformative,” he said.
While this may be, it’s notable that GIA is open to digital transformation. Stephen Morisseau, director of communications for GIA, told Cointelegraph that early next year, GIA will begin transitioning all of their gemological laboratory reports to digital forms. “This should be completed that by 2025,” he remarked. Morisseau added that all of GIA’s printed reports have several security features, noting that the information on any report can be verified using the secure online GIA Report Check service.
Adoption of NFTs within the diamond industry may also gain traction once mainstream retailers begin implementing the technology. For instance, De Beers is currently using the Tracr blockchain to trace the origins of its diamonds.
Jason McIntosh, chief product officer for Tracr, told Cointelegraph that NFTs are likely to be part of the platform’s solution in the future. “Diamonds on the Tracr platform are ‘NFT-ready’ in the sense that the Tracr diamond record can easily be incorporated within an NFT wrapper,” he said.
Given this level of innovation, Landau believes that in the future, all diamonds will be authenticated via a blockchain network. However, she pointed out the importance of ensuring that consumers don’t have to worry about the technical aspects behind NFTs:
“Customers don’t need to have any crypto or blockchain experience to gain access to our NFTs. Everything is handled for them effortlessly. I believe this will drive mainstream adoption.”