How can NFTs help solve diamond certification fraud?
People buy things based on trust in a brand, person, or institution. But what if they turn out to be frauds? This exploits the market to a great extent. Even more so when someone is buying something expensive. While investing a great deal of money, they expect quality, originality, and authenticity in exchange. Jewellery is one such market. Gold, diamond, and silver all are purchased and sold based on trust in the brand, government certification, or maybe some institutional verification of quality. Because the product is of such high-value customers even pay extra to get that verification done for the assurance of buying the right thing. Recently, the Diamond market has faced some severe cases of authentication scams. Let's understand what they are and how they can be solved with the help of technology.
THE PROBLEM
There are institutes like GIA and IGI that provide certificates of the authenticity of diamonds, their quality, grade, and value. And people all over the world consider certificates from these institutes as an anchor of trust and security about what they are buying. But, what happens when the certification themselves are false?
Many scandals and frauds have been witnessed in the billion-dollar diamond industry in the past few years. Many times lab-grown diamonds have been certified as natural diamonds. One such case was when GIA (Gemological Institute of America) claimed a 6.18ct lab-grown diamond to be natural, while later IGI (International Gemological Institute) classified it as a Lab-grown diamond. A case of accepting a bribe to certify the diamond on a higher grade has also been witnessed in the year 2005. Also, a diamond can be recertified. Which leaves room for alteration of the original report. These cases are inevitable because this whole system is regulated by humans, and the room for error is wide. In the midst of all these errors and frauds, the end customer has to suffer the loss of value.
THE SOLUTION
NFTs can help diamond certification fraud.
Let's understand what they are and how they work!
What are NFTs?
NFT stands for Non-Fungible Token, which is a unique digital asset that represents ownership or proof of authenticity of a specific item, such as a piece of artwork, music, video, or other forms of creative content.
NFTs are stored on blockchain technology, which allows for secure and transparent ownership records to be maintained. This means that the ownership and transfer of NFTs can be easily tracked and verified, providing a new way for creators to monetize their content and for collectors to own and trade rare and valuable digital assets.
Key features:
Digital Asset | Unique | Transferable
Non-Fungible means something that cannot be replaced or interchanged with any other identical or nonidentical thing. They are transferable but not interchangeable. Non-Fungible Token is a Cryptographic asset on a blockchain. It is created with unique identification codes and data that distinguish them from each other. It can be used to digitize identities and as proof of ownership of the real estate, as a document that should not be forged- like diamond quality certificates.
How Does NFT Work?
❖ NFTs reside on Ethereum Cryptocurrency's Blockchain. Which is a public ledger that records data and transactions.
❖ They are individual tokens with valuable data stored in them. It can be a document, an artwork, or information.
❖ This data or information once stored cannot be altered in any scenario at any point in time. No two tokens can ever be identical.
❖ They can be brought, sold, and transferred like any other type of physical asset.
❖ Transparency and traceability is the key. Record of the original owner, whom it was sold to, who is the current owner, everything is on record. No fake tokens can be created or circulated because each token can be traced back to its original creator.
In what ways NFTs can be used in the diamond Industry?
✧ To trace the origins of diamonds.
People now are highly interested in information about where the diamonds were mined from and if it's blood-free diamonds.
✧ To know the current status of a diamond.
Diamonds go to different stages of the process and pass through various hands before finally entering the marketplace. It gets easier for manufacturers or suppliers to know the current status with the help of blockchain technology. It makes supply chain management a lot easier.
✧ To eliminate certification frauds.
When the data is transparent and traceable, the certificates once stored on the blockchain cannot be forged or replaced.
✧ To buy and sell diamonds.
Transfer of ownership of the diamond and investing in the diamond market can be made feasible through blockchain.
How do people do certification fraud?
Quality verification certificates are the sole bases on which diamonds are brought by the end consumers. They are proof of the quality of diamonds. All diamonds are unique and are priced at different ranges according to the 4 C's and no one can diversify them on their own. So fraud happens, when the certificates themselves are not correct. They show the wrong value of the diamond. The institutions who are responsible for certification are to be accountable for this kind of forgery. This can either be done mistakenly by human error or on purpose to exploit the consumer.
How can NFTs help?
NFTs can be used as digital diamond certificates to ensure immutability, transparency, and proof of ownership. Diamond certification reports can be placed on a public blockchain network where the documents cannot be manipulated.
Each diamond certificate can be placed on the blockchain Ethereum and works as proof of ownership of the diamond. Diamonds can be purchased and sold by transferring their ownership.
NFT holders can buy the diamonds at any point in the supply chain. Suppose someone buys a digitized diamond in its rough stage, then the diamond keeps evolving with the blockchain as it keeps passing through different steps of the process in real life, and at any given point the NFT holder can decide to keep the diamond digital or burn it and transform it into its physical form.
Whatever happens, the certification will always stay on the blockchain to maintain transparency and as proof of ownership.
Technology as an answer to the verification
Blockchain is a revolutionary technology, which is very rapidly replacing traditional ways of doing things. The Laxmi Diamond group has developed its own software to track the manufacturing process and manage inventory. They've been doing it since long before blockchain technology existed. They don't need blockchain for tracking exactly, but to stay up with the trend of every client wanting to know where the stone comes from, who works on it, and who buys it, they are open and eager to learn more about it. Currently, applications such as Tracer and Everledger have launched and provided a framework for maintaining such data in the diamond business. The LD group is planning to engage in these programmes, because everyone from the mines to the end consumer needs to know about the traceability of the stones they are dealing with.