NFTs could help solve diamond certification fraud

by AryanArtnews
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NFTs could help solve diamond certification fraud

Diamonds may be a girl’s best friend, but unfortunately the multi-billion dollar diamond industry is riddled 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 6.18 ct lab-grown diamond that had previously been 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 – accepted bribes to upgrade its GIA reports. According to sources, a lawsuit was filed against GIA in 2005 over payments accepted to “upgrade” the quality of diamonds submitted for grading.

Additionally, consumers can resubmit a diamond for examination to 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 as they may not receive original diamond certificates upon purchase.

NFTs as a single source of truth

Unfortunately, diamond certificate fraud is becoming more and more common. Regions such as India have even developed new frameworks to combat fraudulent activity, as seen in the Diamond Charter drafted last year. Although innovative, industry experts have also begun to look to blockchain technology to help solve this growing problem.

Specifically, non-fungible tokens (NFTs) can 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 posted on a public blockchain network to ensure that documents cannot 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.

To demonstrate this, Moldawsky explained that Diamond Dawn is a high-level NFT art project that will put 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 purchased, 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 linked to physical counterparts, Moldawsky further noted that NFT holders will have the option to create a tangible piece of art containing a GIA-certified diamond via the Diamond Dawn website.

“NFT holders will start with a digital rough diamond and develop their NFT on the blockchain (on-chain) using a process that exactly mimics the natural diamond process in real life. Ultimately, the collector will have to decide whether to digitalize their diamond want to keep or burn it and transform it into its physical form,” he elaborated.

An example of Diamond Dawn’s physical artwork – a case that will come with a GIA certified diamond. Source: Diamond Dawn

According to Moldawsky, such a process is also meant to raise awareness around the idea that digital NFTs can become scarcer and therefore more valuable over time. “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 rarer,” Moldawsky explained.

He added that the digital diamond artworks were all created by artist David Ariew, who recently sold his first artwork at Sotheby’s Contemporary Art Evening for $224,000, alongside well-known artists such as Banksy and Basquiat.

However, in both cases, Moldawsky explained that Diamond Dawn’s diamond certificates will remain on the Ethereum blockchain. “If a user chooses to create a physical diamond artwork, 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 developing an NFT platform on the Authentic blockchain -network has launched. in January. She said:

“NFTs give couples purchasing an engagement ring the option to keep all of the diamond’s certificates, insurances, images and even their proposal story safely stored 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 verify a diamond’s GIA report and insurance documents. “The Clear Cut’s NFTs are not intended to be resold on secondary markets,” she said.

An example from The Clear Cut’s NFT portal. Source: The Clear Cut

According to Landau, customers who purchase a diamond ring from The Clear Cut will have the option to purchase a matching NFT for an additional $500, to be paid in fiat rather than crypto. She noted that existing customers will also have this option.

“In the beta testing phase, more than 90% of customers expressed initial interest in this new NFT feature. said.

Will NFTs replace traditional diamond certificates?

NFTs as digital diamond certificates may be innovative, but it remains questionable whether this concept will appeal to the mainstream.

For example, 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 started, we can explain why blockchain technology is transformative,” he said.

While this is possible, it is worth noting that GIA is open to digital transformation. Stephen Morisseau, director of communications for GIA, told Cointelegraph that GIA will begin transitioning all of their gemological lab reports to digital forms early next year. “It should be completed by 2025,” he noted. 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.

The adoption of NFTs in the diamond industry could also gain momentum once mainstream retailers start implementing the technology. For example, De Beers currently uses the Tracr blockchain to track the origin 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 be easily incorporated into 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 technicalities behind NFTs:

“Customers don’t need to have any crypto or blockchain experience to access our NFTs. Everything is handled effortlessly for them. I believe this will drive mainstream adoption.”