Russia Crisis Prompts De Beers to Fast-Track Tracr

RAPAPORT... The recent geopolitical storm pushed De Beers to accelerate the expansion of its blockchain platform, chief brand officer David Prager told Rapaport News.The miner recently launched a scaled-up version of Tracr, enabling the industry to trace all De Beers diamonds through to the jewelry store. The business-to-business (B2B) tool lets retailers see a stone's entire path through the supply chain, including any information sightholders choose to share about the manufacturing process. The company signed up many of its contract clients at sights this year, and stepped up its efforts in response to the heightened need for source verification since the Russia crisis began, Prager, who is also executive vice president, explained.Read the full interview here.What were Tracr's capabilities before this announcement, and how have these changed?The first thing that changes is now with scale, [enabling] sightholders to participate, which means we [can] stand each sightholder up with what's called an "instance" [similar to an account] on Tracr. Once they are on Tracr, they have diamonds that are uploaded that they can pull through the value chain [as they polish and sell the stones].We've also created the Tracr lookup, which allows the sightholder to show, irrefutably, to the retail customer through a web-based lookup that the diamond they're selling to that retailer is, in fact, the diamond that's come from us. That's what we consider to be a first step, but a hugely important step, giving the sightholder the tools to provide visible assurance attached to the Tracr ID number that the diamond that the retailer is buying does come from De Beers.Every time there's information to upload about how the diamond changes form, they upload it to their "instance." The information of that diamond changing is tracked against that Tracr ID number. What is the verification process? Let's say a retailer has bought a 1.2-carat, E, VVS diamond; they've got it in their hand, and they're told by the sightholder that its Tracr ID is whatever the number is. They verify that the diamond they're holding is, in fact, the diamond they can see on Tracr because it comes with the ID number and all of the spec are exactly matching that diamond. So they can see the two are exactly the same.Is that ID number on a piece of paper or in an inscription? It's not as an inscription right now. That might be in the future. Our focus was to bring to market a solution for people who needed to know the provenance of the diamonds they were buying. Obviously, there's the current geopolitical context, where more and more American retailers need to understand where the goods they're buying come from. They need assurance beyond just the self-declaration. They need an immutable demonstration of where a diamond comes from. That's why we've brought Tracr to scale fast. The diamond comes with a code and then the retailer is able to go online, look up that code and see all of the spec of that particular diamond associated with that diamond right in front of them. They can see all of the spec of the diamond they're holding, but also all the spec of the diamond before it got to them in the manufacturing stage and all the way back to rough, and of course, when it came from De Beers. What information does it have about what happened at manufacturing? Does it say where it was manufactured and by whom?The sightholder will be able to upload information about themselves, and it's down to them whether they want to share that further down the line. So it can include information about where it was manufactured. The sightholder is in full control of their data, so they can determine who is able to see what about the diamond.Is there a minimum amount of information that the sightholder has to share? They don't have to share who they are, but the retailer will know who they are because they're the ones selling them the diamond. What has to be on there is where the diamond has come from, which is, of course, the purpose of the platform, and the identifying features of the diamond that demonstrate that it is attached to that Tracr ID.What is in place to ensure that someone doesn't take a lab-grown diamond or a non-De Beers natural diamond and cut it to the same specifications as a De Beers diamond [and pass it off as a De Beers diamond]? First, there's Tracr itself. The details of the spec of the diamond are exacting. If the sightholder chooses, they can upload their grading certificate onto the platform. So the retailer can see the exact details of the diamond and the certificate of the diamond. They can see images of the diamond So they will know with surety whether that diamond is natural or lab-grown, and whether it comes from De Beers or not. The second thing is that overlaid on top of this is our pipeline integrity framework [that ensures segregated supply chains].What if someone did manage to cut a diamond to the exact 4Cs of a stone on Tracr?You would still see the images of the diamond, the inclusions. That would make it very difficult to [commit fraud in that way], not to mention the overlay of pipeline integrity.There is always the ability for people to attempt fraud, but what makes Tracr different and really a first on the market is that it doesn't [rely on] self-declaration. So from the start, it's clear that the diamond that the sightholder has and is working with has come from De Beers. If in that rare case, there was a diamond that had the identical spec, the identical inclusions, that's what pipeline integrity would catch. In the past, De Beers has talked about opening Tracr up to the rest of the industry. I get the impression that that's not the focus at the moment. Is that right? It's not the focus. Clearly the world's changed. We feel a real responsibility: We've got a third of the world's production that we buy into the market. Our job is to make sure that we can provide assurance for those diamonds first, and then as it scales, as it becomes useful in the industry, I think then we'll review that as we go. Will all diamonds from the smallest to the largest now be on Tracr? Not quite yet. It's 4-grainers and above being loaded onto the platform at the moment. As you would expect, with any kind of new technology, we're going to get better and better as we scale and will push that size-range tolerance down. But the focus right now is how we make sure we're providing assurance for as many diamonds as we can and as high-value as we can as [put] sightholders on the platform. We know there is a challenge with melee in the market, and the team is working now to figure out how Tracr can be useful to melee. Obviously, it's a very different challenge, a very different beast - we're talking about very small diamonds and lots of them. Do you already have the capability to put under-4-grainers on Tracr? We've got the capability. There are two points there. So we're starting with 4-grainers and above, because that's where the bulk of the value is. We'll progressively push that down as sightholders come on board and we scale the volume.Separate to that is the specific issue of melee, particularly the really, really small melee. Tracking each individual piece of melee is an incredible technical feat. Figuring out different solutions...is what we're working on now.How did it work at sights this year?We've worked with sightholders for quite a long time. They've experimented and tested Tracr with us. We worked with about 10 sightholders at the first sight of this year, in January, getting them engaged. So this was obviously well before the geopolitical issues started. There was still a plan to scale Tracr that we've obviously accelerated. We brought those guys on toward the end of last year, beginning of January. They've had good experiences. And now the key is to learn from them, but [also to] learn from the new ones to make it as frictionless as possible. And so in the later stages of this year, beyond January, did you add more sightholders to the platform? Yes, we've added more sightholders each sight. And now from this announcement we're going to add at a much more accelerated pace. We think the majority of sightholders will be added during the second half of this year. It's a relatively straightforward process to add them. We've got to work with them on their backend and make sure that they're ready to be integrated, but the actual integration, giving them an "instance" on Tracr, takes about 10 minutes. So it's relatively straightforward and then they're off and running.You mentioned that you accelerated this a bit because of the geopolitical situation. Are you able to expand on that? We had a plan to bring it to market throughout this year at a steady pace. Obviously, geopolitics changed. Retailers in America want to make sure they're compliant with sanctions. They want to make sure that their inventory is protected from future sanctions. They want to ensure that they're able to provide assurance to their clients that come into their store and ask for diamonds from particular regions. Importantly, they want to be comfortable themselves as business leaders with how they're running the business and what they're stocking and what they're buying. And so all of that drove us to say, "We have the technology. Let's bring it to market much faster."Image: Rough diamonds for the Talisman collection at De Beers Jewellers in New York. (Ben Perry/Armoury Films/De Beers)