156 - Leanne Kemp: Detecting Diamond Fraud And Theft With Everledger

Transcript

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Bitcoin and ether go to Jay a double x io and embrace the future of cryptocurrency wallets hi welcome to epicenter of the show which talks about the technologies projects in start driving decentralization and the global block chain revolution my name is Sebastian cuiture and I'm mayor Roy so a lot of you must have heard that there's this area of blockchain technology application which is Providence and tracking things as they move through the supply chain of a particular industry today our episode deals with provenance and we are going to talk to Lee and Kim who is the CEO of ever ledger she is building a startup around the provenance tracking of diamonds in the diamond

market so we are going to talk about the diamond industry our solution works and what kind of benefits very accurate provenance tracking can bring about so before we start let's say hi to LeAnn then can we have a bit about your background how did you get interested in the block chain space hi everyone thanks for having me firstly how did I get interested in the block chain space I guess I've been 25 years in emerging technology so I've always been interested in technology first and foremost and blockchain happens to be one of those emerging disciplines that started to rise its head into industry quite some time ago so it wasn't really about to saying his block chain or

Bitcoin and this is of interest I mean I've always been fascinated with technology so instead of playing sudoku on the weekend you know I'm tapping away on my keyboard and so what were you doing prior to to working at ever ledger or having founded a villager well I guess I've only just learned that I'm a serial entrepreneur I've always had my own businesses and that's spanned as I said 25 years so you could probably guess my age now you know the company before i started ever ledger which we only began last year was actually in the jewelry and insurance space and the company before that was in you know large demographic data in your survey

information so because we could start with the talking about the diamond industry so most of our listeners are generally interested in block chains and many of them might not have ever encountered diamond industry personally i have very little experience of it so we could start off with some questions about that industry itself so can you can you tell us like as a broad overview how the supply chain works like where diamonds produced what what happens in the middle from production and finally to a distribution to the end consumer give us a brief overview of of the supply chain so I guess most people really have an affinity with diamonds when it comes to a special life event so

whether that be a marriage or proposal or even the birth of a child as a gift the diamond industry you know it's about 130 years old so it boasts some pretty impressive track history and the industry is often thought of in two segments the first segment is the rough segment of diamonds so we're their mind and as they come out of the ground in a crystalline form and then it goes through one iterative manufacturing step where the diamond becomes cut and polished and ends up as a polished stone which of course most of us would be associated with or if not wearing inside of a piece of jewelry you know the industry boasts some pretty impressive numbers rough diamonds come out of the ground at around 15 billion

dollars annually and by the time that one diamond in its form hits the cutting and polishing sector of the supply chain it transforms to about a 47 billion dollar market and after it's cut and by the time it hits the retail network not set in a ring it's around 80 billion dollars about 75 billion dollars and that's an annual throughput so you know there's some pretty interesting numbers involved the size of the jewelry market itself at a retail level that boasts around 300 billion and that's set with inside of jewelry so of course you're adding on you know components of gold and even other gemstones to complement that value so in this supply chain where are them are there any areas in the

chain where cept where monopolies are concentrated where where is the competition how those dynamics work so I mean monopolies it by its definition is one player and our industry doesn't have just one player you know when you think about two things firstly the volume of the world's diamonds are mostly mined in Africa but we also are seeing predominant forcing of mining coming out of Russia and and Canada and of course Australia for mostly the fancy cuts or the pinks themselves you know when we talk about monopolies as I said one player but that's not necessarily the space the dominance in our industry of

course and substantially so you know De Beers was one of the first originator zor the grandfather of the industry and they still of course proudly support the backbone today we see a dominant player in Russia being a co-owned state force called alrosa and then you have a number of other dominant mining companies Dominion you know out of can another example you know in the middle part of the pipeline itself these are where we cut and polish whilst we've had technology assist in that it is largely still an art form so we often see generations of family businesses that have been born into the industry and have a love or an association for the

art form of cutting diamonds and we often see these are generational families in in in areas such as Brussels and Antwerp and and India predominantly today is probably the largest data you know demographic or geographical sort of presence of the cutting section and then in America in New York you know we have still have a love luxury in New York and there's no doubt about it a lot of the you know major diamond wholesalers and retailers are really situated inside of New York as well and that's not you know that's not dissipating backwards but emerging countries are playing some significant roles you know Venezuela have a rich seam of kimberlite which is of course where diamonds are formed out

of the crust of the earth and but you know more recently they have not been involved in the Kimberley Process so you know the trading of diamonds is somewhat you know challenged out of that country even though they hold a very rich scene of mothers earth's assets so you would probably see that the dominant player is still Africa Botswana and of course they you know created debs wanna which was the joint venture between Botswana and government and De Beers so you mentioned the the Kimberley Process can you explain what that is yeah sure so you know the Kimberley Process it actually began in the year 2000 when the united nations came together and decided to make a landmark decision that any

diamonds that were traded or had come from a conflict zone needed to be ceased and so in 2003 they formed a three-step verification process and around 80 countries around the globe came together and this represented about 99% of all diamond trading countries they came together to form the Kimberley Process we sometimes I joke about it is like a boy scout promise that the world came together and said no no longer no longer will we accept at diamonds that haven't had any disclosure of origin and these countries and/or this consortium you should probably say has come together as both a government and an industry

initiative and there are frameworks that are in place to ensure certain protocols and standards are met when diamonds are exported from one country and imported into another country so it declares not only the country of origin of the goods but also the HS code so the harmonized sequencing codes around the goods that are physically being traded and this declaration you know over the process of seven years since it was created was largely successful you know over twenty-five percent of the conflict stones were reduced and today in less than 1% of diamonds traded across the globe from conflict areas so if there was to be a guiding light and an example

of how pseudo government and industry could come together and how they could form a change step for the better in terms of ethical trade that would be a guiding light but in terms of Technology each of these officers are you know armed with no more than a fax machine and an embossing stamp largely the certifications are still paid based on paper-based processes you know their physical filing cabinets in some of these offices around the globe that that hold the the certifications and what we've seen you know our beard not prolific not a prolific ation of fraud but we have seen instances of it where you know and more recently there was actually an example from Sierra Leone to Hong Kong where a document a Kimberly

certificate was fraudulently connected to a set of parcel rough diamonds being traded and it was you know luckily the the line of sight or the trained eye picked this up but there was very there's very little systems in place to enable the cross-checking know of these certifications well beyond the border so I mean border control steps in but certainly well beyond the border there's very little visibility around the provenance so I mean a I guess if I guess the fundamental problem of knowing where a diamond comes from the way I tend to think of it is it should involve like two aspects of it right cat can for example one aspect is can a diamond be uniquely identified

while it's flowing through a supply chain right like other like numbers to each diamond and then the second question would be how does the documentation for something like a kimberley process work how do I know that this particular diamond with this with these characteristics that I'm trying to buy is guaranteed not to originate from a conflict area so as I spoke about the different elements of Industry they actually command different disciplines of detection and different disciplines of identification and thankfully the diamond industry is relatively has a relative controlled environment and there's already been layers of different types of technology

that have been accepted by industry and machines that enable us to machine grade the color of certain diamonds or even be able to a 3d extract the digital points of the diamond so rough diamonds are typically traded in parcels of stones and so it's more about tracking the container of those stones as they pass through the pipeline rather than the individual stones themselves but once a diamond really goes through a cutting process it then becomes individualized and the second set of certification is applied which is really at the point where diamonds attain their value and their and their digital points so to be able to identify polish stone you know

we were able to provide a digital incarnation of that stone like a thumbprint but it doesn't just end up the thumbprint or the dimensions of the stone or the serial number that is engraved on the girdle or the crown of the stone you need to be able to go a little bit further you need to be able to use high-definition photographs to be able to take the view from the top down of the stone and so just like you know I liken I like in the same evolution of the technology that the police have applied to identifying criminals to how we are evolving in terms of our age vacation of diamonds so if you were to think about yourself as a criminal in the 80s likelihood is that you probably got away with your crime the only real

way that they were able to detect you was probably by your thumbprint but as facial recognition has become a little bit more advanced and even DNA hair follicles or mouth swab testing has become more advanced so two of these similar disciplines being applied in in our industry or in even in other industries for example you know colored stones or and even in fabrics in luxury goods so the very first iteration of what we did was we took 40 meta data points of the diamond as well as the serial number that was engraved on the girdle of the stone and looked no different to what has happened or what's existing in the market now for Motor Vehicles so if a motor vehicle is stolen

there is a license plate registry that you're able to check if a car was stolen or involved in a write-off accident or was a victim of theft or crime and if you were to buy that second hand car you can see the history of that car you could see even if they were well-kept service records you could see this but there's no such registry available in the diamond industry so once we were able to establish the identity of the diamond and really start around the certification process both at rough and then again at polished it gives us gives us a really good baseline to be able to then grow those certification layers further into provenance or the chain of custody so the rough diamonds are a

little bit different you know rough diamonds themselves can't necessarily be easily or uniquely identified and the industry itself doesn't uniquely identify rough diamonds whilst the trades in parcels it often looks at fungibility so a parcel of stone might sit in a certain type of color grading but it's a really important step to be able to master which is the work that we've been doing more recently in the last number of months the first 12 months of our organization was focused on polished stones the last eight months of our organization was focused in rough diamonds and the Kimberley certification and now we're actually have focused on the change step when the rough diamond transforms into the Polish

stones so I liken that to being a parentage so just like I would give birth to my children I have the ability at that point in time to have a birth certificate of the children that have come from my DNA and this is the work that we're doing right as we speak right now this is our Christmas present to ourselves to challenge ourselves on how we can provide that parentage tracking at the time the transformation happens from rough too polished so um writer doing this episode I was I was trying to look at and what kinds kinds of certifications are already there for diamonds and I and I came across GI a certification and SGA certification and perhaps our listeners could just search gie a certificate and see how they look

like but like I could see that the diamond industry already has these certification mechanisms where each the characteristics of each diamond so probably the diamond can be physically sent to a certification agency and that agency would kind of write down all the characteristics of it and give it a unique number now doesn't why doesn't this certification process itself have provenance data like why hasn't this already happened you know that's a good question i'm not sure why there hasn't been a natural evolution to this but it's very clear that the industry at large is you know focused on on chain of custody and certification today and the ability to

extend it for provenance you know why hasn't it happened before today I mean it is a good question i guess you know why didn't facebook and why wasn't social media a platform before it started i guess it's one of those moments that it's a natural evolution in in technology and in an understanding of ethical supply chain you know one thing that is happening in the diamond industry is the onset of synthetic stones and you know synthetic stones were created by GE for most industrial purpose grades so drill bits and saw blades and what have you but in the last sort of number of years we've really seen an onset of venture capital money and we've seen new disciplines or even the robust disciplines of high pressure

and high temperature or CVD enabling us to make synthetic stones of gem quality standards and so more so than ever now I think it's an important time to be able to ensure the provenance of stones you know well beyond the work that was done in the year 2000 with the Kimberley Process around ethical stance I think it's ensuring that we have a real disclosure around where the stones come from but also that the stone is from a genuine source in terms of coming from a mine or a natural resource rather than being a synthetic nature you know I'm just glad that the technology is able to afford a platform to provide a solution to some of these problems or even to be

able to quench the threat the thirst that the industry has to providing provenance let's take a short break to talk about Jax Jax is a multi coin wallet created by the people at the central now in the past if he had a whole bunch of cryptocurrencies it was a pain to handle them you either had to leave them on an exchange which was insecure or you had to have all these different wallets which was a hassle fortunately now with Jax knows medieval days of darkness misery and suffering are Jack supports multiple cryptocurrencies and new ones are being added but it's not just storing cryptocurrency so you can do with Jax but you can also

exchange them directly from with inside the wallet thanks to their shape-shift integration and since there's only one seed Jack's makes it super easy to backup and sync to your other devices Jack's works with Windows Mac OS Linux Android iOS and has browser extensions for Firefox and Chrome so go to jacks I oh that's Jay a double x io to download the wallet and get started today we'd like to thank Jack's for the support of epicenter you mentioned earlier a case where some certification documents Kimberley Process certification documents had been forged in a trade is this something that happens a lot in the

industry the forging of certified documents when when when this process is meant to eliminate this kind of fraud so the quick answer to that is no I mean there are participants that have been in industry and their generational you know the generational businesses or there of course you know heavily regulated internally with best practice you know so the industry participants that are well known in industry it most definitely not in fact the industry as a whole moves us a pretty big force to ensure that we stamp out fraud but of course there are you know anarchic forces that run on the outside streams that recognize that we're talking about

diamonds you know diamonds is a vehicle of value you know it's often become a vehicle for anti money laundering and terrorist funded activities and we see elements of those that aren't trusted within industry that are taking advantage you know if the poor paper processes or the poor technology that's currently afforded to industry but I wouldn't say that it is large I wouldn't say that it is something that we see on a daily basis but when it does occur it is material because we are dealing with a high value item and we are dealing with an item that is small in size easily obscured in terms of transport and can be traded across borders without identity and so you know when you start thinking about what industry does with banks and

insurance companies they often look at kyc so they know the customer and whether that cus to be a corporation or an insurance then it could be me as a person but they don't look at the object kyo and this is really the layer that we've been bringing to the market so you know it's the diamond that's the vehicle of the fraud or the diamond that's the vehicle of the anti-money laundering and I'm just purely if I thought about me I've stolen a car as an example you know what they're doing is they're checking the fuel pump station just to be sure that the when the car stops to check with fuel they're not even checking the number plate of the car there just checking that you know the person who was traded is actually got a legitimate

source of money but you know we're kind of missing that that bit the Kyo so the object level itself that's really fascinating I mean I like that you talk about kyc because this is I guess it's it's hard to see the similarities there but kice the any problems there are very similar to the problems that you're addressing with with diamonds is how to prove the Providence of identity documents for instance that allow for an individual to say I am who I say I am and I think that a lot of those a lot of of the complexities of trying to prove some that certain kyc for instance a lot

of the complexities around that process are are inherent to a system that is paper-based and and the entire Cape kyc process is just verifying that all of these documents that i provide to my bank when i open a bank account or that i provide to my telco or whatever are actual documents and that the documents that I'm presenting our are my identity documents so in a sense I I'd like you to talk about how you know how blockchains and specifically the technology use that you've developed addresses this by d materializing the process I'd like to extend that just by saying that I

personally think that although blockchains have a number of great advantages specifically in traceability and Providence et cetera one of the things that often gets overlooked is the fact that by implementing a system like this that provides all of these properties to establish provenance and trist ability were also onboarding dematerialization so I think a lot of industries are going to onboard blockchains as a means to provide more transparency etc at the same time they're dematerializing a lot of processes that are still based on paper sure it gets a couple of things you know one kind of comment around kyc and kyo when you you know when you're embarking

on an emerging technology like blockchain that's super nascent that potentially is misunderstood and as a start-up you have a certain runway or a certain time to market I mean I think it's important to understand the frictional points of being able to have industry adopt and you know that often runs through an education process and then when you talk about financial backbone you know as Bitcoin and blockchain was really first touted in terms of payment services there's a whole overlay of regulation and even more dangerously privacy and so when when when when we kind of face some of this you know diamonds as an object have no rights you know the diamond itself can't turn around and say you have to

protect my privacy because I'm a knob it's an object so you know this is enabled us to be able to really hone in on you know the very material points and being able to say what is the problem that we're trying to address and what is the most potent positioning or the potent elements of the technology that we can marry to provide a solution and how do we provide that solution quick enough to come to market be revenue positive as we are and and actually have real customers within the first year or year and a half a trade and and that was really the kind of the secret to the success of ever ledger in this very first instance when we talk about sort of dematerializing supply chain or

dematerializing you know industries themselves I yes you know the industry the diamond industry is super fascinating when you think about the elements of the technology you know this is a network technology the real power of the technology really comes into play when consortiums are able to work together particularly trusted node points and when you think about the diamond industry the very core of its trading hubs whether that be the consortium of the Kimberley Process a lot of these disciplines that electronically are translated by the technology of blockchain and smart contracts and Bitcoin already reside in a people sense in a people community sense in a

consortium sense in a discipline sense but it's just that we haven't necessarily had the technology to be able to lay into the industry as we are today but not only that the financial services industry sees a promise of this technology but it's hampered by regulations and it's hampered by all of the talk around privacy of data and rightfully so when our technology in our industry we're not unwinding 40 years of financial services legacy you know we not having to go back and unwind the layer upon layer upon layer of technology that's been added to it we can literally take the industry into the very best attack today by purely making a change step out of paper and so you

know there is a kind of no greater time to be able to work with such an industry that vows you know some pretty impressive numbers from 15 billion in rough trade to 80 billion in retail that's five hundred percent value that stacked acronis across the supply chain with one iterative manufacturing step so there's one that you would find another supply chain like this when you really think about it you know textiles it's got to come from all sorts of extraneous parts of the world zippers and ties and you've got to go through about 50 different iterations to be able to make the jumper that you're wearing or the pair of jeans you know that that you're wearing on a daily basis but diamonds go through one iterative step and so to be

able to capture this in such a way not only does it provide a good baseline for the diamond industry but also it takes us into other you know luxury goods or other things that actually are of object of conflict trade so that one I tative step is cutting and polishing right oh my god yeah correct yeah yeah that's that's really cool I i love i love this concept that you came aboard which is like kyo right like it's a knockout punch is such an amazing acronym it's such an amazing acronym have no heard of it before really well I talked about it a lot in the insurance industry because you know the insurance industry has really been

focused on kyc and I look I'm the best example of a customer for them you know I'm an international traveler a property in multiple countries I have an amazing diamond but i also know where to buy the best fake rolex in the world but when they are covering my insurance policy i tick all the boxes but they don't actually get to the point where they asked me about all of my objects that I'm ensuring you know they do after the event so after the crime has happened or after the loss of the theft and then I need to bring what my proof of ownership was and what my proof of purchase was but it's too late so if we're able to bring this in such a way up front the insurers have more of a peace of mind

around what it is that they are ensuring and and more so than now than ever particularly with synthetic stones or even counterfeit goods you know so it is an important I talk about it all the time and insurance so that's interesting as I've been starting to attend some insurance conferences and the the hype around block chains at insurance events is usually more related to claims processing or payments processing I or perhaps like event like being able to to track within with a an Oracle that you had sort of certain meteorological

events happen in one place or another but this idea of kyo had never really occurred to me either that they can ensure an item based on its original providence and know that then item that they're ensuring is in fact you know an authentic diamond door or whatever ya mean it I mean there's a whole transformation that could occur in the insurance industry with this technology in kyo and that is you know instead of insuring me as the customer first in my objects actually ensuring the object for life and so you then start to think about the holy grail of insurance and the holy grail of insurance is multi-generational insurance so the ability to know that

within a family and it's set of heirlooms that that diamond is insured for generations upon generations is a really interesting concept and you know the insurance industry is doing this in some respects with buildings and so they're ensuring the building for the longevity of the building and the provenance of the services works and but to bring it into high-value net items is a real transformation step that's occurring now today's magic word is diamond d I a.m omd head over let's talk bitcoin calm to sign in enter the magic word and claim your part of the listener award so silly n 0 in many of your talks that you gave publicly you you always

have this concept that good provenance data will allow us to build more financial services on top of whatever product we're dealing with so with diamonds if you have good providence data then you might be able to build you know ETFs for diamonds etc right so before we go into things like that in the towards the end can we have like just a brief overview of how kind of the diamond supply chain intersects with banking and insurance like what are the kinds of products that banking and insurance sector delivered to the diamond supply chain or the people owning diamonds yeah so I'll pick on two things i guess the easy one for me to

pick on is the fact that everyone's talking about blockchain and smart contracts playing a substantive role in Supply Chain Finance and take that as an example in the diamond industry so you know the diamond industry in the middle part of the pipeline where we talk about cutting and polishing that boasts around 20 billion dollars annually and there are effectively to brave Western banks that support the space one being ABN amro and the other is Barclays you know and there are other banks around the world whether that be indus or you know Bank Leumi yeah ping on in mainland China but one of the one of the issues in our industry is that for the very first time in

around hundred thirty years you know the industry is at the mercy of financial services we saw about eight weeks ago Standard Chartered pulling out of our industry and leaving around three billion dollar short two billion dollar shortfall sorry in supply chain finance in most of the banks are currently recording plant and equipment security and just enabling them to be able to finance the trade flow of invoicing and we've recognized and I've seen in our industry a number of issues that are causing some concern for in financial institutions you know some of them will be that they're double financing the pipeline there's been you know an article that came out in the Economist not so long ago and most of those issues

really came out of India you know and then of course we have round tripping of diamonds which is another problem around the pricing and transfer pricing and so a lot of these problems that are in industry are causing them you know some concerns for banks that are highly regulated that have to march through the regulations of basil 3 and so when we think about the skyscraper of ever ledger that we're building if you are able to identify the object and we can do that without the friction of getting to market quickly which is what we achieved relatively fast and then we can provide digital provenance of certification so to know that the certification has been issued by an Oracle that it hasn't been tampered with and that they know where that certificate is trading online so you

know most of the inventory inside of the diamond industry whether it be traded online or even in exchanges or bosses is actually done on the power of the certificate and to be able to know and understand where those certifications are being used sold have been traded is something that the industry is blind to today and the technology can afford us the ability to provide digital certification and provide digital provenance of that certification so we have that complexity layer but once you have certification as the central backbone that you know and understand that it's come from an Oracle source that it hasn't been tampered with you can extend it into provenance but

more importantly for banks you can give the bank the ability to provide collateral management and so they can take a security over the top of the inventory of the diamond dealer or the you know or of the cutter and the polisher and so if you think about a retailer you know the retailer some of the most largest part of the balance sheet for the retailer is holding stock rather than what else is chattels that is left is probably a good coffee machine and a really bad fax machine so from a banking perspective the ability to take securitisation or bit the ability to take security or collateral management forward has not been seen in our industry before today and that's something that we know that we can help with and that's kind of exciting okay so

what you're essentially saying is oh like if you have some other industry like that let's say the real estate industry or or some industry like that the basic unit inside the industry is is like a loan right and financial institution makes a loan to a homeowner but then what the kind of financial services exists on top of it is you have these loans and then you have systems of like packaging these loans creating securities out of these loans and then trading these loans all over the market etc now what now what you're saying is once you have Providence data of diamonds things are so today when you don't have provenance data of diamonds

you really cannot build all of these financial products on top of the on top of diamonds because suppose you build a product on top of it and it turns out that the diamond is not a genuine diamond or it is a stolen diamonds or it's a Blood Diamond tech sector right so whatever you build on top key is unstable foundation because the diamond itself may not be genuine or maybe stolen but once you start having good provenance data then all of these financial institutions can package the inventories of retailers or the diamond ownership of people and create new kinds of financial assets around it yeah and to provide this you need to be sure that you have a seniority so the banks must have a right or whoever the financial

product service provider is has a right to you know like a cave yet or a mortgage over at the top of that physical asset and we see this in property I mean this is normal in property but we just haven't applied this in a financial sense to the diamond but but why not so if we can provide the transparency we have the ability through smart contracts and certification to provide seniority and the legal framework around the recognition of this then you you know you're you're really you know you're creating a new future and we could also add that you could perhaps avoid some of the similar things that happened in 2008 if we had Trista if we had triste ability of the loans in in the housing crisis you know perhaps

the housing crisis bring them in so so hard let's see let's put wanted yeah let's move on to the well this I mean this is something that I think also is needed not up not only for physical objects but also for financial objects we can provide traceability there and avoid some of those problems I mean like in reinsurance as well not only in the sort of financial section by the insurance sector we can also apply traceability all through the all through the chain from the policyholder all the way to the insurer and the reinsurer and perhaps have a system that has better traceability and all those layers so these these subjects are all very very

connected in the end whether you're talking about diamonds or whether you're talking about alone why are you talking about kyc it all comes down to basically the same thing so let's move on to to have a ledger and the technology stack that you've built and you know the product that you built around that can you describe from from a technical perspective sort of what ever ledger looks like what are you selling to your clients yeah so I mean we so where do we start I guess you know in the very first iteration of ever ledger we came out of the gate with a hybrid so we're both on the public bitcoin blockchain and then of course we have our private Ledger as well which is

permissioned and we break out federated consensus and most of the consensus modeling is really mirroring the existing frameworks that we see in a people sense or a corporation sense in industry today and and you know that that was that that for us was actually you know an interesting and easy moment for us to be able to work out what the modeling was we're not necessarily disrupting our industry actually we're co-evolving the industry were involved in multiple points along the supply chain and we are technology advancement so we often describe ourselves Intel Inside so ever letter is the intel inside when it comes to you know some of

these technology leaps forward you know there's a there's a whole bunch of thinking around where does a public ledger play and what's really the role of a private ledger and i'm not sure that there is any hard-and-fast answer then for me i think some of the discussions that we embarked upon in our industry is no different to a religion and there'll be different reasons why people make the association or the assimilation to certain decisions but for us you know we have to anchor our decisions around what is the problem that we are solving and how are we to be sure that the technology can be consumed by industry in such a way that we're solving those problems rather than

creating even more you know if when you also think about consensus and and how you would form this forward in industry for the benefit of everyone whether that be the public consumers or whether that be government organizations such as the you know department of imports or the Foreign Office here in the UK that handles the you know the trading of diamonds we have to be very mindful how we're approaching the market themselves not only from an architecture perspective but also privacy of data and what information can and should be seen by the public eye and what should be seen by the government's so we actually haven't deterred from our original

thinking in terms of public and private and a hybrid model what we have done is really started to understand as maturity of players have come into the market and they were forward in certain types of toolset we've become relatively agnostic in terms of any brand or any platform that we that we work with or choose to work with it's not necessarily we're not chanting the religion per se in fact if anything we're relatively agnostic when it comes to it comes to the Association so we have stayed you know relatively close to the original participants of our stacks or eris of course on a smart contract implementation we still peg our records into the Bitcoin blockchain and

more recently you know we embraced holy the toolset that was afforded to us by hyper ledger and the high speed security network with IBM and Linux one you know most of the work in that sense was ensuring that we had a hyper secured network that could be rolled out to governments around the world to support the Kimberly certification process and that was the reason why we you know chose that integrated stack what does it look like for us I mean our application in the first instance was really delivered through API so everything was just an API layer in the issuing or the consumption of data and then more

recently with our certification platform we you know grown that out as a web app so that each of the officers or the users of industry have the ability to physically issue revoke create cosine track the digital provenance of the physical certifications themselves and then and more recently has really been the interface layer with machine vision so onboarding of high visibility scanning whether that being a dimensional sense or whether that be in a two-dimensional sense in terms of the photographs of the diamonds from the crown down and that that you know that's been that's been highly challenging but it's actually probably being more

rewarding than dealing with the blockchain work to be honest so that's been the exciting stuff we've been doing sort of secretly behind behind the scenes so I'm curious then so you're still using the Bitcoin blockchain as a public ledger for certification yes we are so we're issuing the records out onto the Bitcoin blockchain so if you think about you know proof of work and proof of stake it doesn't necessarily give us any confidence around the data that's within side of the hash and so hence we wanted to be sure that we had a private ledger that enabled us to confirm or have the right federated consensus agreement that the data that was being provided inside of our private

ledger had the robustness of record but that the public ledger assured that the record in time was actually proof in time and so we hence the reason why we did that from day one and for us it was mere was normal but for many people came to us and said oh wow that's actually a really interesting way to think about how you would construct this but for us it was it was it was day one I don't I don't know that we would change that no I totally agree and so we have a similar approach a stratum where you can have federick federated consensus of say a different steps of a process on a private lair or permission layer and then you can have that be certified on

public block chain which provides sort of auditability external audit ability and record-keeping in time so then it could you explain them what are they what are the interactions within the private network that you've built on eros what do those smart contracts do and and also who are the nodes in this network yeah sure so I mean smart contracts really lays into a number of things firstly you know the change of ownership or change of provenance or change of control of an item so proof in time that this custody event had occurred and that even though the custody event had occurred for example it could be a secure transport layer

that it doesn't necessarily mean that the change of ownership has occurred so who owns the diamond is very different to who has custody of the diamond which is now even separate to who has seniority rights to the diamond in the event of you know a liquidity event or or an insolvency event and so the smart contracts are layered in and around some of those events that are relatively linear actually they're not that exciting and it's not a very complicated contract where we're starting to get something really quite cool which is will come out in q2 is around layering in and you were talking about this before with the insurance world where a lot of insurance companies have recognized that the smart contract

implementation really comes into its discipline when you have external or parametric data sources that can provide some type of definition of outcome or settlement finality and when you think about the world of diamonds most of the owl world has been constructed around reputation so you know the reputation of experts is such an important part of our industry I'm an alumni with the GAA so the Gemological Institute of America where you can run through an educational series on knowing how to grade diamonds or how to classify diamonds and of course if you are really that excited about the industry at large you could become a gemologist so you know to be able to then work with the insurance

network often you will have the insurance networks lean upon what they call loss adjusters and loss adjusters are independent third parties that are often appointed by insurance companies to assist in the validation of claim and they establish two things they establish the circumstance of loss so what was the circumstance upon which this risk occurred whether it was a theft or whether it was you know where there was a lost item or in a p.i sense or a professional indemnity sense was it something that that professional person did wrong and how does that then affect the quantum or the claim amount itself the two very separate things but they interact in terms of in a claim so some of the things we're doing in the diamond industry is looking

at where can we bring either machine data that it hasn't really been shared before in industry most of the data and most of the science that's been involved as being black boxed and we're in an afforded and privileged situation to be able to work with this data and enable the ability for financial services so banks and insurance companies to reduce risk around either the finance of supply chain or in the issuance of insurance so one really cool cool part of the industry is where we have that transformative step when we have a rough diamond the rough diamonds are often scanned and there's a physical scanning machine that gives you the potential yield of that diamond now if you were lucaya as an exact I remind had a

massive massive diamond that came out of the ground there'd be many ways you could take a hundred carat stone and cut it you could cut it into a very large diamond at 80 carat diamond as an example would be huge but it might not have the right levels of color and clarity so the value of that diamonds might be substantially large but it could take a very long time to trade and so often the industry is faced with these economic decisions around yield and they are given this extraction of data to be able to make a decision as to how they want to cut their diamonds and whether they want to cut them into a lot of little ones or a large big one or a certain fancy shape and that machine assists in this but at the point where

it's cut there is both the art and the discipline of cutting which often as i said before goes into places like Tel Aviv and Antwerp in India and there are machines that are used and there is a risk that's associated with the cutting of diamond and often if a diamond isn't cut correctly it could shatter or that it might end up in a catastrophic loss and there's an insurance cover that covers that but to yield or to deem how who was at Blaine what is the risk what is the value and what is the settlement finality often resides upon experts in industry and you can count those experts on one hand the ability now to be able to take the blockchain record as a proof

at time before cut an extraction of the physical scanning machine overlay all of this into a set of smart contracts that overlays all of the parametric data as well as the mathematical calculations that the actuaries have typically either either not bothered with or have bothered with in a single spread spreadsheet and bring that into a sense of being able to settle the diamond claim is something that we have been so excited about doing and we're you know we're very close to being able to you know take this out and showcase it in the diamond sense most of the smart contract work in insurance and in blockchain has really been looking at hey here's a weather event or maybe the flight was late and you can have two

hundred dollars in your pocket you know we're talking about settlement claims that could be anywhere from a million dollars to 10 million dollars even to 100 million dollars and so the ability to be able to bring science to this and at a proof in time that these things did occur will make a huge difference to our industry that's interesting but so my I was wondering then who are the nodes in the on the air Slayer so are you talking about having nodes that are being controlled by every diamond cutter or by traders like what what is the interaction between all of these players

in the supply chain and with with the technology itself so building a ledger like we are in a platform I think it's important just to not only consider notes but to consider reputation and when we think about nodes you know nodes for us and not only about a physical company that's been on boarded but actually machines and others machines trusted firstly as a machine that is accepted by industry and secondly are those machines calibrated so you know and at what point in time if they've been calibrated to perfection and and so when we think about our world our world is not only about the the nodes of reputation of experts that have an

opinion that can pass the opinion in co-signing at a certain point in time but it's also machine to machine and so we securely handshake with the machines that are on the pipeline and then recalibrate or not recalibrate that's a wrong word and ensure that the calibration is you know is kept up to standard as well so when you think about nodes info you know in fairness through our industry we have very easily identifiable important points in the pipeline the first is government organizations so the government's themselves as diamonds are physically exported out of a country that's an authentication process that occurs today and then of course on the importing into

the country it checks that the export was indeed a correct transaction so we have government organizations the second is diamond bourses so bosses of course aren't necessarily in it for the commercial gain they're in it for just like museums in the art sense you know they are there is a trusted node of Industry exchanges themselves are physically exchanging houses of trade and then you have actual traders whether they be diamond dealers cutters polishes wholesalers and the very last mile is retailers and consumers now retailers and consumers are not nodes on the platform at all their consumers of the provenance data okay so they would have access to the platform via some

some api's or some awesome some web interface that connects to your AP is yeah so our industry our I mean besides the consumers that don't need to be identified everything else is identified by okay YC check just as all of our other participants in industry are so we have large existing trading houses that unless you are a diamond trader unless you have em in the rough sense unless you have a mining license you just would not be able to participate it's as simple as that so you have to be authenticated and so touching on authentication it's an interesting point because often times we forget that if you're operating on some sort of a blushing system there needs to be an authority in most cases for public for

permission blockchains that provides identity in this case our is ever ledger than positions or that's the certificate authority that issues keys to all the players in the system or are you relying on existing industry consortiums or it was so many existing institutions to issue certificates and finally keys for people to participate in this permission network so I mean we check back with the government organizations on mining licenses and so there are existing processes that are in place to identify legitimize traders under license but we physically issue the access to the ever ledger platform currently whether that

will change in the future I would like to think that a would I would like to think that the industry itself forms a consortium and that that you know that just like we've seen with the KPC the Kimberley certification process in the rough trading that we have the similar thing and I welcome that you know we're not necessarily about becoming a central authority of issuance that's not our business model we're bringing transparency and a technology to the industry and that the industry is you know is you know they're highly vocal about being sure that the industry at large has a say in where this goes and and I open I open myself to that in a big way so like one of the questions would be that the way I imagined it

there's this there's this private block chain that has the actual data the actual Providence data and this data is maintained by a lot of different participants like as you mentioned players in the industry like bourses exchanges etc so how does this data get get monetized like do the financial institutions that might need this data up to the pay for this data or what's the business model here yes so looking in the space of insurance fraud you know there is existing layers that are very costly to a claim process and you know the cost of processing a claim in the insurance world is around sixteen percent of caustic line and if you have the ability to reduce that in such a way

then of course there's money to be spent but shamelessly you know the industry has somewhat accepted fraud is just a cost of business and when you start to think about the cost of fraud to the insurance industry it's significantly high so you know I spoke before about loss adjusters and their role in terms of either establishing quantum or the finally finality of settlement and if we're able to reduce that cost and I know that you know on average in a jewelry climates around 75 australian dollars so it's about 30 pounds a claim if we're able to reduce that or somewhat assist in the reduction of fraud then you know that that's a page that's a paper set of processes so yes access to data is a fee charging event and

secondly so too is the the likelihood to find or return a lost or stolen item so at the time and insurance claim is paid out and this diamond ring has been paid by the insurance company and this diamond is in circulation somewhere around the world and it's on the ledger at a future state point in time and it comes back up onto the ledger it's actually the rightful object of the insurance company and so if you think about diamonds they're appreciable in value so a claim for a five carat diamond ring might be seventy thousand dollars if that was lost two years ago I mean that one claim or that one diamond could actually be worth at least another ten or fifteen percent

more so the insurance companies would want this back it's an existing part of a process called repatriation you know so there's that part of the process that we have driven based on success so we will take a percentage of the value of the item that is rightfully returned to its owner and whether that only be the insurance company or whether that owner be the claimant if a claim is left open in terms of financial institutions and banks you know it's around what is there what's the you know what's the basis points that we can afford if we're reducing risk and in a twenty billion dollar supply chain finance market we think that that's a fairly healthy opportunity to be able to codify into smart contracts and provide some transparency around if data itself is is

a thing of value that is being produced in the system then doesn't the block chain with its kind of decentralized architecture where this the data is seen and owned by multiple players other than a single player such as yourself doesn't that architecture inhibit good monetization right like suppose you had this all of this data on on sort of a centralized database then you could be the only access point to this data but with a blockchain because this data is shared across so many nodes doesn't that introduce some form of competition where multiple nodes could actually supply that data and thus reduce the value of that data to ever laser itself yeah I

think that I mean it can be answered as simply as saying that the sum of the whole is great is worth more than the sum of the parts so we haven't come across that inhibitor in fact if anything the decentralized nature of the data as well as the ability to track the provenance of that data has actually opened up a shared revenue model that maybe our industry hasn't seen before and that until this point in time most of the siloed participants in industry have really selfishly kept the revenue to themselves so it actually forms out entirely new revenue models that the industry itself hadn't necessarily even begun to experience or enjoy and so I sort of said in a very

different like so yeah in essence like you're kind of stitching together all of these participants and building this common data structure they're selling this data and then distributing the revenue to all of these participants that contributed it right ok industry seen and and the GI a was formed and to provide a certification benchmarking for standard and you know it's a not-for-profit profitable part of our entity and it's a siloed central authority that there is some richness of data that sits there in the history and longevity in terms of certification for probably about seventy percent of the world's diamonds now to enable that as a baseline of records and to enable that

to grow out entirely new financial services or services to market participants like banks and insurance companies or yet to be thought of industries like hedge funds and what have you is it is a truly exciting time I said before you know we're not a disruptor I mean a lot of people talk about startups being disrupting we are co-evolving the industry we are literally turning ourselves into you know marsupial animals that can you know that you know that the will mean we're evolving well then that's probably a good topic to lead into so the final part of the episode for a wrap-up is other industries as the diamonds are

obviously one industry where we know we as we've seen throughout the show there's enormous value in providing provenance throughout the supply chain there's also quite a lot like quite a few other industries that are trying to tackle the same sort of problems that that you're addressing with diamonds you know one can think of you know luxury wine for instance I know here in France a lot of a lot of people talk to me about you know Providence of alcohol and specifically wines but other industries as well like you know there are things like industries like the like the food industry specifically fish fishing and fisheries where a lot of regulations are being applied in order

to sort of save the fishing industry from collapsing under the over fisheries and another another interesting interesting idea is to provide Providence for electricity so if we think of the smart grid a lot of the thinking around smart grid has been how do I efficiently allow for local consumers and local producers to to trade energy credits but really what that comes down to the foundational idea is how do i trace electricity how how can I make sure that this electricity that I'm but I'm buying is locally

produced and there for greene and therefore you know of lower costs and and and and less impact on the on the on the on the environment so given the fact that there are so many industries in which providence and applying traceability to the supply chain can be of enormous value what are some of the other industries in whichever ledger is looking at as potential markets to go into so i guess there's two things that we're really purposed by and the first is that you know what the diamond industry did in the year 2000 and drove ethical supply chain with the kimberley certification process has been largely

successful in it and the industry should be applauded for the work that it did and if you start to think about the disciplines and the protocols that have been put in place these can be translated across into other other layers of mothers earth assets now whether that be rubies or sapphires or even it even more importantly whether it's elephant tusks or you know snake skins out of Colombia I think that these are some of the most important parts of commodities that are being traded in the luxury goods space that should have an ethical backbone and we should have some stringent reporting and transparency around it and we're completely empowered by that so that is something that I fearless Lee and Daly will continue to

chant like a crazy person and become involved with so that's the first part the second part is that you know there are other items with inside of the luxury goods space that have been exploited in terms of counterfeit and the ability to take the modules that we've built which is really around blockchain and smart contracts and machine vision you know and really high level algorithms in terms of risk reduction or even counterfeit applicability we can apply those into components of the luxury goods space and and that that's where we sit so we you know firstly we're in part and powered like a little bit of Mother Teresa on the blockchain we really think this stuff's important and we want to try and

solve a problem that's not been able to be solved before today that actually is a global issue that needs and should be solved and the second part is that you know we're in a space where we're extremely interested in appreciable items that could be recognized as a rising asset class that has some elemental overview of fraud and risk and that can actually give birth to entirely new financial products and diamonds being the one to start with but just as Amazon started with books ever ledger starts with diamonds and we know that the work that we're doing already is in the art space we made an investment in a company this year in February called for starry and they work in putting art into museums for collectors around the world

and secondly our product comes to market on the twenty fifth of November for fine wine and we've come together with the largest name in industry her name is Maureen Downey she is the Sherlock Holmes of wine when it comes to fraud was involved in Rudy who of course was one of the largest fraudsters in wine and fine wine and we've bought the same disciplines that we've created inside of the diamond industry with the digital thumbprint we've enabled our technology to be applied into fine wine and so that gets released into the market on the twenty fifth of November with some of the larger names in industry here in London and in France that's really interesting I'm somewhat surprised and shocked that the Sherlock

Holmes of the wine fraud is not French yeah or British all right well Leon thank you so much for coming on the show it's really fascinating topping whether i'm particularly very interested in as as you know stratum does the company that i co-founded is is also addressing a lot of these issues that were so we're building more of the technology side not so much the product side but yeah traceability on all types of different types of supply chains is something that is very near and dear to me so it was very fascinating to talk to you today about the work that you're doing with other lender yeah i appreciate the chance thank you everyone and thank you to our listeners for tuning in we are

part of the let's talk bitcoin network you can find lots of great shows about bitcoin blockchain scripted currencies decentralized technologies etc atlas bitcoin calm you can find us at youtube.com slash epicenter BTC or you can download the show on your favorite podcasting app so we're available on itunes SoundCloud or wherever you get your podcast so thanks so much and we look forward to being back