With disruptive technologies influencing many businesssectors throughout the world, blockchain technology and cryptocurrencies are leading the way. New and unexpected blockchain solutions for the gems and jewellery business are emerging as the world moves toward a decentralized digital economy.
In recent years, new start-up organizations and investment initiatives have developed that use blockchain technology to commoditize rare stones and diamondsas an investment, a concept known as asset-backed cryptocurrency.
Tokenization, according to blockchain pioneers, might provide a safe and efficient way to invest in diamonds without having to buy the physical stone. DiamondStandard, D1 Coin, Altcoinomy, and GemBit have all used blockchain technology in some form to help revolutionize the diamond and gemstone trade industry through "tokenization." Tokenization allows token holders to trade co-ownership shares of a jewel on the Ethereum blockchain, much like a stock exchange.
The worldwide epidemic, according to Jacques Voorhees, CEO of Icecap Diamonds, has led to the emergence of gem tokenization, which has driven the globe to accept digital interactions and seek new alternative marketplaces. This tendency, according to Tim Denning of Bonas Group, is merely an evolutionary stage in the industry's attempt to commercialize diamonds as a store of wealth.
There are two methods of "tokenization" of gemstonesand diamonds: fungible (like the standard ERC20 token) and non-fungible (NFTERC721 token). Every iteration of a fungible token is same, just as every bitcoin token is identical to every other bitcoin token.
Diamond Standard is creating a fungible commodity (a "diamond" currency) by employing regular tokenization to produce collections of five or six individual diamonds enclosed in a packaging.
The goal of employing blockchain in tokenization, according to Proud Limpongpan, Chief Strategy Officer at Zipmex Thailand, Asia's top cryptoassets trading platform, is to tear down barriers to entry, verify asset validity, and eliminate fraud. "It's really the democratization of investment," says the author.
You don't have to be as wealthy as Elon Musk to invest in the same things he does. It began with digital assets and has now expanded to include physical assets."
Recently, there has been a huge surge in interest in NFTs, inspired in part by Christie's sale of a $69 million digital art NFT. Sebastian Errazuriz, a Chilean artist, has taken advantage of the NFT mania by making the world's first crypto diamonds with Digital Diamond Co.
The artist offers digital diamonds for the same price as genuine diamonds, posing an unusual value proposition that questions the current diamond environment. Is it possible for intangible assets like digital diamonds to coexist with physical diamonds?
This brilliantly inventive concept has been panned. "Diamond-backed tokens differ significantly from the digital pictures supplied with NFTs. I like the NFTDiamond.co team's ingenuity and wit, but fake diamonds aren't diamonds. They are, at best, diamond photographs.
They're no more important to the diamond business than a deck of cards with diamonds on some of the cards
Icecap Diamonds, a Dubai-based business, broke out of the "intangible" sector in July 2021, using NFT tokenization to highly tangible things like genuine diamonds. Icecap Diamonds' goal is to use NFT "token" technology to overcome stones' lack of fungibility by delivering investment-grade diamonds.
Each NFT token symbolizes a specific object housed in an insured vault, and ownership tokens may be sold on NFT trading platforms like OpenSea.io. Tokens can be purchased, traded, or redeemed for genuine diamonds at any time.
Due to illiquidity, price opaqueness, and wide bid-ask gaps, according to Voorhees, few few diamond investment vehicles have actually thrived in the past. "Icecap has solved all three issues." We believe that these factors have stifled what would otherwise be a $10 billion+ demand for diamonds from the financial sector seeking hard-asset diversification."
Some people are apprehensive about how NFTs will be used in the gem and jewelryindustry. "NFTs are going into an intriguing realm with art, and certainly diamonds or any asset is open to this arena," Rami Baron, Founder of the Young Diamantaires, an initiative of the World Federation of Diamond Bourses, and CEO of Q Report Jewellery Insurance, stated.
A buyer, on the other hand, is searching for stability and assurance in their investment. Buying an NFT might be a fantastic tool in the future, but the jury is still out in the diamond world because most of them are new and unproven financial instruments."
According to Limpongpan, there is a trend in the industry to conflate ordinary tokenization and NFTs, but the two are not the same. On the Ethereum blockchain, regular tokenization creates a fungible currency that represents a share or percentage of a gemstone, but NFTs are one-of-a-kind.
Tokenizing a diamond implies enabling several people to purchase and sell different components of it - it's like splitting it down into tiny bits so that anybody may invest as little as $1.
NFT is when the entire gemstone is connected to a single token that is not only traceable but also unique," Limpongpan explained.
Sellers can use NFTs to classify stones and diamonds into a scarcity-based hierarchy to indicate the value they may have in the physical world." Furthermore, with smart contracts, both buyers and sellers may customize the NFT and express the spirit of actual ownership.
Each NFT is discretely different, like a social security number, a fingerprint, or a snowflake," Voorhees continued. The NFT is just a "warehouse receipt" from the business that is storing the tangible item for you. As a result, they're great for displaying ownership of something non-fungible, such as a diamond.
Gemstones are really tiny, hard-to-track products, and blockchain technology and tokenization provide tremendous value to our sector.
This makes the solution more appealing since it has the ability to improve the process' openness and integrity."
As the market for cryptocurrencies and non-fungible tokens grows, there is a chance to entice crypto enthusiasts to buy diamonds and jewelry.
More sales channels and market integration might lead to improved liquidity,
Diamond supply is finite, and it stays so regardless of whether it is converted into an NFT or not. The marketplace integration has changed, as customers can now buy diamonds from both traditional jewelers and through an NFT platform.
"Buyers will benefit from additional options and cheaper costs of "keeping," as well as simplicity of reselling and safety - in short, everything NFT," Limpongpan explained. It's simple to keep and track, and it's difficult to misplace."
According to Limpongpang, the success of the first few initiatives will determine the trend of gem tokenization and NFT diamonds.
Projects do not have to be accepted globally; they might be limited to certain ecosystems or regions.
The only way to know for sure is to put an NFT on the market. This region has a lot of promise, and I believe it will survive the test of time. It's unlikely to become mainstream, but when has gemstone or diamond investing become mainstream?"
Despite the fact that many people are unfamiliar with the notion of gem tokenization, companies like Icecap Diamonds are paving the path for widespread adoption. "Tokenization technology might one day be regarded as equally vital as laboratory grading certificates or the Internet itself," added Voorhees.
Icecap Diamonds recently announced the debut of a high-end diamond and jewelry collectors collection, which includes a US$3 million vivid red diamond as its initial offering.
While there may be reciprocal benefits for both buyers and sellers, gem tokenization also has its drawbacks. Despite this, Baron argues that diamond grading is still influenced by subjective judgment, resulting in the same lack of objectivity in diamond price.
This gets considerably more difficult if you add another component, such as a new investing instrument like cryptocurrency.
According to him, the diamond community is hesitant to propose this form of investment vehicle at this time.
Tokenization paves the way for the development of a new financial system that is more democratic and efficient than anything we've seen before. The notion of gem tokenization and NFTs is still in its early stages and is continuously evolving.
While it may be too soon to predict the benefits and returns of this new trend, only time will tell whether crypto gemstone investments will prosper in the years ahead.