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Diamonds are revered all over the world for their romantic symbolism, timeless beauty, and enduring value. But for the countries that produce them, diamonds have long been a curse. Some of Africa’s poorest countries have been ravaged by civil wars, insurgency, and political corruption, all born of the greed surrounding one of the worlds most coveted gemstones.
The UN officially bans trade in “blood diamonds” — stones sold to bankroll conflicts in diamond-producing countries like Angola, Sierra Leone or the Central African Republic. However, estimates state that they account for at least one in thirteen diamonds in the global supply chain.
Knowingly or not, those buying these stones are funding war, and helping perpetuate a never-ending cycle of poverty. In the Central African Republic alone, war has been raging since 2012, resulting in around 640 million displaced people. Meanwhile, armed groups in the region generate up to $6 million annually from blood diamond sales.
There have been some interventions to try and ensure local communities receive some reinvestment of the value from the diamond industry. However, an investigative report by the activist group Global Witness found that in Sierra Leone, much of these funds weren’t reaching local communities.
Now, blockchain technology could provide a much-needed tipping point for African communities. Digital tokens backed by real-world diamonds could help to divert some of the value generated by diamond-producing countries back to helping their local communities.
A Diamond-Backed Stablecoin
A stablecoin is a digital currency with a value pegged to and backed by an asset with a relatively stable value, like US dollars. Blockchain projects such as Tether already offer a stablecoin based on US dollars. Now, a new company called diamDEXX is offering the opportunity to invest in stablecoins where the value is tied to one dollar, but the currency itself is backed by physical reserves of diamonds.
The diamonds held in reserve by diamDEXX are stored in five different tax-free zones. The diamonds are audited by IDEX, and subject to the Kimberley Protocol, which certifies the diamonds do not originate from a conflict zone.
The amount of stored diamond and the number of tokens are carefully adjusted against fluctuations in the value of diamonds. This adjustment ensures that one DIAM token always equals one USD.
diamDEXX also offers a wallet and access to a diamond trading platform where users can spend DIAM tokens on real diamonds and benefit from the manufacturer’s price.
Redistributing the Wealth
diamDEXX offers intriguing potential for the war-ravaged diamond-producing countries in Africa. Diamonds are a stable and universal store of value. Diamond investors will naturally be interested in the opportunity of buying diamond-backed tokens. After all, with the proper security precautions around private keys, diamond-backed coins can’t be stolen. Their ownership is digitally provable.
Furthermore, it will have a large and growing reserve of diamonds that are guaranteed to be conflict-free. Putting this together, by capturing the diamond investor market with digital tokens that are backed by real-world conflict-free diamonds will actively reduce the market that may otherwise have (inadvertently) bought blood diamonds.
The Digital Payment Revolution
The African region is ripe for the adoption of blockchain in the area of digital payments. The M-Pesa mobile payment system has been operating in Kenya since 2007. It enables users to send payments to one another via a text message, using their cellphone SIM card as a store of credit. It quickly caught on to become the go-to means of making payments and was credited with lifting two percent of Kenya’s population out of poverty. M-Pesa has since rolled out to other developing countries.
This only underscores the critical role that blockchain will play in helping future generations exist outside of poverty. Like M-Pesa, cryptocurrencies provide a similar means of payment for the unbanked.
Cryptocurrencies are also proving to be a safe haven and even an opportunity for wealth creation in countries like Venezuela. People there regularly see fluctuations in their national currency that make Bitcoin’s movements look relatively serene. Therefore, diamond-backed stablecoins are also likely to provide a far more sustainable store of value than many national currencies. Provable ownership also prevents any corrupt individual from skimming off their own portion, ensuring value goes to those who need it.
No single solution is going to eliminate the problem of blood diamonds or the bigger issues of conflicts in African countries. However, the application of blockchain and cryptocurrencies could help to redress the wealth balance and restore some of the value from the diamond trade back to the mining communities who badly need it.
