Digitised diamonds battle to defy thieves

When Lord March described a violent robbery at Goodwood House, his stately home, in January as “challenging”, this was a very particular kind of English understatement. He and Lady March had been attacked by a burglar in the middle of the night, forced to open their safe and tied up for two hours.

More than 40 items were stolen from their 18th-century house near Chichester, south-west of London, including a diamond tiara dating back to 1820 and an emerald and diamond ring given by Charles II to his mistress Louise de Kérouaille, duchess of Portsmouth. Earrings, bracelets, necklaces and antique Rolex and Girard Perregaux watches were also part of the £700,000 haul.

If the theft were not bad enough, with every week that passes the prospect of recovering any of the heirlooms grows bleaker. The last public update from Operation Forster — the investigation into the Goodwood House robbery — came on January 27, when it was announced that a “substantial” reward for information leading to the jewels’ recovery was being offered; since then, nothing.

However, as a range of new security measures emerge, future victims may fare better than the Marches.

Stolen jewellery normally disappears without a trace, says Paul Higgins, head of specie at RK Harrison, part of Hyperion Insurance Group. “You tend to see recoveries only when thieves are apprehended quickly, within weeks,” he says. “Much beyond that, recoveries are very, very rare. I’ll be honest, in around 15 years, I can only recall working on a couple of cases where jewellery actually resurfaced a year or more after it was stolen.”

“The recovery rate of diamonds is usually very low. Open-source cases show that stolen diamonds and jewellery are usually not found,” said a 2013 report by the Financial Action Task Force, a Paris-based intergovernmental body set up to combat money laundering and terrorist financing, two activities frequently fuelled by stolen diamonds. In a case such as the Goodwood House burglary, involving highly distinctive, easily recognisable items of “estate” jewellery, says Mr Higgins, a smart thief wouldn’t even attempt to sell on a piece in its intact state.

Precious metal, after all, can be melted down. Diamonds, once liberated from their settings, are eminently portable, thus easy to transport abroad on a commercial flight, stashed in a piece of carry-on luggage, for example, and then sold on in a foreign market.

Enter the blockchain. This is perhaps best known as the underlying technology for the bitcoin digital currency, but it is becoming clear it has applications for diamonds too. Blockchain is, in essence, an online recording system which can be used to track where a diamond comes from and can keep strict details of how and when it passes from owner to owner.

That, at least, is the idea behind Everledger, a London-based start-up that is using blockchain technology to replace the current paper-based and fraud-prone processes that surround diamond ownership.

For a start, explains the company’s chief executive Leanne Kemp, a blockchain-based ledger like Everledger is not stored in one place, but is distributed across a potentially vast number of computers belonging to participants in a network. In Everledger’s case, these are owners, insurance companies, diamond certification bodies and law enforcement agencies.

Every member of that network has access to the most up-to-date version of the ledger, making it transparent. Each record on the ledger, meanwhile, is immutable — so the transaction history of a specific diamond can only be added to with a new “block” of information. This creates a complete chain of ownership that can be trusted by the whole community because it cannot be otherwise altered or removed.

Most importantly, Everledger holds a multi-layered, digital version of a diamond that links closely to its physical incarnation, via the serial number laser-engraved on its girdle. As with all diamond certification, the all-important “four Cs” of a stone — its cut, colour, clarity and carat weight — are captured on Everledger, along with its serial number, but 40 other data points are added too.

By early February, Ms Kemp says, there were around 980,000 diamonds registered on Everledger, allowing network members to check out a stone’s full history and characteristics. The information that Everledger holds could thus be useful in investigating robberies of high-value stones if they resurface some time after an insurance claim for their loss or theft has been paid out.

The big drawback is the unique identifying number engraved on a diamond

That is not Everledger’s primary purpose, Ms Kemp says, which is to combat fraud rather than theft, by helping insurance companies guard against fraudulent claims. According to Ms Kemp, around 65 per cent of such claims go undetected. An Everledger-registered diamond which had been falsely claimed for would be much harder to sell on, assuming the buyer checked out its provenance.

The big drawback is the unique identifying number laser-engraved on a diamond’s girdle that links a physical stone to the “digital copy” held on Everledger.

As Vartkess Knadjian, chief executive of Backes & Strauss, the world’s oldest diamond company, points out, removing such an engraving is an easy job for an experienced diamond polisher. Ms Kemp says that this process often depletes a diamond’s value, by removing weight — but that may well be a sacrifice that a determined fraudster or thief is prepared to make.

Technology needs to catch up with thieves. “As an industry, there’s a problem here with traceability that technology really should be helping us to solve — and I still believe that it will, but we’re not there yet,” says Mr Knadjian. He says he is yet to see, for example, any kind of technology based on a global positioning system (GPS) that is small enough to be incorporated into one of his company’s diamond-set watches without compromising its aesthetics.

And there are additional problems with which the industry must contend, mainly around its largely paper-based documentation processes: one is the issuing of fraudulent certificates, another is the altering of genuine ones. Transaction histories are often incomplete, or a stolen gemstone may be traded multiple times in swift succession in Dubai or India, for example, in order to create a convincing new transaction history.

This technology, of course, would only work on “estate” jewellery, such as that owned by the Marches, if the owners were prepared for pieces to be dismantled, to get the individual diamonds laser-engraved, and then reassembled.

With antique items, there’s a considerable risk of damage to the settings, which might be almost impossible to repair without devaluing the item. In other words, Lord and Lady March may in future still have to rely on old-fashioned detection, rather than up-to-the-minute technology.

How do blockchains work?

To understand blockchains, it is worth looking at the digital currency bitcoin, writes Kadhim Shubber.

Bitcoin was launched in 2009 by an anonymous person or persons using the name Satoshi Nakamoto. The intent was to create digital money that would be free from the control of governments and banks.

To prevent such a thing from being shut down, it needed to exist in more than one place, as governments can seize and destroy one computer server. Distribute the information across many computers over the world and the task becomes so prohibitive as to nearly be impossible.

What is more, a central authority could not be trusted to verify transactions for the same reason. So the users themselves do it, adding blocks of transactions on to the existing chain and stamping it by solving a computationally difficult maths problem, just as a writer might seal a letter by using a wax stamp.

While debates continue over the sustainability of bitcoin, a broad range of new and old companies are creating their own blockchains, including Everledger, either choosing to make them accessible to anyone or to a select few approved parties.

But whether companies choose to use the existing bitcoin infrastructure or to create their own blockchain system, the core characteristics that make the technology appealing as a database are the same.

One of these is its distributed nature. Instead of one copy of the database in one place, a blockchain necessarily has many copies in many places, providing reliability at the expense of efficiency. If one computer fails, data are not lost because many other computers hold the same information.

Another is immutability. New entries in the database are tied to preceding entries using cryptography, creating a chain that prevents earlier entries from being altered. Combined with the distributed nature, this dramatically increases the likelihood that any record made in a blockchain system will be permanent.

Some of these things become redundant for spinout applications of the blockchain. Bitcoin is open to the whole world and full of anonymous users — are such security measures or incentives necessary when users are pre-vetted and known?

But with either the public bitcoin network or some more private, generic blockchain system, there is the potential not just to maintain a database of transactions but to link those transactions to individual, identifiable real-world objects.

The ownership history of a specific diamond, for example, could be stored securely and permanently, providing confidence about its true source. The obvious difficulty is that a digital database, no matter how technically advanced, cannot in itself address the real-world issue of fraud. Indeed the permanence of blockchain systems carries that risk that fraudulent records persist — blockchains solve many things, but cannot escape the myriad political, legal, ethical and economic complexities of the real world.

So think of it as just a sort of database, albeit a very interesting one.