I don’t normally blog about a particular start-up or specific company, but today’s an exception as there’s a company that’s caught my eye because it’s appearing everywhere. Literally every tech show I’m attending, they’re there and winning awards. This company won €30,000 in the BBVA Open Talent Competition last September, a Meffy award in October and the Fintech Finals Best in Show in Hong Kong this week.
The company is Everledger.
I first met Everledger’s founder Leanne Kemp at the Barclays Accelerator last summer, as the Financial Services Club has a partnership with the Accelerator, and she and her company has been in the news ever since.
Why? Because they are solving a massive insurance problem using blockchain technologies. The problem is diamond theft. Millions of dollars of fake and fraudulent diamond theft transactions take place every year, and the reason is that the provenance of diamonds is hard to track and trace. How can an insurance company know that the diamond stolen is the diamond being claimed for? In fact, 65% of fraudulent diamond claims go by undetected, leading to insurance companies bleeding money left, right and center.
The issue is that the there are few tools available to insurers to detect whether or not diamonds have been stolen or not. Proof-of-ownership of jewellery, just like precious metals and other high-value commodities, is locked in paper, and paper can be easily corrupted or misplaced.
Everledger was created by Leanne to address this issue, and was one of the companies selected by Barclays for coaching through the Techstars program in the Barclays Accelerator. Everledger offers a permanent ledger for diamond certification and related transaction history on the blockchain, and acts as verification for insurance companies, owners and law enforcement. In other words, it’s a tamper-proof digital ledger for the world’s diamonds. This to me hits the heart of where blockchain technologies are proving to have traction: provenance.
Blockchain as proof of existence; proof of ownership; proof of transaction; proof of exchange; proof of value … any form of proof, is where this technology is showing its teeth. Replacing paper proof with digital proof is the heart of the blockchain innovation, and it’s where most blockchain start-up companies are focusing and Everledger is leading the pack, as it has addressed a very specific issue with a smart solution.
For more information about Everledger, Fusionwire wrote a great overview last September, which I’ve copied here:
Tucked up above a Tesco Express on East London’s busy Mile End Road, the Barclays – Techstars accelerator is easy to miss, its unassuming location belying the leading edge entrepreneurial activity within. Start-ups being incubated there include Everledger whose founder, Leanne Kemp, has come do with a novel way of tracking the provenance of diamonds. It’s an innovation that promises to help curb the fraud and illegal trade that plagues the industry.
Sitting in one of the spacious accelerator’s meeting rooms, an animated, upbeat Kemp is keen to highlight the potential benefits of Everledger’s offering for the diamond industry, insurers and law enforcement agencies. Her decidedly elegant idea is to use the heart of bitcoin, the distributed public ledger that is blockchain, to carry all the key information relating to any diamond, thereby providing total transparency over its origins and history.
The solution promises to be far more robust and accessible than paper certificates and receipts, which can be easily lost or tampered with. Diamonds – a sector Kemp is passionate about and has considerable knowledge and expertise in – was the original trigger for the idea and is the initial focus for the company. But she is already looking to expand Everledger’s innovation into other segments of the luxury goods sector and the world of high value artefacts such as works of art.
The process of inserting diamond data into the blockchain involves Everledger – with the help of certified diamond laboratories – first capturing key information relating to a particular diamond: the serial number, the four Cs (cut, clarity, colour and carat weight) and the 40 data points that describe the diamond physically. She explains: “The laboratories do the inspection, essentially they digitise the diamond – the angles, the cuts, the crown and so on. We then take all that, including the 4Cs and the serial number, and put the digitised fingerprint into the blockchain.”
By using the immutable public blockchain for holding such data Everledger aims to provide transparency around all diamonds, reveal their origin, trail of ownership, the processes they might have undergone. “We are trying to encourage industry at large; retailers, insurers, suppliers, manufacturers to put their diamonds on the blockchain. Our ambition is that the public blockchain becomes the central, single version of truth for the industry, market and law enforcement agencies.”
So far, around 900,000 diamonds have been submitted for the Everledger treatment, with nearly 300,000 already digitized and inserted into the blockchain. Kemp concedes it is possible for criminals to get around the ‘single version of truth’ by cutting and reshaping a stone, thus destroy its digital fingerprint. But, she quickly points out, that is a costly process, results in waste and also dramatically reduces the value of the diamond. Considering the risk they might have taken in acquiring their ill-gotten gains in the first place, it’s just not worth it for criminals such as those trading illegally in conflict diamonds mined in war zones to fragment the stones, she argues.
Everledger in demand
Barely 100 days old since being formed, Everledger and its innovation is already making waves across the diamond industry and beyond. It has signed up all the major diamond certificate houses and is working with major insurance houses in London and across continental Europe. Collaborations with diamond industry companies are also being explored. For now, however, Everledger is keeping the identities of all these players under wraps.
Elsewhere, it’s in discussions with government agencies focused on fraud – especially in the UK – and with law enforcement agencies, including Interpol and Scotland Yard, as they too explore the potential of blockchain to shine a bright light on some very murky corners of the diamond industry and market.
Cutting out the trade in blood diamonds and the trading of stones to fund terrorist activities is a major problem for the industry that Everledger hopes to help with: “There is real sense of urgency with regards to blood diamonds, trade in stones that supports terrorist funding, and Everledger is totally committed to working with law enforcement agencies, banks, insurers, government bodies and the industry to stamp out illegal trading and fraud. We’re developing relationships across all parties to help support that objective.”
Kemp herself seems a little taken aback by the huge interest and support Everledger is generating. Not that she is an entrepreneurial newcomer – far from it. A sparky 42-year old who hails from Brisbane, Australia, Kemp already has a clutch of start-ups under her belt. These, like Everledger, leveraged her expertise in the application of emerging technologies across the supply chain and logistics sectors and, over the last ten years, the jewellery and diamonds insurance claims arena.
As much as the simplicity of the Everledger concept might suggest, there was, alas, no Eureka moment that gave it birth. “Sorry to disappoint but it wasn’t just born one day, in one moment that I can clearly picture,” she says laughing. “For me, Everledger is more about how it wraps around the last 25 years of my experience, my exposure to a number of layers of technology and industries. It came about through a series of ideas that just evolved through time and experience.”
The emergence of blockchain and the concept of connecting objects and devices to each other and the internet – the Internet of Things – over the last few years proved to be the key in helping to crystallise her ideas. She says: “Blockchain was of course really very interesting but it was Internet of Things that really caught my eye, made me go “wow!”. Because when you look at the marriage of the blockchain with its immutable ledger with the Internet of Things; with objects that have an immutable ID… once you bring those two concepts together, you can actually start to think about what it all means in terms of economics, in terms of big data, in terms of remote intelligence gathering, device or item interrogation.
“So the blockchain and, especially Internet of Things, were the first things that made me think around all this. And that was against a backdrop of me realising that my industry, the diamond industry, is really changing and, moreover, that I could sense the direction it was going in. But then I would sort of wind myself back a little bit and there I am… sitting day in, day out, inside the diamonds and jewellery insurance industry… seeing and feeling how badly things can go for industry and consumers.
“When beloved, very expensive items are not stored in a vault of any kind, when they are lost or stolen, it’s very difficult to recover them, even return them to their rightful owner if found. I just kept thinking these items are more valuable than the simple cost to replace them, and in most cases you don’t want them replaced, you want them found! They are family heirlooms from generations before or they have celebrated an important life event. Often these same items are passed on to generations after. So there had to be a way of doing something about that and Everledger is my take on that.”
Provenance, provenance, provenance
A critical insight gleaned by Kemp very early on with Everledger, thanks to her experience working with Radio Frequency Identification (RFID) tracking in the supply chain industry, was that its central task must be to solve the “very, very large problem of provenance” . She says: “When you solve provenance, you know the item has certification, you can prove it came from a certain exact location, see what processes it has been through over time. Once you’ve got that [on the blockchain] then you’ve got the ability to introduce smart layers of commerce – smart contracts.”
Smart contracts are computer programs that can automatically execute the terms of a contract. By using the blockchain as a ledger, smart contracts can be tracked and used to verify business relationships and agreements. Enthusiasts believe smart contracts might, in the near future, replace lawyers and banks for handling certain common financial transactions. For Everledger, however, the future is now. Alongside a public blockchain, the company has a second, private blockchain which incorporates smart contract functionality.
Kemp explains: “The private Everledger blockchain is where diamond industry actors engage commercially, transact between themselves across the blockchain. Typically they will be insurance companies, diamond retailers and diamond wholesalers. Those smart contracts go hand in hand with the blockchain, rather like bitcoin and blockchain go hand in hand. The blockchain, through its transparency, is enforcing the contract, whether it is related to changes in ownership of the diamond, financing of the diamond, its insurance policy and so on.
“Most people are only really aware of what we’re doing in the public bitcoin blockchain network space, but actually the power of what we’ve been doing, the real guts, sits below the surface in the private area because its connecting industry actors. With this second blockchain we can have privatised transactions to support commerce. We’ve actually taken the best of both worlds. We’re using the public blockchain to give transparency, globally, around all of those diamonds. And we’ve got the private one for commercial transaction.”
It has not escaped Kemp’s notice that there are some intriguing similarities between bitcoin and diamonds. Compared to, say paper money and gold, especially for very large transactions, diamonds and bitcoin are much easier to handle, store and transport. They also do not degrade. And now, thanks to Everledger’s innovation, there is the prospect of diamond transaction on the blockchain: “There are some intrinsic characteristics that link diamonds and the coin, and now we have the notion of a diamond industry trading under consensus, just like the bitcoin blockchain does in terms of its mathematical consensus.” She pauses before laughing and adding: “You could think of it as the perfect kind of marriage….or perhaps economic twins separated at birth!”
It is undeniable that diamonds are one commodity that have so far not yet had true, widely accepted financial products wrapped around them. “We see maturity almost everywhere else, so you can trade in gold, invest in gold and so on. You can buy and sell gold in bitcoin now. We’ve not seen anything like that maturity with the diamond markets despite it being over a hundred years old. You have to ask why that is. And the answer is that something like Everledger has been missing: the industry has been lacking visibility over the stone, its provenance, its certification; the trust factor and transparency have been missing. Once we have Everledger in a place, we will have the ability to start doing some really interesting things for the industry, address those long standing problems that have held it back.
Tough times for diamond industry
A major factor that should help further fuel the interest and demand in Everledger’s offering is the state of the diamond industry itself. Even before the financial crisis of the 2007/8 the sector had been transitioning from being supply controlled to being more demand led. It was also fragmenting – De Beers no longer has quite the stranglehold it boasted a couple of decades ago and new centres for diamond trading and treatment have emerged, loosening the grip of Antwerp, New York and London.
The financial crisis has accelerated the upheaval, with banks cutting back heavily on their exposure to the diamond market as they looked to rebuild their battered balance sheets and reduce risky investments against a backdrop of stiffening regulation. It is estimated banks now provide $3-4bn less in working capital to the rough diamond market than they did before the crisis. The lack of financing is hurting the diamentaires – the diamond cutters and polishers – particularly badly. With regulators continuing to turn the screw on banks through, for instance, Basel III, designed to improve regulation, supervision and risk management within institutions, and US and UK rate rises on the horizon, the diamond industry looks set for tougher times yet.
“Any change needs to come from a want or a need and there is desperation in some parts of the diamond industry for these issues to be resolved. We have to find a way to increase our transparency. We have to find a way to give some type of legitimisation around securitisation of assets. We have to solve the problem of financing. Otherwise, one of the oldest industries in the world is at a risk of reversing back upon itself.
“I sometimes think it’s an industry that has starved itself of technology because of its heritage as a gentlemen’s trade, relationship-based trading. It’s not that the industry has been standing still – it has made some important advances, become a little less opaque. But it still badly needs to normalise, become more aligned to other commodity markets. Transparency, a single version of the truth, is the answer to these problems. Everledger is the next step up. It’s a very cool solution, it can provide the supporting rails, the scaffolding to assist in solving these problems.”
Kemp is certain that smart contracts, with their potential for enforcing governance standards and models, can play a major role in transforming the industry. “With Basel III, for example, we understand that there are a number of procedures and processes and policies that need to be followed. When you talk about Everledger and the power of its immutable ledger and smart contracts, then we could potentially be the one global distributed engine that actually fuels all this worldwide. We can provide the mechanisms for the legal, governance and commerce frameworks around diamonds, as well as be the hub enabling provenance and transparency around transactions. It is a holistic solution. It’s like the perfect storm coming together. It really is a Utopic solution in our view.”
Everledger looks to earns it way
It’s still pretty early days for the company and Kemp says revenue generating models are still being developed. Certainly she envisages that the private, commerce-facing blockchain would be mostly license and access-drive. There could potentially be other interesting business models that come out of the private channel going forwards. Other ideas being looked at include fees for help in search and recovery of diamonds, something that could leverage Everledger’s insurance network.
Then there is, of course, the prospect of Everledger expanding into other high value markets: “Art is a massive one. Antiquities, sculpture. Luxury watches definitely – that’s a no-brainer!” She is also keen on engaging with the Internet of Things and is particularly taken by the increasing availability of smart jewellery, such as that being offered by Ringly. The New York-based company creates smart jewellery and accessories that connect to the mobile phone and alert the wearer to important notifications – text, email, missed call and much more besides. Ringly also supports a large number of third party apps.
Kemp actually supported Ringly when the company was crowdfunding on Kickstarter and shows me a Ringly ring she picked up from New York recently. “On the side there’s a little diamante, and that actually integrates with the phone,” she explains. “So if there is a message or anything that came through on the phone, the ring vibrates and lights up. Ringly is just one example of high tech wearable companies that are entering the market quickly. Kemp is excited, curious about this fast growing sector and very keen to explore potential collaborations.
To date Everledger has been running on £118,000 it secured in support via the Barclays-Techstars accelerator. The start-up has been has swamped with investor interest and while Kemp is sure it will need to raise further funds in early 2016, she is in no rush: “For us it’s about ensuring those decisions are made at the right time so that we can provide substance and return for those investing. We have to have some surety around the business models and entry to market first.”
Casting an eye over the burgeoning fintech sector that Everledger is part of, Kemp says: “I think every business, every person at some point touches fintech many times a day, for many reasons. So it truly is one of the last bastions to be broken or accelerated. I think that alone speaks volumes for what’s happening in this space, and the reason why we’re seeing so much activity.
“For the longer term… there are a lot of people talking about fintech start-ups replacing banks and so on. I don’t think we will see that. My feeling is that while there might be some start-ups that potentially can disrupt certain spaces, for the most part the banks will still be here. They will still have a very large and important role in commerce and in government, but they will be accelerated by some of the innovations that comes out of start-ups. They will be different, but they are not going to disappear in the main. It will be a kind of hybrid world.
“The world isn’t going to all be on bitcoin. So I think there needs to be some sensibility around what that world might truly look like, have a balanced mind and a balanced approach as it comes into being.”