Diamonds have an unlikely new best friend – the blockchain.

London startup Everledger is using the technology behind bitcoin to tackle the industry's expensive fraud and theft problem. Or as CEO Leanne Kemp describes it, "putting bling on the blockchain".

According to a 2012 study from the Association of British Insurers, around 65% of fraudulent claims go undetected, at an expense of £2bn to insurance companies annually.

Diamonds play a key part in this, Kemp said:

Until now, however, there hasn't been a surefire way to detect if a diamond has been stolen. Like other luxury goods, proof of ownership remains locked in paper, which is vulnerable to tampering and loss.

But, what if diamonds could be digitised? Well, Everledger, led by self-described "super nerd" Kemp, is doing just this, with a tamper-proof digital ledger of the world's most valuable stones.

The idea for the company, she said, was sketched on the back of a beer mat just a few weeks prior to Everledger’s three-month stint at the Barclays Accelerator in London, which it finished in June.

"It was painfully obvious to me that the blockchain could be used to track objects, and of course one of the largest pain points that runs through the supply chain is provenance," Kemp added.

For it to work effectively, Everledger needs to scale. To do this the company has partnered with different institutions across the diamond pipeline, including insurers, law enforcement and the 10 diamond certification houses across the world.

Through Everledger's API, each of these parties can access and supply data around the status of a stone, including police reports and insurance claims. When a diamond is recovered, this can be a way to help investigators track who owned it and where to return it.

Currently, there are just under one million diamonds being uploaded onto the platform by Everledger's team, and Kemp expects this to rise significantly.

These aren't your average jewels either: "We're interested in those diamonds that get cut and look pretty and end up on a princess's little finger for her wedding day," Kemp explained.

Before a stone like this can be digitised, pricey or not, it needs a unique identifier – a fingerprint – that allows it to be tracked on Everledger’s platform as it changes hands.

This is calculated from 40 data points related to each stone – alongside the Four C's. Any diamond over 0.16 carats will also have a serial number inscribed on its girdle during the grading process.

While a criminal could reshape a stone to distort its 'digital fingerprint', Kemp explained that diamonds are not, in fact, the sum of their parts. The cutting process results in a lot of wastage, so any attempt to alter a diamond, or split it into two, will drastically reduce its value.

Because there hasn't been a registry of diamonds before, currently the risks aren't necessarily high for criminals. No one knows where your stone came from and if you do sell it, no one in the world could really tell you with any certainty that it was stolen.

Additionally, diamonds accrue value over time. So if you're playing the long game, there's no hurry to get rid of your loot, because it can function as a tidy little nest egg.

Although £200m has been pledged from Lloyd's and dedicated police units now tackling the issue, the CEO said having more boots on the ground just isn't enough.

Kemp is hoping that Everledger, "literally a stolen registry of diamonds" will lead to a reduction in crime by catching offenders and dissuading other criminals from taking these kinds of risks.

"We would sit side by side with them [law enforcement] in assisting with better data, better visibility, better background which then would lead to better prosecutions," she said.

Additionally, retailers like eBay and Amazon would be able to vet the inventory of sellers on their platforms. The ultimate prize would be for consumers to check these items themselves at the point of purchase, similar to the system in place for motor vehicles in the UK, which has a database maintained by the Driver and Vehicle Licensing Agency (DVLA).

Kemp says a lot of these resolution points have been solved in other categories, often on the cloud. But there has been a clear imperative for the government to do so, often for public health, in the instances of car accidents.

"A lot of things come to market and say 'Hey, here's blockchain, here's a solution - oh and by the way we don't know where the problem is but here's a solution, let's look for a problem," she said, adding:

Kemp emphasises that Everledger is not a consumer product, but rather a business-to-business service that bills out on access to its data.

The platform is partially public – all diamond certificates can be cross-referenced on bitcoin’s blockchain – and partially private, with sensitive data such as police reports and policy information kept on the company's Eris-run platform.

The firm intends to migrate to smart contract platform Ethereum in the future, once it's more stable.

Further down the line, if the platform really takes off, Kemp foresees a whole new kind of market – vintage diamonds.

Beyond fraud, knowing the life history of a stone – its age, its lineage – could be a very valuable thing.

This potential value-add is something we're already seeing in play. Certified diamonds that are laser inscribed, a relatively new practice, will command around a 30% higher market value than those that are uncertified.

Beyond stones, the company is also "aggressively pursuing" other opportunities in the luxury goods space. Many valuables, from handbags to boats, are now equipped with RFID tags - a technology Kemp has a long history with.

"Luxury goods is a big spend, and there are a lot of items, a lot of money and cross-border as well - that's where the blockchain comes in, the ability for it to be a global ledger."

Image via Shutterstock