After banking and financial sector companies, commodity exchanges are looking at using blockchain technology, which became known after the popularity of digital currency Bitcoin.
Singapore Diamond Investment Exchange (SDiX), the first bourse in physically settled diamonds, announced on Thursday that it had partnered with Kynetix, physical commodity digitisation expert, and Everledger, supplier of blockchain and distributed ledger infrastructure. This is to complete the first part of a Proof-Of-Concept of a blockchain-based authentication and secure a record-keeping service for trading diamonds on a global commodity exchange.
Blockchain is a peer-to-peer public ledger maintained by a distributed network of computers. Each block or transaction is time-stamped and a further transaction for the same block is recorded in chronological order.
In India, the National Commodity & Derivatives Exchange is also exploring blockchain technology for its upcoming repository, for which it has a licence. Repositories are similar to depositories but a commodity repository can do only record keeping, as a commodity retains its materialised form. The exchange plans to launch the repository in a month, if all goes well. Its spokesperson said, "We are exploring the use of that technology for phase-2 of development of a warehouse receipt repository." In the first stage, it would link warehouses and start record-keeping.
According to Linus Koh, chief executive of SDiX: "The technology is designed to enable holders of diamonds with certificates from a major third-party verification laboratory to authenticate the ownership and authenticity of diamonds, using Everledger's distributed ledger technology, queried securely through Kynetix's Sentinel market infrastructure platform. Changes of diamond ownership resulting from trading on SDiX can be automatically updated via the facility, creating a permanent digital record to ensure optimal functionality for market participants."
Participants and investors of the exchange can "view" the receipt of a digital certificate for each stone in the basket (diamond lot), housed on the blockchain.
The SDiX trading platform was launched in May 2016. In the 12 months since, the exchange has exceeded $110 million in trading volumes, representing a little more than 50,000 investment-grade diamonds traded. Its goal was to create a global central exchange for secure and efficient trading in physically settled diamonds. It has recorded a little over 500 baskets and 4,000 investment-grade diamonds being traded monthly.
SDiX has also signed an agreement with India's Multi Commodity Exchange to cooperate in developing a derivatives contract for diamonds, with other developments to follow.