The wild valuation swings of Bitcoin are something of a sideshow when compared with the potential of the underlying blockchain engine. Focusing on the utility of this distributed, consensus-based technology is exactly what London-based startup Everledger is doing.
The very early stage startup — which was founder and CEO Leanne Kemp’s idea a mere three months ago before she was encouraged to bring it to the London-based Barclays TechStars fintech accelerator and set up as a business — is using the Bitcoin blockchain as a platform for provenance and combating insurance fraud.
It’s starting with diamonds, with a view to expanding into all sorts of luxury goods — such as high end watches, designer handbags and fine art — so basically high value items whose provenance might otherwise be reliant on paper certificates and receipts that can easily be lost or tampered with. The blockchain is a distributed public ledger for tracking provenance in a way that’s more robust and accessible than a paper trail.
Of course individual diamonds can’t be immutably connected to that immutable digital ledger — given there is always the possibility for stones to be cut or reshaped, and for serialized IDs to be ground off. But Everledger digitizes a host of data point about each stone to create a multi-layered digital fingerprint.
“If you have a 5 carat diamond, not only do we capture the serial number that’s inscribed on the stone, but most diamonds are described with four Cs (the cut, the clarity etc). We taken not only those four Cs, we then take the 40 metadata points that make up the diamond. The laboratory houses inspect the stone, they effectively digitize each of those diamonds… All of the angles and the cuts and the pavilions and all of the crown. And we take all of that, as well as the serial number, as well as the four Cs, and we put all that into the blockchain,” says Kemp.
She also points out that cutting diamonds results in wastage and lost value so there’s a natural economic disincentive for fraudsters to do that.
“The perfect use case for the blockchain is most definitely when there is an immutable ID on a device that can not be changed and it is sitting within an immutable ledger. And that is clearly within the world of IoT [Internet of Things]. Where you literally get the Intels of the world providing an immutable ID. And we see that, from an insurance perspective, coming down the line quite quickly,” she adds.
Interesting uses of blockchain technology outside the cryptocurrency space continue cropping up. Just this month Ascribe raised $2 million in seed funding for its “notary and timestamp for intellectual property and creative works”, which uses the blockchain to store and sign digital images — creating an immutable record of their existence and enabling copyright to be enforced on digital artworks.
While back at Disrupt New York’s startup battlefield in May there was ShoCard, a digital identity startup which stores personal identity credentials on the blockchain. (They weren’t the first to see potential for blockchain-based passports either.)
Kemp, a serial entrepreneur who hails from Australia originally, has a background working in insurance and the jewelry industry, as well as with emerging technologies such as RFID. It was her combination of industry expertise and exposure — talking with insurers about the huge problem of fraud — plus a sense for the potential of a nascent tech like blockchain which ultimately sparked the idea for Everledger. She presented her idea at an Aviva hackathon last year, where it won an innovation award and caught the eye of TechStars’ MD who persuaded her to get a team together and incorporate as a business.
The team now includes a “blockchain guy” — Gaurav Rana, as CTO — and a data and API specialist, and has been “head down” building the tech stack and the business case for the past three months — culminating in demo day last week, which resulted in another kind of stack (investors’ business cards) ending up Kemp’s possession. “It’s nuts. There was a lot… I’ve just put them in a great big pile, taking my pace and my time, making sure that we have the right investors.”
Diamonds are a global problem, in terms of document tampering and fraud… in London it’s a $2 billion problem.
“I’m not a payments person. I’m not in the banking space. But when I saw what the fundamental principles of the blockchain provided it was just patently obvious to me that would make sense around reducing fraud related instances of valuables,” she adds. “This make a lot of sense to me. Just at a very basic level, you have an immutable ledger that’s distributed. Diamonds are a global problem, in terms of document tampering and fraud, and we know in London it’s a $2 billion problem, so this can work. Let’s make this work!”
At this point Everledger is focusing on getting diamond pipeline producers and major insurers adopting its system. Kemp describes this slice as a very consolidated market, with hundreds not thousands of companies in play, so she argues it’s “quite achievable” to elbow in and start generating revenue with its blockchain-based diamond fraud detection system. Albeit, there’s obviously a network effect for Everledger to prove its worth — based on getting enough stones on its books.
It now has some 280,000 diamonds digitized and embedded into the blockchain (it’s working its way through 850,000 diamonds submitted so far for adding to its ledger), and has all the major certificate houses signed up, plus four of the major London-based insurance companies. Kemp says it’s in discussions with police, Interpol and Europol who are also interested in what the tech offers — from a crime detection and prevention point of view.
The incentive for insurance companies to get involved is to reduce claims fraud and also recoup costs associated with paying out claims. “There’s really interesting economics around that because the insurance companies as they pay out these claims are actually the rightful owner of these diamonds because they paid the claim out and the title of that diamond ultimately sits with the insurance company,” says Kemp. “So it’s actually the insurance company’s property that we will recover.”
Point is: diamonds don’t depreciate in value; quite the opposite. So a stolen stone that’s recovered even years hence would still be an asset to its insurance company owner. “That’s one of the big use cases that’s coming out that we’re working with the insurance industry now,” adds Kemp.
A third target is big online retail marketplaces where people might try to offload stolen or counterfeit goods.
“Our play is actually around the police, around insurance companies, and having a line of sight and an eye — whether that’s across open portal data with open source intelligence, or whether it’s on direct API feeds — with really large houses like eBay and Amazon, Rakuten, these kind of portal sites… where people think they’re outsmarting the insurance companies by putting their goods online to sell it.
“We can just do these as a one-on-one insurance play, or ultimately if we really want to stamp out the entire issue around diamonds then of course there’s a consensus around having all the insurers be a part of what we’re doing. But we’re not reliant upon every insurer, and we’re not reliance upon every diamond manufacturer. It can be as narrow as key select people.”
“For us it’s about this longevity, of being in the market with enough transparency to have enough for people to understand hang on a minute you’re going to be caught, right? The world has existed in silos, there’s a silo in eBay, there’s a silo in Amazon, there’s a silo in insurance companies. We bring this together so there’s visibility,” she adds.
“We’re making it visible to two important people in the ecosystem: we’re making it visible to the police, and let them go and chase down the baddies and investigate based on our data; and we’re making it visible to the insurance companies so they know they either can pay the claim or not pay the claim, based on reasonable doubt or not reasonable doubt.”
Although diamonds are its starting point, Everledger is not intending to stick solely with diamonds forever. As noted earlier, it’s grand aim is to be a provenance platform for a variety of high value and luxury goods. Here again, this push is aimed at meshing with the needs of online ecommerce marketplaces which are under pressure to spot counterfeit or stolen goods being hawked on their own platforms.
“These are very real problems in the luxury goods industry. In the first instance around diamonds we could turnaround and provide API services to eBay and Amazon to say actually you’ve got a seller… that’s just listed a diamond that’s actually been involved in an insurance claim over the last six months in London. And so therefore it becomes an onus on either eBay or an alert system somehow to say… this at one point was claimed as a stolen or a lost diamond,” she adds.
It’s also aiming to offer a consumer facing “digital vault” app where owners of luxury goods can create a record of ownership themselves — perhaps incentivized to do so by insurance companies offering lower premiums to people who self-certify their valuables in this way. This app is planned for release around September or October.
“We do want to play inside that consumer space, with the certificates, underpin some transparency around diamonds for marketplaces and those sorts of things,” she says. “We see what we’re doing just beyond diamonds. Diamonds, watches, art, Louis Vuitton handbags, things that are identified through some kind of serialized way of identifying that product. Again it’s not ever going to be 100 per cent immutable, because they’re not smart devices, we’re working in a world of ‘dumb objects’. The utopic world with the blockchain is IoT, there’s no doubt about that.”