Everledger and the immutable protection of provenance through the blockchain

It was only a quarter of a century ago that Tim Berners-Lee gave us the World Wide Web and changed the world forever. It’s hard for the millennial generation to contemplate a world without the internet, social media and an always-on culture, and how on earth could anyone buy or sell goods and services without an online store, let alone businesses trade or simply do the things they need to do.

Yet, before the 1990s, we wrote letters (email), we sent postcards (Twitter), and we made photo albums (Facebook). When we wanted to buy something, we wrote a cheque or swiped our credit card through a clunky imprinter device, aka ‘knuckle buster’, to leave the seller with ‘proof’ that we’d paid using our card.

It’s just as hard to believe how the world has changed in such a relatively short period of time as it is to appreciate that, in the beginning, not even Berners-Lee could have predicted the impact of his creation. This would explain the growing excitement about blockchain and the massive potential this emerging technology offers.

As the underlying technology that supports bitcoin and the other 740 or so cryptocurrencies, blockchain is ‘a distributed data store that maintains a continuously growing list of data records that are hardened against tampering and revision, even by operators of the data store’s nodes’.¹ The blockchain can be used to store information on a decentralized ledger (ie not owned or controlled by any one institution or body, and it has four primary characteristics that define it for this purpose).

First, it’s immutable, which means that the records placed on the blockchain cannot be changed. Second, it’s secure, which means it can be trusted. Third, it’s fast because it’s automated and digital. Fourth, it’s scalable, with no limit to how many records can be stored.

The banking industry has been quick to see the potential for massive and wholesale disruption to the global infrastructure. Last week, The Independent reported a quote in BNP Paribas’s magazine that blockchain ‘should be considered as an invention like the steam or combustion engine‘.

What about blockchain for the insurance industry?

I recently Skyped with Leanne Kemp at her home in Brisbane to learn about her journey as a pioneer in this space. Leanne is CEO of Everledger and a serial entrepreneur with a strong interest in emerging tech. 10 years ago, she invested in a jewelry business and struggled with the traditional bricks and mortar approach to luxury goods and insurance, especially with regards to diamonds.

The diamond and jewelry market offers a lot of opportunity for fraudsters, thieves and unlawful activity, which costs the insurance industry around $50bn a year. The problem comes down to provenance, which is the ‘chronology or ownership, custody or location’ of an object.²

For the insurance companies and the law enforcement agencies alike, there isn’t a central, trusted database to turn to. The traditional approach for insurance firms is to focus on the policyholder more than the object being insured when assessing risk. Unlike high-volume objects such as cars (that are registered on central databases), the provenance of diamonds and high-end jewelry is all paper-based. Over time, buried in all this paper, provenance gets lost. When reviewing a claim, it’s near impossible for an insurer to accurately assess the quantum and the peril. (How many times have I seen this diamond, and how come it keeps being stolen?)

Leanne Kemp saw that this massive industry problem could be solved with innovative technology. So, with nothing but her backpack, she left Australia and headed to London, the epicenter of the insurance market and a hive of activity for fintech and technology innovation.

In November 2014, Leanne took part in the Aviva hackathon, and 48 hours later, she and her team gave the winning pitch to clinch the Aviva Insurance Innovation Award. This led to an approach by Techstars to stay in London and join its accelerator program, where she formed her team. Gaurav Rana is an expert in blockchain technology and Marc-Antoine Trehin is an expert in data focused on delivering a working platform for industry.

This is how Everledger came into being, and earlier this month, Leanne presented Everledger at the Barclays Accelerator demo day. You can watch the pitch below.

How Everledger works

Everledger is a digital, global ledger that tracks and protects items of value. With the introduction of the ‘op_return’ functionality into blockchain, the ability to bind or add data into the blockchain ledger was enabled for the purpose of being able to add contract or asset data to a transaction. Everledger is using this functionality and the 40 bytes of arbitrary data available to bind transaction data as part of the hash, thereby securing the information into the ledger and making it immutable.

This immediately addresses one of the major issues of document tampering. With Everledger, the record is tamper-free; it’s immutable and can therefore be trusted! Everledger has established relationships with the major certificate houses in the US, Israel, India, and Antwerp. These houses grade and certify each diamond for the market. Everledger takes this data and creates a digital ‘DNA’ record comprising the 4Cs, 14 metadata reference points and the unique identification code for each stone.

With this information, Everledger knows who owns which diamond and where it is. It can even trace the movement of diamonds on platforms such as eBay and Amazon as they are bought and sold. Everledger works with insurance companies when diamonds are reported stolen, and alongside Interpol and Europol where diamonds are crossing borders and entering black markets. Everledger has recently constructed a consumer app that enables users to add their own diamonds (and other valuable items) to the Everledger blockchain.

Everledger also provides a Smart Contracts platform to facilitate the transfer of ownership of diamonds to assist insurers in the recovery of items reported as lost and/or stolen. Smart Contracts will also enable a fundamental change in the diamond marketplace and the way they’re financed.

Everledger – from concept to production

The acceleration of Everledger in around four months from a fledgling idea to a production platform is astounding. It already has over 300,000 diamonds registered, and when you go to its website, you can see the workflow in action, real-time, as batches of 1,000 diamonds at a time are embedded in the blockchain.

Barclays has played a large part in the acceleration of Everledger from concept to production. Barclays, as a partner at Techstars, isn’t usually associated with the insurance industry, though it does have an insurance business in South Africa with Absa. As part of the Techstars program, it facilitated Leanne going to South Africa, the heart of the diamond mining industry, and work with Absa to support the building of Everledger.

There’s no doubt in my mind that the blockchain technology will, one day, become ubiquitous in insurance as it will across all financial services. And while the use case for Everledger is the provenance of diamonds, the technology that Leanne and the team have built can be applied to many other asset classes in exactly the same way. Extending Everledger beyond diamonds is an important milestone for the company and she hopes to achieve this before the end of 2015. A bold and brave target, but surely with the evidence of her already impressive build, this will be ‘one to watch’.

25 years ago, nobody really saw the extent to which the World Wide Web would change our lives. I wonder how long it will be before we’re looking back to this decade and saying the same about the origins of the blockchain?

¹ Block chain (database), Wikipedia
² Provenance, Wikipedia

– This article is reproduced with kind permission. Some minor changes have been made to reflect BankNXT style considerations. You can read the original article here.