|
Is Bitcoin Good for Diamonds?
While Some See Opportunity, Others Question Its Stability
Nov 8, 2017 3:17 AM
By Rachelle Bergstein
|
|
Picture this: You’re helping a customer who is very close to
making a purchase on a good-quality, high-value diamond. The topic of payment
comes up, and instead of using Apple Pay or pulling out a recognizable credit
card, this client asks if you’re willing to accept Bitcoin. You pause — you’re
not sure how to answer. Nearly a decade after the cryptocurrency first appeared
from the depths of the internet, the very idea of it still feels risky and
abstract, like an underground point system used only by criminals and hackers.
But while Bitcoin has certainly earned its dubious
reputation — a Russian crime boss was recently discovered to have laundered
over $4 billion using Bitcoin accounts — it’s also becoming increasingly
mainstream. Major companies like PayPal, Microsoft and Overstock now accept it.
IBM has wholeheartedly embraced blockchain, the sophisticated ledger technology
that tracks each bitcoin’s movements. And slowly but surely, retailers are
coming to regard Bitcoin as a legitimate form of payment. This leaves jewelers
and other diamond sellers in a position to answer an almost unprecedented
question: Is it time to embrace a new form of money?
Boom or bubble?
Bitcoin was conceived as an alternative digital currency,
insulated from the tides of global instability and government control. There is
no such thing as a physical bitcoin; it’s simply a unit of measure that
represents a given sum. When the system went live in January 2009, an
individual bitcoin, or BTC, wasn’t worth much. Today, things have changed. On
October 12, 2017, the price of one bitcoin surged past $5,000, an all-time
high. This means that what started out as an offbeat cyber experiment has
become a real financial system; there have even been rumors that old-school
power player Goldman Sachs is planning to open a Bitcoin trading desk soon,
according to a recent Wall Street Journal report.
On the other hand, skeptics argue that we’re in the throes
of a Bitcoin bubble. What makes the currency so appealing to some is precisely
what makes it seem dangerous to others. Proponents of Bitcoin love that the
system is decentralized and therefore protected against the kinds of global
events that caused the 2008 financial crisis. In that way, bitcoins are not
altogether different from diamonds or other precious gemstones — they’re all
alternative, portable means of wealth for investors who are skeptical of the
long-term value of traditional purchases, like real estate and stocks. However,
critics of Bitcoin argue that government regulation, at least in the US, is
inevitable, and once that happens, the cryptocurrency’s value will plummet.
Still, that hasn’t stopped international celebrity jeweler
Samer Halimeh from making the decision to honor Bitcoin as of this past
September after noticing a rapid increase in requests from his clients to do
so. In his view, the marriage of Bitcoin and luxury retail is an obvious one.
“Over the last couple of years, [Bitcoin] has gradually gone
upmarket with portals buying and selling previously owned but high-quality
goods [like] Ferrari cars, Mercedes-Benz sports cars, Rolex watches and
jewelry,” he says. “What is now happening is, retailers like ourselves are
directly accepting bitcoins for brand new luxury goods.”
Commodity exchange
So what does it mean to trade bitcoins for diamonds?
(“Trade” is probably the most appropriate word, considering that for tax
purposes, the IRS currently regards virtual currency as property, not money.)
At best, it’s a quick, anonymous way to pay, with fewer potential glitches than
credit cards and very low fees. In theory, it’s safer to accept Bitcoin than
cash, as the blockchain protects against issues like counterfeiting. But at
worst, the diamond seller who trades jewels for bitcoins is putting undue faith
in a volatile, unregulated currency with no proven track record. It’s
exchanging one unpegged commodity — a diamond — for another one, but in the
case of a bitcoin, it’s neither a time-tested system nor a shiny physical
product.
Nonetheless, Bitcoin’s success shows there’s a worldwide
appetite for alternative capital, especially among people who don’t trust
traditional financial institutions anymore. Perhaps that’s why the Israel
Diamond Exchange (IDE) has partnered with the startup CARATS.IO to create an
official diamond-backed digital currency called CDC. While there’s a long
history of the stones being used in lieu of cash, this experiment will
formalize the notion of diamonds-as-money. As CARATS.IO has revealed, it wants
to create a digital currency that’s potentially less volatile than Bitcoin,
because it will be linked to an existing commodity.
A risky business
Is this good news for the diamond world? The Israeli bourse
thinks so, hoping the collaboration will increase trades. That said, it’s
another step toward standardizing the price of diamonds, which — at least in
the past — the industry has resisted. Overall, while it’s risky for a luxury
retailer or diamond trader to take a few rare payments in Bitcoin, it’s
unlikely to be disastrous. But one might want to think twice before altogether
abandoning those other, more reliable currencies; they have their faults, but
at least those faults are relatively predictable.
This article was first published in the November issue of Rapaport Magazine.
Image: Shutterstock
|
|
|
|
|
|
Tags:
bitcoin, Blockchain, BTC, CARATS.IO, CDC, cryptocurrency, digital currency, IDE, Israel Diamond Exchange, Rachelle Bergstein, Samer Halimeh
|
|
|
|
|
|
|
|
|
|