Diamonds are the world’s most popular gemstone but if you compare them to other jewels, it’s not obvious why. Ruby, yellow sapphire or emerald are just as sparkly as a diamond. Moissanite and Cubic Zirconia looks indistinguishable from diamonds. Scientists can now create diamonds in a lab that are structurally identical to diamonds mined from the earth. And yet, every year, people spend their savings to buy the real thing. So what exactly makes these rocks so special? What is the value of a diamond?

Diamonds, forged by nature and crafted by man. 

We all live on a thin, solid crust, above hot molten metal soup. That crust is typically less than 40Km deep, just twice the length of Manhattan. Rubies, sapphires, emeralds from there, but a diamond’s home is much deeper. Scientists measure pressure in pascals, and where diamonds form, pressures are 5 to 6 gigapascals. Every other precious gem is made up of combinations of elements. A diamond? Only one. Carbon. From a scientific perspective, the most important part of a diamond is the small pieces of the mantle that’s been trapped during diamond growth, so these inclusions are actually the only direct samples that scientists have to study the deep earth. These inclusions can be dated. Over 25 million years ago, diamonds blasted to the surface in rare and violent explosions. In the most seismically active regions, they just evaporated. In the more stable areas, they survived. The earliest piece of surviving diamond jewelry is this ring made around 300 B.C. Over the next 2,000 years, diamonds popped up in crows, rings, and pins, alongside other precious gems. Sometimes, they were wedding gifts like the diamond ring exchanged in the betrothal of Archduke  Maximilian of Austria and Mary of Burgundy. But diamonds wouldn’t become the unrivaled gemstone of love until these diamond deposits were discovered in South Africa, 400 years later.

De Beers

Enter Cecil Rhodes, a British 17-year-old sent to South Africa than Cape Colony. He would one day be remembered as a colonizer of Rhodesia, now Zimbabwe and Zambia, the namesake of Rhodes University, the creator of the Rhodes Scholarship, a zealous imperialist, and the founder of the company that would dominate the diamond industry for more than a century – De Beers. 

The playbook

Under its watch, diamonds transformed from a gem like any other into a cultural touchstone. To understand how they pulled that off, you have to learn the DeBeers’ playbook:

Rule 1- Control supply (around 90% of the world’s supply within two decades)

De Beers started to buy his competitors’ supply 

Rule 2- Limit distribution: use this strategic stockpile for their benefit

DeBeers sold his entire supply of diamonds (estimated for $5.2 billion) to an exclusive diamond syndicate in London:

Demand would decline > DeBeers would hold back supply to the market as they saw fit.

In 1940, the US government tried to build its own diamond stockpile, because diamonds aren’t just for jewelry. They are also the hardest known natural material on Earth, which makes them crucial for manufacturing weapons, tanks and airplanes. > the diamond syndicate will not sell the US their stockpile because it will not tolerate large stocks outside its monopoly control.

The decade before WW2, De Beers was in crisis. It was a Great Depression and there weren’t many people shopping for diamonds. Worst, people might sell the diamonds they had bought, increasing the supply and further driving down the price.

It may be a cliche to say that this is rich soil, but this time, it’s literally true. 

Rule 3- Create demand

An advertising campaign by N.W. Ayer & Son > what if people kept diamonds… forever?

Rings had been a common engagement gift since the early Middle Ages, but the idea that a diamond should be on that ring? That was new. 

“Diamonds are works of art”, by world’s biggest artists such as Salvador Dali, Pablo Picasso

1939 > Gone with the Wind movie featuring Scarlett O’Hara pleading for this precious gem

“ Oh, a diamond ring. And do buy a great big one” > only 10% of women received a diamond ring

1950’s > diamonds were a girl’s best friend.

1990 > 80% of American brides got one!

And if a diamond is forever, most people don’t want a used one. There’s no official price scale for second-hand diamonds, but you get a little as a percent of what you paid! You might get 25% – 30% of your purchase price

1967 > “A diamond is forever” Campaign run in Japan 

1980 > De Beers tried to get women to buy diamonds for men. > didn’t succeed 

1990 > “A diamond is forever” Campaign run in China 

These ads are trying to create demand, and that’s not some dirty trick. That’s capitalism.

“I can convince you that you actually want to buy a pet rock, which to me, was, like, the dumbest idea in the world, but people were able to be convinced you should value this pet rock. That’s why ad companies get paid what they get paid.

2003 > “Raise your right hand” > De Beers tried to get women to buy diamonds for men. The idea was that an empowered woman would have an engagement ring on her left hand and a diamond ring she bought herself on her right. > didn’t succeed

>>> Diamonds may be worn by women, but the primary consumers of diamonds are men.

Men thought that buying a diamond was a sign of adulthood.

It’s not a purchase that’s logical. It’s supposed to be illogical, it’s not rational.

Rule 4- Link spending to professional success

“The rule of thumb – diamonds should be about 2 months’ salary.” (in Japan, it was 3)

> Rappers started name-dropping their favorite jeweler, Jacob the Jeweller.

Rule 5- Define Value

1940 > Introduction of the 4C’s system (the 4 most important characteristics of a diamond) by a gem research institute GIA. They started selling certificates as proof of identity: CUT, COLOR, CLARITY, CARAT

CUT > A diamond should be cut not too flat, not too deep

COLOR > A diamond should be either colorless or a bright color, but not in between.

CLARITY > A diamond should be clear, free of the inclusions that scientists love.

CARAT > A diamond should be big.

> De Beers promoted GIA’s 4C certificate. They had many “good” diamond so that help for a demand keeps going up.

They just seem representative of these terrible things. It’s like this waste of money, and we’re only doing it to show other people.

Blood Diamonds

FILE – Illegal diamonds from Zimbabwe are displayed for sale in Manica, Mozambique.

Where diamonds are mined, demand meant funding for conflict

1992 – 1998 > A rebel group in Angola raised more than $3,7 billion from diamond sales, fueling a war that killed at least half a million Angolans. Diamonds sales also helped fund conflicts in Sierra Leone, the Ivory Coast, and Liberia. Eventually, this drew international attention and backlash. While there is now a certification system to try to stop the sale of diamond smuggled from conflict zones, no one knows for sure how well it’s worked, because the diamond supply chain is incredibly opaque.

Real competition

Diamonds didn’t only come from Africa. Actually not, Russia is the largest supplier of diamonds in the world. For decades, De Beers had an exclusive deal to buy most of the Soviet Union’s diamonds. But when the Soviet Union collapsed, so did the deal.

2005 > De Beers settled an antitrust lawsuit that had accused the SU of a conspiracy to fix the price of diamonds. De Beers agreed to pay $295 million back to American consumers. And, in a separate case with the US government, De Beers plead guilty to price-fixing. 

> De Beers’ market share began to go down. But, the price of diamonds didn’t.

The big 3

Now, De Beers is no longer the biggest producer of diamonds. Russia’s Alrosa is the largest producer f diamonds worldwide, with 27% market share, which means that 1 out of every 4 diamonds is an Alrosa diamond. Rio Tinto is the 3rd largest. None of the top 3 producers actually manage a strategic stockpile the way that De Beers did during the monopoly era. But they will withhold goods from the market if they feel there isn’t substantial demand.

> There is more supply than demand. If that happens, producers don’t look to reduce pricing because they don’t want to jeopardize the inherent value of a diamond or what ultimately the consumer is going to be purchasing. 

The Veblen Effect explained

“If I offer you a bottle of red wine, and I say one of them costs 75$ and one of them costs 20$. If you know a lot about wine, you may look at the labels, you may taste them, and if you’re really good, you may be able to tell me, this 25$ bottle of wine is really the better wine. Most people don’t have the ability. They’re gonna give me 75$. That creates this perverse setting in which if I raise the price, instead of the quantity demand falling, I can actually see the quantity go up. They’re called Veblen goods, they are unique goods in which the price itself is interpreted by people as a signal. “- Spriggs

> There is an aspirational quality to diamonds where the price, the fact that it is expensive, adds desire because it’s a sense of arriving, it’s a sense of aspiration, even if an option exists that’s structurally identical.

Natural diamonds vs. lab-grown diamonds

All carbon atoms, each one forming four bonds with its neighbors. In graphite, also all carbon, atoms form three bonds. And that tiny difference is why graphite is soft enough to be a pencil, and why diamonds are so hard, they can only be cut by another diamond. 

The 1950s > first man-made diamond in a lab by scientist Tracy Hall

Today > we can pump gem-quality stones out of machines. 2 was to grow a diamond: 

  1. High pressure, high-temperature diamond growth is recreating the conditions in nature which carbon crystallizes into a diamond. 
  2. Chemical vapor deposition is a methodology to grow diamonds where hydrocarbon gases are injected into a growth chamber and microwave plasma energy is used to break apart the bonds of that hydrocarbon, allowing free carbon atoms to rain down on a plate of diamond, and atom by atom, grow that diamond vertically, resulting in extraordinary high-purity, high-quality diamonds. 

What do people want? How much do they want it? What are they willing to pay for it?

Rule 7- If you can’t beat them, join them.

2016 > De Beers and its peers in the natural diamond industries slapped back against lab-grown diamonds with an ad campaign called “Real is rare” 

2018 > De Beers launches LightBox, a lab-grown diamond jewelry company, with the lowest diamonds cost ever (800$ for 1 carat). They claim that’s how much they’re worth since they’re mass-produced. But some say this is a strategy to make lab-grown diamonds seem worse. It is a complete denigration of the product.

> Lab-grown diamonds are superior to dirt diamonds or mined diamonds that have come out of the Earth. > Goes with the macro trend of offering customized jewelry with a greener use of gemstones and selling more jewelry online than offline.

“The lab-created producers want to market their product as a more innovative and environmentally friendly, um, you know, product that’s superior to natural diamonds in those ways. But at the same time, they still want the value associated with diamonds that, you know, that De Beers created over a hundred years.” > Reverse marketing

The narrative is what a lot of purchasers might feel on some level is like the bullshit, right? Like, “they-they told us this story that you know, you got to do this, and this is, like, how you prove love.” I think the thing is, though, that, uh, there’s something really, really deeply touching about doing this for somebody, about wanting to be very public about how you feel about somebody. And, in a way, uh, burning a pile of money is a pretty compelling argument that you feel what you say you feel and you feel what you say you feel.

Just because the connection between diamonds and love was manufactured by marketing, that doesn’t make it less real. 

“It was the most beautiful and most significant thing ever to me, not because it’s a diamond, but because he’s my best friend.”

“He was like, this was my mom’s diamond. That’s when I really started crying.”

“When you put it into perspective that an ad campaign drove, you know, what we now consider, like, the step of getting married, you have to buy a diamond, it’s kind of infuriating to think about, but at the same time, it makes-it makes sense. Like, I didn’t come up with this. This is just the world’s standard.”

A diamond is a product of heat, time, capitalism, and us.

“It isn’t bullshit, because the volume of people who kind of are convinced by it tells us that their story is tapping into the complexity of who we are. And when you think about it, so much of what we do, so much of what we wear, what we carry. So much of it is about communicating who we are.”

What do people want? Uh, how much do they want it? What are they willing to pay for it? How do you value different things?

“I think diamonds are kind of like an ink-blot test, and you can kind of see what you want and make your own criteria in terms of what’s the most important to you.” 

“I think the value of a diamond is zero. It’s entirely the value you have in regards to the person who gave it to you.”