The problem you describe may exist at the consumer level, but for the high end I don't think it is an issue. I mean think about it - secondary market? It's not like a car where you have "new" and "second hand" - it's a 50,000 year old rock. There's no such thing as a "new" diamond.

Consumers without the necessary knowledge and connections are probably taken for a ride. Dealers would exploit their lack of knowledge and options, just like 2nd hand car dealers offer terrible prices for cars - they know that if you're there at all, you're desperate. In this market, everything is sold at auction. Going to a dealer by yourself is holding a fire sale auction with 1 bidder. Of course you lose.

Between dealers, or high end customers with a dealer acting as their agent, selling for-real quantities, the market is much more stable, consistent, and liquid. Unless you want to be utterly ripped off, you must buy at a proper auction and sell at a proper auction too. You can say the same about pretty much any other store of value in the world, by the way.

But all this is obvious; if diamonds really did lose half their value every time they changed hands, no-one would bother - and yet they obviously do.

By the way, I agree wholeheartedly with that article - which I read years ago. I think I read it in the actual magazine! Anyway, yes, the value of diamonds is almost completely illusory - it's wholly artificial and if if the real supply were ever released to market, value would plummet. However, that hasn't happened, the consensual hallucination that compressed carbon is worth a lot of money stands, and you can buy and sell diamonds for a lot of money. I don't see this market changing anytime soon. It is in no-one's interest to break the spell.

And if you got rid of diamonds, people would just find something else with an agreed value. A lot of people need this kind of currency. Until crypt.kk comes online, of course.