What is the tradition?
When a man proposes, he does so by presenting a diamond ring - usually picked out (and definitely purchased) by him, perhaps based on hints from the woman as to her preferences. The woman wears the ring until the wedding, and then adds on a (plain, or with smaller diamonds) wedding band. The man doesn't wear a ring until the wedding.
If the engagement is broken off before the wedding, the ring is generally supposed to be kept by the party who didn't initiate it (i.e., if the man breaks it off, the woman keeps the ring; if she breaks it off, she gives the ring back to him).
What is the origin of the tradition?
I think this video describes it better than I ever could. (Caution: contains some NSFW language.)
It also may have been connected with the ending of "breach of promise to marry" laws. Because, of course, a woman's value as a potential wife lies in her virginity, and she might lose her virginity in between the engagement and wedding, so she needed a form of recourse if the man broke it off and left her "damaged". At one point, laws gave her the right to sue him; as those laws were removed from the books, being given a valuable ring at least gave her some monetary compensation for the injury to her character.
Why do people still follow it?
Because we readily buy into advertising and like shiny things? Honestly, that's the only reason that makes sense.
Some might say it shows commitment from the man (personally, if I'm to expect financial commitment, I'd rather get it in the form of a more practical asset, like a car or down payment on a house). And to the general public, it's a display of (your fiance's) wealth and financial stability.
Why is that crap?
We no longer need monetary recourse for losing our virginity and being jilted (in America's mainstream culture, at least), so that justification is out. It also isn't a good investment and thus isn't a commitment to the couple's financial future. That leaves buying into advertising as the only justification, which I'd hope you don't believe is a good reason!
Unlike many other wedding-related traditions, which at least had some basis in practical (albeit patriarchal) needs (such as political alliances), this one is truly pure crap.
What am I doing with this tradition?
When we decided to get engaged, we - together - picked out engagement rings (plural - he's engaged too!) from an etsy seller (Metal Monkey Jewellery), which are custom-engraved with each other's fingerprints. Much more meaningful than a ubiquitous diamond, in my opinion! There was no exchange of rings, on bended knee or otherwise, but we simply both started wearing the rings the day we made the engagement official.
We bought separate rings to exchange at the wedding, also from etsy (artifactum). Mine does have a diamond - but the seller guarantees that it is conflict free, and it is an uncut diamond. I really enjoy that it's subtly undercutting (in my mind, at least), the tradition of a diamond, even while seemingly going along with it (albeit backwards, with a plainer band for the engagement and a stone for the wedding, instead of vice versa). I.e., see, this is what a diamond really is - it's just a rock, nothing sparkly.
I do get the occasional "oh... how... unique" comment from people who I suspect don't quite understand the choice, but I've yet to get overtly negative feedback on it.
How did/will you handle this tradition?
I would love to have a lively debate and conversation in the comments! Please join in!
Dissenting opinions (from the post itself or other commenters) are welcome, but I reserve the right to delete any comments that personally attack me or any other commenter.