Blockchain: the path to a more transparent mining supply chain?

Blockchain is a continuously growing list of records logged in a decentralised, immutable, cryptographically secured online ledger. All information recorded on the platform is peer-to-peer validated and therefore can’t be corrupted without others quickly becoming aware.

One of the main benefits of blockchain – a process developed more than a decade ago as a public transaction ledger for bitcoin – is that it creates a secure audit trail that builds inherent trust into processes or transactions.

In the mining context the technology could be used to record many different things, such as personnel entering and exiting a mine site, the movement of commodities, financial transactions or even creating smart contracts between two entities.

However, so far, the biggest game-changer blockchain promises the sector is improving transparency in the supply chain, namely, tracking and tracing precious gems and important minerals, including diamonds, tin, tungsten and cobalt.

Building trust along the chain

What is being proposed in the mining sector is an industry-specific blockchain to prove provenance,” explains international mining and metals consultancy Core Consultants managing director Lara Smith.

“Every action taken by an industry participant can be seen by every other player in that system; this could address transparency in the supply chain, and because every transaction has an associated digital fingerprint, uniquely identifying its owner it also creates auditability,” she adds.

Firms are hoping to exploit the track-trace abilities of the technology to record the lifespan of a commodity, in particular, to prove its origin and provide assurances it was sustainably and responsibly sourced.

In January, diamond giant DeBeers announced a blockchain initiative that it hopes will underpin confidence in diamonds and the industry at large by ensuring all registered gems are conflict-free and natural, while also enhancing efficiency across the sector.

According to a company spokesperson, The Diamond Blockchain Initiative will: “Create a highly secure, decentralised, tamper-proof and permanent digital record for every diamond registered on the platform, as an added layer of assurance not been previously possible.”

Furthermore, in February, Reuters reported on an unnamed blockchain pilot project that will be used for the first time to track cobalt from artisanal mines in the Democratic Republic of Congo through to products used in smartphones and electric cars.

These initiatives follow in the footsteps of Everledger, a blockchain-based platform developed a few years ago to track diamonds. In February, the company announced its Diamond Time-Lapse Protocol initiative which aims to engage everyone along the diamond supply chain, including miners, dealers, manufacturers, retailers and consumers, prompting them to create and track the entire lifetime journey of a gem, making the information accessible to all.

The company has logged more than a million diamonds so far and is expanding to cover precious metals, alloys and conflict minerals for the electronics industry.

From the physical to the digital

For blockchain technology to be valuable in any supply chain it must truly reflect what is happing in the real world. This is a challenge when tracking physical goods because it requires the inputted information to be a true reflection of events. But how can firms ensure this?

DeBeers says it is still determining what information can be viably collected from producers and shown on the chain, but it will use a two-staged approach to validate that the diamond a user receives is the same one was registered on the blockchain.

The first step is to assign every diamond a unique ID in the form of a barcode corresponding with its digital certificate on the blockchain. The second is a reconciliation of primary information, e.g. stone characteristics, and secondary data, e.g. transaction history, to make sure the physical diamond matches data registered on the blockchain. There could be up to 180 individual data points.

“As every diamond is unique in terms of its physical make-up as is the journey it travels through the value chain, blockchain can support the detection of any substituted diamonds or falsified data uploads,” said a spokesperson.

The company believes the technology can also streamline efficiencies, ultimately reducing the time and cost of undertaking business for many users.

Everledger says it validates information by conducting on-site inspection and auditing, as well as using artificial intelligence, the Internet of Things and RFID tracking to obtain the most accurate degree of data possible for system entry.

“Boots on the ground are a big part of what we do and how we can capture so much,” says Everledger project lead for sustainable supply chains Edward Mendelson.

“We do this in a way that ensures data privacy,” he continues, “as in some parts of the process it is not appropriate to be sharing information downstream a supply chain, but it’s necessary to demonstrate the process has been completed so that it meets all requirements and is regulated by a third-party body.”

Furthermore, there is a threshold to entry to the ledger for individuals, such as counter-party checks and anti-money laundering checks.

Tracking cobalt

Tracking ores such as cobalt is much more complicated, however. As reported by Reuters, the Congo-based blockchain pilot project will work in a process whereby each sealed bag of cobalt produced by a vetted artisanal miner is given a digital tag, which is then entered onto a blockchain system using a mobile phone. The log will include details of the weight, date, time and possibly a photo of the ore.

The trader that buys the bag will record the details on the system, in a process that’s repeated until the ore arrives at the smelter, so an immutable record of the cobalt’s journey for downstream buyers or third parties has been logged and can be viewed.

According to the report, the mining industry is experimenting with technology, including indelible marks that survive the refining process, which is similar to what is currently being used for Fairtrade certification of bulk products such as cocoa. Another option is to include blockchain in software-based technologies already used by refiners to monitor material as it moves through their plants.

However, there is still the risk that cobalt mined by children could get mixed up with ‘clean’ cobalt before being bagged, tagged and sent for processing.

Can it work?

“It’s always tricky when using technology to solve a problem that is deeply political and economic,” says Smith. “We are talking about applying a technological solution to a physical, manual problem that frequently involves governments and human frailty and so it remains an imperfect solution, although it can assist in alleviating some of the known issues and improving trust.”

Juliane Kippenberg, associate director in the Children’s Rights Division of Human Rights Watch, says she believes blockchain could provide better traceability and greater transparency if the information on the supply chain is made public.

“However, it cannot be a tool for human rights assessments and mitigation, as required by the OECD Due Diligence Guidance; jewellers and other companies in the diamond supply chain still need to conduct detailed assessments of human rights conditions in the mines and countries of origin by qualified experts and along the supply chain – something they don’t always do now.”

More miners using blockchain

Miners are also exploring other use cases for blockchain. For example, a partnership has been made between Citibank, Scotiabank and Société Générale with Barrick Gold Corp and INTL FCStone to use the technology for a pilot study to reduce transaction costs of gold.

The project has seen more than 100,000 gold transactions cleared by Euroclear using blockchain platform and has reduced transaction costs and improved the handling of accounts and trade settlements.

Furthermore, returning to the supply chain use case, BHP Billiton is starting to use blockchain to share information between vendors, contractors, geologists and shipping companies to track and monitor movements of wellbore rock and fluid samples to secure real-time data and increase efficiency, as well as provide proof of provenance.

As is evident, blockchain has proven benefits for use in the mining sector, as well as for financial transactions and other online record keeping.

However, how well the technology works to provide real world solutions to complex issues such as identifying conflict minerals and blood diamonds in a supply chain is yet to be fully determined. And if successful, it will require sector-wide uptake of the technology for maximum benefit. Nevertheless, the new focus and drive for transparency and openness that this technology has enabled is a very positive step forward for an industry not known for transparency.

Blockchain is a continuously growing list of records logged in a decentralised, immutable, cryptographically secured online ledger. All information recorded on the platform is peer-to-peer validated and therefore can’t be corrupted without others quickly becoming aware.

One of the main benefits of blockchain – a process developed more than a decade ago as a public transaction ledger for bitcoin – is that it creates a secure audit trail that builds inherent trust into processes or transactions.

In the mining context the technology could be used to record many different things, such as personnel entering and exiting a mine site, the movement of commodities, financial transactions or even creating smart contracts between two entities.

However, so far, the biggest game-changer blockchain promises the sector is improving transparency in the supply chain, namely, tracking and tracing precious gems and important minerals, including diamonds, tin, tungsten and cobalt.

Building trust along the chain

What is being proposed in the mining sector is an industry-specific blockchain to prove provenance,” explains international mining and metals consultancy Core Consultants managing director Lara Smith.

“Every action taken by an industry participant can be seen by every other player in that system; this could address transparency in the supply chain, and because every transaction has an associated digital fingerprint, uniquely identifying its owner it also creates auditability,” she adds.

Firms are hoping to exploit the track-trace abilities of the technology to record the lifespan of a commodity, in particular, to prove its origin and provide assurances it was sustainably and responsibly sourced.

In January, diamond giant DeBeers announced a blockchain initiative that it hopes will underpin confidence in diamonds and the industry at large by ensuring all registered gems are conflict-free and natural, while also enhancing efficiency across the sector.

According to a company spokesperson, The Diamond Blockchain Initiative will: “Create a highly secure, decentralised, tamper-proof and permanent digital record for every diamond registered on the platform, as an added layer of assurance not been previously possible.”

Furthermore, in February, Reuters reported on an unnamed blockchain pilot project that will be used for the first time to track cobalt from artisanal mines in the Democratic Republic of Congo through to products used in smartphones and electric cars.

These initiatives follow in the footsteps of Everledger, a blockchain-based platform developed a few years ago to track diamonds. In February, the company announced its Diamond Time-Lapse Protocol initiative which aims to engage everyone along the diamond supply chain, including miners, dealers, manufacturers, retailers and consumers, prompting them to create and track the entire lifetime journey of a gem, making the information accessible to all.

The company has logged more than a million diamonds so far and is expanding to cover precious metals, alloys and conflict minerals for the electronics industry.

From the physical to the digital

For blockchain technology to be valuable in any supply chain it must truly reflect what is happing in the real world. This is a challenge when tracking physical goods because it requires the inputted information to be a true reflection of events. But how can firms ensure this?

DeBeers says it is still determining what information can be viably collected from producers and shown on the chain, but it will use a two-staged approach to validate that the diamond a user receives is the same one was registered on the blockchain.

The first step is to assign every diamond a unique ID in the form of a barcode corresponding with its digital certificate on the blockchain. The second is a reconciliation of primary information, e.g. stone characteristics, and secondary data, e.g. transaction history, to make sure the physical diamond matches data registered on the blockchain. There could be up to 180 individual data points.

“As every diamond is unique in terms of its physical make-up as is the journey it travels through the value chain, blockchain can support the detection of any substituted diamonds or falsified data uploads,” said a spokesperson.

The company believes the technology can also streamline efficiencies, ultimately reducing the time and cost of undertaking business for many users.

Everledger says it validates information by conducting on-site inspection and auditing, as well as using artificial intelligence, the Internet of Things and RFID tracking to obtain the most accurate degree of data possible for system entry.

“Boots on the ground are a big part of what we do and how we can capture so much,” says Everledger project lead for sustainable supply chains Edward Mendelson.

“We do this in a way that ensures data privacy,” he continues, “as in some parts of the process it is not appropriate to be sharing information downstream a supply chain, but it’s necessary to demonstrate the process has been completed so that it meets all requirements and is regulated by a third-party body.”

Furthermore, there is a threshold to entry to the ledger for individuals, such as counter-party checks and anti-money laundering checks.

Tracking cobalt

Tracking ores such as cobalt is much more complicated, however. As reported by Reuters, the Congo-based blockchain pilot project will work in a process whereby each sealed bag of cobalt produced by a vetted artisanal miner is given a digital tag, which is then entered onto a blockchain system using a mobile phone. The log will include details of the weight, date, time and possibly a photo of the ore.

The trader that buys the bag will record the details on the system, in a process that’s repeated until the ore arrives at the smelter, so an immutable record of the cobalt’s journey for downstream buyers or third parties has been logged and can be viewed.

According to the report, the mining industry is experimenting with technology, including indelible marks that survive the refining process, which is similar to what is currently being used for Fairtrade certification of bulk products such as cocoa. Another option is to include blockchain in software-based technologies already used by refiners to monitor material as it moves through their plants.

However, there is still the risk that cobalt mined by children could get mixed up with ‘clean’ cobalt before being bagged, tagged and sent for processing.

Can it work?

“It’s always tricky when using technology to solve a problem that is deeply political and economic,” says Smith. “We are talking about applying a technological solution to a physical, manual problem that frequently involves governments and human frailty and so it remains an imperfect solution, although it can assist in alleviating some of the known issues and improving trust.”

Juliane Kippenberg, associate director in the Children’s Rights Division of Human Rights Watch, says she believes blockchain could provide better traceability and greater transparency if the information on the supply chain is made public.

“However, it cannot be a tool for human rights assessments and mitigation, as required by the OECD Due Diligence Guidance; jewellers and other companies in the diamond supply chain still need to conduct detailed assessments of human rights conditions in the mines and countries of origin by qualified experts and along the supply chain – something they don’t always do now.”

More miners using blockchain

Miners are also exploring other use cases for blockchain. For example, a partnership has been made between Citibank, Scotiabank and Société Générale with Barrick Gold Corp and INTL FCStone to use the technology for a pilot study to reduce transaction costs of gold.

The project has seen more than 100,000 gold transactions cleared by Euroclear using blockchain platform and has reduced transaction costs and improved the handling of accounts and trade settlements.

Furthermore, returning to the supply chain use case, BHP Billiton is starting to use blockchain to share information between vendors, contractors, geologists and shipping companies to track and monitor movements of wellbore rock and fluid samples to secure real-time data and increase efficiency, as well as provide proof of provenance.

As is evident, blockchain has proven benefits for use in the mining sector, as well as for financial transactions and other online record keeping.

However, how well the technology works to provide real world solutions to complex issues such as identifying conflict minerals and blood diamonds in a supply chain is yet to be fully determined. And if successful, it will require sector-wide uptake of the technology for maximum benefit. Nevertheless, the new focus and drive for transparency and openness that this technology has enabled is a very positive step forward for an industry not known for transparency.

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Last Update: May 25, 2018