Blockchain technology is synonymous with financial transactions. Any layman who hears the term ‘blockchain’ will almost always revert to linking the term to cryptocurrencies, such as Bitcoin. Whilst this is true, blockchain is far more than a new form of currency. Instead, blockchain is a form of technology that holds the potential to transform the way organizations and people transact and interact with one another.
The formation of the World Economic Forum’s Mining and Metals Blockchain Initiative in 2019 has placed the technology at the forefront of the mining and metals industry. Since the formation of the initiative, the industry has seen a variety of milestone events occur, including a sale of ore through blockchain technology by Vale as well as the launch of the initiative’s own proof of concept platform to track emissions through blockchain. However, the broader application of the technology to the mining and metals industry remains somewhat of a buzzword to those not actively involved in its research and implementation.
In understanding blockchains’ rapid rise to prominence across the mining and metals sector, we must understand the benefits which the technology proposes to provide to the mining and metals supply chain, and why these benefits prompted various majors to invest time and resources into adopting the technology.
What is blockchain technology and how does it work?
Blockchain technology is based on the principles of the traditional financial ledger, wherein the information for all transactions relating to a particular item is entered – ultimately meaning that by analyzing the ledger, the reader would be able to see the full history of transactions relating to said item. Whilst the traditional ledger may form the basis of blockchain, the modern state of the technology is a far more secure and trustworthy means of storing information.
In its simplest form, blockchain comprises batches of information (“blocks”) which are then grouped in a sequence (a metaphorical “chain”). Each block is comprised of 3 primary parts – the information relevant to the transaction, a “hash” (or unique ID), and the hash from the previous block in the chain. At a high level, the core strength of blockchain is the way it uses unique IDs to direct one link of the chain to the next. Consider the diagram below:
The chain which the various blocks form, and the need for subsequent blocks to be validated by the hash of the previous block, creates an incredibly secure means of storing data in a chronological manner. Ultimately, this ensures the trustworthiness of the information stored in the blockchain.
What does this mean for the mining and metals industry?
The mining and metals industry forms an integral component of the global economy and the successful extraction, processing, and trade of its products requires several parties to coordinate and perform their respective obligations timeously and efficiently. In addition, the global drive towards responsible and carbon emission conscious sourcing has placed an emphasis on both upstream and downstream parties to show their accountability across the supply chain.
Simply, the interconnected nature of blockchain technology allows for all parties to a transaction to share information securely and efficiently with one another, whilst its decentralized nature provides increased visibility, security, and trustworthiness of the information shared. The benefits which the technology proposes to bring to the industry can be summarized into the following categories:
1. Fewer paper exchanges
Despite the development of digital methods of sharing information in modern times, the mining and metals industry is still heavily reliant on physical documents. No area of the supply chain illustrates this reliance more than the maritime industry, with cargoes still largely only redeemable against a physical bill of lading. Not only does this decrease the environmentally friendliness of the shipping process (through the constant need to print documents) but is further problematic in ensuring an efficient supply chain, with cargoes often delayed because of physical paperwork not yet having arrived at the relevant port. When considering the broader requirements of the industry, similar reliance can be identified in areas such as letters of credit and laboratory material specification sheets.
By digitizing many aspects of the mining and metals supply chain, not only does blockchain technology promise to improve the environmental friendliness of the industry’s administration but also increase the efficiency of the industry by reducing the number of cargo delays caused by administrative shortcomings.
2. Quicker transactions
When considering the number of parties to a given transaction (such as those in the diagram below), the efficient communication of developments across parties is essential for each party to know when their respective responsibilities must be performed. The synchronized nature of blockchain technology shall notify each party of developments in the transaction simultaneously, meaning that all parties will have clear visibility of what the cargoes status is, as well as which performance is required to move the cargo to the next point in the supply chain.
The dynamic nature of the supply chain further means that the terms of an agreement may be subject to change as cargo moves between points on route to its final destination. In addition to the synchronized nature of the technology, the security of all information logged in each block of information holds the potential to reduce the number of disputes when trade terms are adjusted, ultimately resulting in quicker consensus to updated terms.
3. Asset tracking
The increased visibility not only reduces the time taken for parties to agree to trade terms but also enables enhanced planning of factors such as warehousing. This is particularly relevant in areas where cargo is delayed further up the supply chain. The visibility provided by the technology to all parties may potentially decrease the operational impact of any changes to the trade terms as a result of such delays.
Traditionally, a transaction relies on the manual communication of information from the hands on the ground, to the parties responsible for agreeing to trade terms, and then to parties further down the supply chain. The parties down the supply chain then must keep adjustments to the trade terms in mind in order when planning, for example, warehouse space. As the transaction progresses, these parties remain heavily reliant on communications from further up the supply chain to continually make planning adjustments.
The synchronized nature of blockchain will mitigate the effects of any communication shortfalls by providing all relevant parties to the transaction with an accurate timeline view of the cargo, and its progress, across the entire supply chain.
4. Improved compliance
The mining and metals industry has historically found itself on the wrong side of compliance matters. Whilst the industry has taken major steps in promoting and complying with the principles of responsible sourcing, it has faced challenges in providing downstream metal consumers with proof of the sourcing and identity of a given bundle of metal. The security of the information stored within the blockchain will provide further peace of mind, that the information is up-to-date and accurate, to end consumers.
This aspect is particularly important when considering the increased reliance on certain metals to advance the industries at the forefront of modern progression. For example, the Democratic Republic of the Congo (DRC) is responsible for an estimated 70% of global cobalt – a material that is a key component of electric vehicle batteries. However, the supply of cobalt out of the DRC has come under intense scrutiny regarding the use of child labor in the extraction process. Shaking this ‘non-compliant’ perception of the DRC’s outputs has, despite great efforts, proven to be problematic for commodity producers – as far as some commenting that the DRC may be the “Achilles heel of electric vehicles.”
Blockchain poses a viable solution to providing end consumers with the details of each metal batch (identified through the unique ID) from extraction to final sale, and ultimately providing end consumers with the required ‘responsibly sourced’ peace of mind.
Outlook
The adoption of blockchain technology by the mining and metals industry has long been a question of ‘when, not if’. With majors looking to leverage the benefits posed by the technology, 2021 promises to be one where the foundations are set to enhance the efficiency and transparency of the supply chain.