With the mining sector looking to strengthen its focus on ethical and transparent mining practices, which can be seen through the International Council on Mining and Metals’ 2022 – 2024 Strategy and Action Plan, the industry has been searching for ways in which these practices can be implemented. It is intended that such practices should not only help reduce sustainability and reputational risk, but also play a role in modernizing supply chains. To this end, we have seen companies begin to develop their own blockchains, such as Teck Resources Limited who have partnered with DLT Labs to develop a blockchain capable of tracking natural materials, adding a welcome layer of transparency. However, there are a number of challenges and issues that arise when considering blockchain technology; stakeholders must assess the relevance and scalability of the technology if it is to become an industry standard going forward.
A blockchain is a ledger of digital objects, tokens and cryptocurrencies, which records who owns what at a particular time. Each blockchain user keeps a copy of this data on their device and has a specific account available only to them. If a user owns a digital item and wants to transfer it, the owner has a private key that allows them to transfer ownership of the item to someone else. The data is updated every time a transfer takes place. User data held on a blockchain is encrypted with a private digital key. Ownership is updated via a decentralized immutable ledger, with the data almost impossible to change. This creates full transparency, as anyone using a blockchain (either centralized or decentralized) can see exactly what transfers have occurred, when and between whom (the digital address). This level of transparency is one of the key attractions of blockchain technology for the mining sector.
The inherent transparency of blockchain technology has enabled mining companies to begin using the technology in relation to tracking, recording and certifying both the origin of minerals and the life cycle of minerals, including traceability of emissions from the mine to the final product. In relation to minerals, the import and export process has historically been paper-intensive, but blockchain technology enables the secure exchange of critical trade documents, such as certificates of origin and landing notes, through the use of smart contracts (computer programs). /transaction protocols that are executed when predetermined conditions are met). Since blockchains are immutable, users can feel comfortable when assessing the validity of the information provided on a blockchain. Proof that documents have been approved, by official and certified entities, can also be built into the documents exchanged on a blockchain, providing an additional level of security. In addition to this, supply chain integrity is improved as a blockchain will timestamp transactions and/or transfers as soon as they occur.
While mass adoption has yet to be achieved, blockchain technology is beginning to be seriously considered and used by a variety of stakeholders and governments. To this end, the Australian government in July 2021 awarded AU$3 million to blockchain provider Everledger, in relation to their pilot project that sought to use Everledger’s blockchain technology to facilitate a “digital certification” of minerals throughout the supply chain.
Another way the mining sector is able to leverage blockchain technology is in relation to ethical mining. Blockchains allow importers to track the life cycle of minerals. It is intended that sealed containers containing the relevant minerals will be marked with a unique ID. The ID will detail information such as the quality, quantity and composition of the minerals contained within and link to a Non-Fungible Token or ‘NFT’ (a unique virtual proof of ownership digitally generated on a blockchain). That NFT will then allow the minerals to be tracked digitally, and the information updated manually at various points. This will help reassure buyers that minerals are sourced from conflict-free mines, reduce the possibility of counterfeit products and minimize the potential for fraud. This is largely to be achieved through increased transparency and a clear overview of the supply chain that blockchain technology offers.
However, one of the main drawbacks that must be taken into account is the understanding that blockchain technology is unable to replace industry standards such as quality control mechanisms, procedures and other related physical processing requirements. This has the potential to enable bad actors to tamper with or upload forged information. Another drawback is therefore ensuring that the data uploaded is correct and accurately reflects the minerals being advertised or sold. While the way to potentially navigate this is to have accredited and trusted entities approve, register and certify that the registered minerals are of specified quantity and quality at each stage of the production process, it remains a potential obstacle to widespread use and implementation. There are also likely to be disagreements about who can act as an approved entity, how they register the approval and what happens if there are problems or errors in data entry. In addition, physical changes in the minerals that occur during processing can be difficult to account for, which adds an extra level of complexity.
Another key issue to consider is whether the blockchain used is centralized or decentralized. In short, a decentralized blockchain is publicly available, the information in it is freely available and anyone can participate and trade. A centralized blockchain is not necessarily public and often controlled by a single entity, which is able to set access and usage permissions.
Although it is understood that a decentralized blockchain is more secure, this comes at the cost of the data being publicly available. As such, it is likely to raise data protection issues that may require certain information to be redacted. The redaction of data can require a huge effort depending on the number and frequency of transactions, potentially increasing the cost of proper implementation. In addition to this, commercial issues may arise, with some of the larger players and stakeholders not wanting transaction data to be publicly available and easily viewed by competitors.
Despite some entities preferring the more secure public decentralized model, such as those using the Responsible Sourcing Blockchain Network, which assures users that they will protect all confidential and/or competitive information while still sharing proof of fact, it appears that the sector is warming up to the idea of centralized blockchains to protect important business information and transactional data. These types of blockchains will run on a permission-based model.
As is often the case with industries, unless the major players and stakeholders start seriously calling for, implementing and investing in new technologies like blockchain, development is likely to be slow. While we have industry stakeholders demanding greater transparency, leading to some of the larger players investing in and implementing blockchain technology, there is still a level of skepticism and uncertainty around the extent to which it will be able to impact the sector and increase transparency. Although there is a long way to go, and despite its various shortcomings, blockchain technology is at this moment a real option for those in the mining sector who want to add a level of transparency to their supply chain.
