With the mining sector looking to amplify the focus on ethical and transparent mining practices, as can be seen through the International Council on Mining and Metals 2022 – 2024 strategy and action plan, the industry has been seeking ways in which these practices can be implemented. It is intended that such practices will not only help to mitigate sustainability and reputational risks, but also play a role in modernizing supply chains. To this end, we have seen companies start to develop their own blockchains, such as Teck Resources Limited which has partnered with DLT Labs to develop a blockchain capable of tracing natural materials, adding a welcomed layer of transparency. However, there are a number of challenges and issues that arise when considering blockchain technology; stakeholders will need to 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 items, tokens, and cryptocurrencies, recording who owns what at a particular point in time. Each blockchain user retains a copy of that data on their device and has a specific account only accessible to them. If a user owns a digital item and wishes 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 each time a transfer occurs. 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 alter. This creates complete transparency, as anyone using a blockchain (whether 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 to the mining sector.
The inbuilt transparency of blockchain technology has enabled mining companies to start utilizing the technology in relation to tracking, recording, and certifying both the origin of minerals and the life-cycle record of minerals, including the traceability of emissions from the mine to the final product. In relation to minerals, the import and export process has historically been paper-intensive, however, blockchain technology enables the secure exchange of critical trade documents, such as the certificate of origin and bills of landing, through the use of smart contracts (computer programs/transaction protocols that run once predetermined conditions are met). As 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 embedded into the documents exchanged on a blockchain, adding a further level of certainty. In addition to this, supply chain integrity is enhanced as a blockchain will time-stamp transactions and/or transfers as soon as they occur.
While mass adoption is yet to be achieved, blockchain technology is starting to be seriously considered and utilized by a number of stakeholders and governments. To this end, In July 2021, the Australian government awarded AU $3 million to blockchain provider Everledger, in relation to their pilot project which sought to utilize Everledger’s blockchain technology to facilitate a “digital certification” for minerals throughout the supply chain.
A further way in which the mining sector is able to utilize blockchain technology is in relation to ethical mining practices. Blockchains allow importers to track the life cycle record of minerals. It is envisioned 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 makeup of the minerals contained within and link to a Non-Fungible Token or ‘NFT’ (a unique virtual token of ownership digitally generated on a blockchain). That NFT will then allow the minerals to be digitally tracked, with the information being manually updated at various points. This will help comfort purchasers that minerals are being sourced from conflict-free mines, reduce the possibility of counterfeit products being provided and minimize the potential for fraud. This will largely be achieved through increased transparency and a clear overview of the supply chain that blockchain technology offers.
However, one of the key drawbacks that must be taken into consideration 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 falsified information. Thus, another drawback is ensuring that the data uploaded is correct and accurately reflects the minerals being advertised or sold. Whilst the way to potentially navigate this is to have accredited and trusted entities approve, record, and certify that the recorded minerals are of the specified quantity and quality at each stage of the production process, it is still a potential barrier to widespread adoption and implementation. There are also likely to be disagreements regarding who can act as an approved entity, how they record their approval, and what happens if there are issues or data entry mistakes. Additionally, physical changes to the minerals occurring during processing may be difficult to account for, adding an additional level of complexity.
Another key issue to consider is whether the blockchain used is centralized or decentralized. In brief, a decentralized blockchain is publicly accessible, the information contained within is freely available and anyone is able to participate and transact. A centralized blockchain is not necessarily public and often controlled by a single entity, which is able to set access and use permissions.
While it is understood that a decentralized blockchain is more secure, this comes at a cost with the data being publicly available. As such, it is likely to raise data protection issues which could require certain information having to be redacted. The redaction of data could take a huge amount of 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 bigger players and stakeholders not wanting transaction data to be publicly accessible, and easily viewed by competitors.
Despite some entities preferring the more secure public decentralized model, such as those using the Responsible Sourcing Blockchain Network, who assure users that they will protect all confidential and/or competitive information while still sharing proofs of facts, the sector does seem to be warming to the idea of centralized blockchains in order to protect key business information and transaction data. These types of blockchains will run on a permission-based model.
As is often the case with industries, unless the big players and stakeholders start to seriously call for, implement and invest into new technologies such as blockchain, development is likely to be slow. While we have industry stakeholders calling for greater transparency, leading to some of the bigger players investing into 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. While there is a long way to go and despite the various shortcomings, blockchain technology is, at this moment, a real option for those in the mining sector looking to add a level of transparency to their supply chain.