Reference: RCS Global and ICMM. (2017). Blockchain for Traceability in Minerals and Metals Supply Chains: Opportunities and Challenges. London
ICMM hosted the tenth meeting of the Materials Stewardship Round Table in London on the 2nd and 3rd of November 2017. A half day meeting focused on the potential application of block chain technology for supporting traceability in metals and minerals supply chains. The presentations, discussions, and outcomes informed a research project conducted by RCS Global on the subject, the results of which are published in this report.
Downstream manufacturing companies such as electronics and automotive companies are increasingly demanding the following information from upstream producers with regards to the metals and mineral in their end products:
- Provenance: From which mines/miners are the minerals and metals that are contained in their end products?
- Production methods: Under which methods are they produced? Are they produced responsibly?
The ICMM has commissioned the following report to understand how blockchain technology could potentially provide the above-mentioned claims as part of robust Chain of Custody (CoC) systems.
What is blockchain?
Blockchain is a technology that allows for data to be validated and subsequently stored as an immutable ‘block’ on a collectively owned and distributed digital database. The resulting blockchain is immutable because every block is validated based on previous blocks, making it very difficult to alter – as the modification of a recorded transaction would require modifying all previous blocks. Blocks are validated either by an algorithm or a third party in the field.
How could a blockchain-enabled CoC system provide provenance and responsible production claims?
At its most basic explanation, blockchain is a database. Like other databases, a blockchain database provides a platform onto which supply chain transactions can be recorded from mine to smelter and beyond. Data including weight, quantity, grade, but also provenance information and responsible production certificates can be uploaded to the system and validated at the appropriate supply chain points, and then linked to the physical material using bar codes, tags or other internet of things applications (such as RFID tags). This information could then be shared with downstream buyers and other third parties.
- Builds a consensus and trust around responsible production standards between downstream and upstream companies
- The immutability of and decentralized control over a blockchain system minimizes the risk of fraud.
- Defined datasets can be made accessible in real time to any third party, including downstream buyers, auditors, investors, etc. but at the same time encrypted so as to share a proof of fact rather than confidential information
- A blockchain system can be easily scaled to include other producers and supply chains beyond those initially involved
- Cost reduction due to the paperless nature of a blockchain-enabled CoC system, the potential reduction of audits, and reduction in transaction costs
Thus, specific features of blockchain technology could theoretically contribute to overcoming specific barriers to traceability, such as confidentiality concerns, a lack of standardized CoC systems, a lack of digitization, and administrative and governance costs.
Application of blockchain to other industry supply chains
Several companies are already exploring the use of blockchain in their supply chains. These ‘use cases’ present important lessons learnt for a potential application to the minerals and metals context, including how blockchain allows for sharing geological data between vendors (BHP Billiton), detecting fraud in the diamond supply chain (Everledger), validating local supply chain data with the help of NGOs (Provenance), overcoming confidentiality concerns in the chemicals supply chain (Stratumn), and identifying more quickly potential contamination of the food supply chain (Walmart).
Potential challenges in the minerals and metals supply chain
However, as can be expected with a technology as new and largely untested in the minerals and metals supply chain context, several challenges exist:
- Finding a consensus around CoC data and responsible production standards amongst companies with different risk exposure and supply chain positions
- Technical challenges around data input – ‘garbage in, garbage out’
- Transforming paper-based, non-standardized CoC systems into a digital system
- Complex points of aggregation, mixing and processing depending on the mineral/metal that make it difficult to control material flows
- High cost due to the amount of computing power needed and large operational costs (estimates range from USD 100 per GB to USD 50,000 – 100,000 per user)
- Blockchain’s application in supply chains is still in an experimental phase and is largely untested
Furthermore, research and discussions at the ICMM MSRT revealed several open questions around the technology, including the need to identify a clear objective for using the technology – as a marketing tool, to improve supply chain efficiency, achieve regulatory compliance, etc. Likewise, implementation questions remain outstanding, such as the possibility to add a blockchain system to an existing blockchain platform and to which level material should be traced on the blockchain (smelter only or beyond).
In conclusion, blockchain is not a magic panacea that can solve all existing structural issues in minerals and metals supply chain management. However, the potential benefits that a shared blockchain database presents for the transparency and traceability along supply chains are immense. Not only could the technology help reward / incentivize responsible production, but it will also build trust between upstream and downstream partners, and reduce transaction time and costs. Most importantly, blockchain could facilitate a collaborative effort for the industry to increase transparency around minerals and metals sourcing in the face of growing public awareness and expectations.
RCS Global recommends the establishment of a working group that includes upstream producers, downstream buyers, intermediaries, commodity industry associations, ethical investors, and minerals and metals exchanges, to explore the concept of a blockchain-based CoC system and potential other uses of the technology. The ICMM would be a strong partner in facilitating the establishment of such a working group. Throughout the research conducted for this report, specific interest on behalf of the afore-mentioned potential partners was registered.
Also, RCS Global, based on comments made at the ICMM MSRT, recommends that any pilot project focus on a small consortium of companies rather than an industry-wide application.