Blockchain may be the solution to a supply chain problem first identified almost 30 years ago.
Mining is a $600 billion industry. There are large-scale mines run by international corporations, as well as small-scale and artisanal mining done by individuals.
"Conflict" minerals are raw materials mined by warlords or groups not representing the legitimate government of a country. Conflict minerals also can come from a specific region that is ruled by one of these illegitimate groups.
Cobalt is a conflict mineral--it's also what allows your phone to hold a charge for 12 hours. Cobalt is used to make lithium-ion batteries; these batteries are increasing in demand for use in consumer electronics as well as renewable energy grids.
About 60% of the world's supply of cobalt comes from the Democratic Republic of Congo (DRC), and experts estimate that about 20% of the cobalt from the DRC is mined by children.
More and more corporate leaders are looking for ways to evaluate supply chains through an ethical lens. If there were an easy way to identify the source of a particular mineral such as cobalt, it would be easier to buy from responsible large-scale producers and to support individuals earning a living from this work. More than 100 million people around the world earn a living with this small-scale mining, as compared to 7 million people in the industrial mining industry.
SEE: CBS News finds children mining cobalt for batteries in the Congo (CBS News)
Blockchain tracking system protects proprietary data
The supply chain that delivers minerals like tin, tantalum, tin, tungsten, cobalt, or gold from a mine to a manufacturer is complex. First, the minerals are mined from the ground, then a transporter takes the minerals to a processor. The processor prepares the materials to be used in the manufacturing process. Transporters often mix minerals from multiple sources before the minerals even make it to a processing facility.
The German company Minespider is using blockchain to make each step in this supply chain easier to track. Blockchain is good tool to accomplish this because it allows producers to maintain the privacy of this data while still complying with a verification process. Previous certification efforts put heavy compliance burdens on the suppliers, and many were reluctant to share proprietary information with competitors.
SEE: What is blockchain? Understanding the technology and the revolution (free PDF) (TechRepublic)
Minespider's goal is to combat human rights abuses and environmental damage in the raw material supply chain. The blockchain protocol the Germany company has developed is public and decentralized; it's designed to highlight producers who use slavery to extract minerals or who leave environmental problems behind when a mine closes.
These core principles guided the design of the sourcing platform:
- No one using the platform should be able to access supply chain data they do not own;
- The protocol should incentivize all responsible supply chain actors to adopt it as a standard; and
- Small companies should be able to use the protocol as easily as large ones.
Previous efforts to track the mineral supply chain have penalized small suppliers and focused on only one commodity.
The Minespider protocol is built on the Ethereum blockchain and has two elements: A certificate layer and a blockchain layer. The blockchain layer records the amount of metal produced by responsible sources and who owns it. The certificate layer stores specific data: Scans of certificates of origin, authorizations, production limits, transfers of possession, and other relevant data.
Minespider describes its tracking system in a detailed white paper (PDF) that explains how "metadata from the nested nature of the data packet allows a company to demonstrate an unbroken chain of custody throughout the supply chain." Accompanying standards of data collection can allow purchasers to demonstrate the origin and responsible production of their product.
SEE: Photos: The dangerous work of conflict mineral mining in the Congo (TechRepublic)
The Minespider protocol also uses a "russian doll" data structure. Keys to access supply chain history stored in the certificate are passed as a nested, encoded data packet. The metadata from the nested nature of the data packet allows a company to demonstrate an unbroken chain of custody throughout their supply chain.
A company using the Minespider Protocol receives access to a mineral's supply chain history after a purchase. Participants can see upstream information in the supply chain but not downstream.
Increasing industry support for ethical sourcing
Although a practical solution for tracking the sources of raw minerals has been slow to develop, momentum is growing among corporations and governments now that there are good tools available.
China issued due diligence guidelines about responsible sourcing (PDF) in 2015, and the Organization for Economic Cooperation and Development released a third edition of its guidance in 2016. The European Union announced a Conflict Minerals Resolution in 2017 to address corporate social liability.
The Responsible Minerals Initiative is building a set of standards that manufacturers can use to avoid buying conflict minerals. Earlier this year, Ford and Apple announced plans to start using this blockchain identification system as part of their buying process for cobalt. In a filing with the Securities and Exchange Commission (SEC), Apple said it was, "dedicated to going beyond the requirements in our mission to exceed globally acceptable due diligence standards so as to protect people in our supply chain."
- 5 companies using blockchain to drive their supply chain (TechRepublic)
- IBM's blockchain for jewelry highlights ledger's potential in supply chain, logistics (TechRepublic)
- IT leader's guide to the blockchain (Tech Pro Research)
- How using blockchain in the supply chain could democratize innovation itself (ZDNet)
- Blockchain: More must-read coverage (TechRepublic on Flipboard)
- Apple ditches five mineral suppliers over failure to pass human rights audits (CNET)
- Amnesty International lays environmental blame at battery industry's feet (CNET Roadshow)