by Shabir Ahmed, Mining Industry Advisor at SAP Africa:
According to Harvard Business Review, billions of dollars are being invested in blockchain technology, and some of the smartest people on the planet are engaged in understanding how this technology can reinvent organisations and industries. A report from PriceWaterhouse Coopers named blockchain as a ‘tech breakthrough megatrend’ for CIOs, whilst Gartner named it as one of the top 10 strategic technologies for 2017.
The potential impact of blockchain is driving businesses to rethink existing business models, re-examine opportunities previously thought non-viable, and explore a new frontier of opportunity that can impact the bottom line and benefit society.
Although blockchain was introduced in October 2008 as part of a proposal for bitcoin, its full potential is likely to be realised outside financial services and government. Harvard Business Review asserts that blockchains are a foundational horizontal platform technology that could be used in any industrial sector including agriculture, utilities, mining, manufacturing, retail, transport, tourism, education, media and healthcare.
Blockchain to fix ‘chain of custody’ in mining
Disclosures by Tesla and Hewlett-Packard to the United States’ Securities & Exchange Commission (SEC) in 2015 indicate that they found difficulties in tracking conflict materials that could originate from select African nations. This is driving a new wave of rules and legislation making it mandatory for manufacturers to not only disclose the source, but also reinforce the concept of ethical sourcing.
This makes the concept of ‘chain of custody’ fundamental to transparency across the value chain. Simply put, it is the knowledge of every set of hands the minerals have passed through, from the moment it is extracted, to when it lands in the hands of the final owner. Complete knowledge of the chain of custody is the only way that Tesla or Hewlett-Packard can ensure they are compliant with SEC guidelines.
The diamond business has been one of the first to embrace blockchain technology wholeheartedly. The typical journey of a diamond from when it’s mined to its display in a jewellery store offers many opportunities for a valid, ethically-sourced diamond to be exchanged for a conflict diamond. Blockchain can help producers verify each step in the production process to guarantee the legitimacy of each diamond.
Partnership puts 1.6 million diamonds on blockchain
A London-based company called Everledger has placed more than 1.6 million diamonds on a blockchain. Entries on the digital record include dozens of attributes for each diamond, including the colour, carat, and certificate number, which can be inscribed by laser on the crown or girdle of the stone. The technology enables diamond suppliers (and intermediaries like border agents) to replace a paper certification process with a blockchain ledger, with computer scanning tools used to access what Everledger calls a “digital vault” and to determine the provenance of any diamond.
In March 2017, SAP announced a partnership with Everledger to bring blockchain to procurement. One of the first applications is around smart contracts. With blockchain technology, existing trade contracts can be applied within the transactional system to enforce business terms at the point of transaction within the blockchain. This ensures rules are followed, while making business more digital and efficient. SAP is exploring plans to utilise blockchain in other business scenarios for enterprises and will implement blockchain across its portfolio including the SAP Ariba network to enable use cases like provenance scenarios, digital object representations or collaborative transaction execution.
Seven key uses of blockchain in the mining industry
The mining industry is fraught with process complexity and regulatory hurdles that can put pressure on bottom line results. Acquiring mining rights, negating the risk of data corruption due to change of custody, complex accounting and settlement processes, proving the provenance of minerals mined, providing visibility across the value chain, and difficulties with reconciling the amount produced in a mine with the amount transferred to processing plants are just some of the challenges facing the mining industry.
Several of these challenges can be addressed by utilising blockchain technology, including:
- Automation of ore acquisition and transfer: Mining companies often acquire ore from third parties to blend with their own. Blockchain enables the automation of ore acquisition and transfer between suppliers and the mining company, and between ore producers and traders.
- Automatic registration of mineral rights and IP: Blockchain can automate the registering process and replace the rush to government mineral rights departments when mining companies make a discovery.
- Visibility of ore inventory at ports: Ports receive ore from several different sources and owners. Blockchain can be used to declare and provide visibility for all the reception of ore.
- Automatic cargo hire process: Blockchain can bring more flexibility to the freight hiring process and create an Uber-like automatic cargo hiring process. Specialised systems could hire the ship and register the contract in a distributed ledger system automatically, reducing freight costs and saving significant time.
- Process and secure large amounts of IoT data: Miners could use blockchain to more efficiently process the rapidly growing amounts of data being generated by connected devices. With the advent of Autonomous Peer-to-Peer Telemetry (ADEPT) systems that essentially enable a kind of self-managing IoT, ADEPT systems could, for example, enable autonomous vehicles to reorder consumable stock when supplies run low, with payments made automatically upon delivery.
- Reconciling amount produced and sent for processing: When coupled with precise measurement processes and technologies, blockchain can automate and enforce the reconciliation so that each value is registered in the ledger book automatically.
- Automatically execute procurement and other contracts: Mining companies are big consumers of fuel; mainly diesel, electrical energy, tires, reagents, consumables, spare parts and other products. Blockchain allows the automation of procurement of those items, using auction engines, leveraging their negotiating capabilities with the market and allowing opportunistic purchase strategies. Contacts are established and registered automatically. Miners could also use blockchain to host smart contracts to execute contracts automatically across multiple jurisdictions. By automating the process, such smart contracts could also help reduce license-to-operate risks in developing countries.