Using Blockchain to Help Fight Conflict Minerals

(Bloomberg Businessweek) -- Tantalum, tin, tungsten, and gold, often grouped together in mining industry jargon as 3TG, are vitally important to the industrial economy, used in high-tech products from smartphones to jets. But these conflict minerals, as they’re known, frequently follow a sketchy path from mine to factory, coming from mines whose profits flow to violent militias, criminals, and even terrorists. As human-rights groups step up pressure on big companies to better police the provenance of raw materials in the $600 billion industry, Nathan Williams says he can help.

He’s chief executive officer of Minespider, a startup that’s using blockchain, the technology at the heart of Bitcoin, to better track shipments of metals as they move from mines to smelters and then on to factories worldwide. Blockchain, a database file from which information can’t be deleted, is infinitely expandable to accommodate new entries. Williams has adapted the technology to create files that can be attached to gold ingots, pallets of tin, or truckloads of tantalum and tungsten as QR code labels. The codes ultimately provide manufacturers with proof their metals come from relatively peaceful places such as Peru, rather than, say, a rebel-run mine in war-torn Congo. “There’s a shift,” Williams says, “from the concept of ‘I can sell metal anonymously’ to ‘I must include a story with my metal.’ ”

Dozens of companies worldwide, from startups to big public companies, are using blockchain to help track 3TG metals and other commodities. Ford Motor Co. has teamed with IBM, China’s Huayou Cobalt, and LG Chem to use blockchain to trace and verify ethically sourced cobalt, one of the minerals used in the lithium-ion batteries that power laptops and electric cars. In the Congo, Société Minière de Bisunzu, the biggest miner of coltan—used in pacemakers, computer hard drives, and mobile phones—has terminated its contract with ITSCI, which operates a paper-based system that certifies responsible minerals in high-risk areas and moved to a product that produces blockchain-ready data. Minespider is working with Volkswagen AG, as well, on a pilot to help the automaker better track its minerals supply.

Efforts also are under way to clean up the supply chains of some of the world’s most valuable rocks. De Beers Group, which dominates the $17.5 billion global diamond-production industry, has started Tracr, a blockchain-based platform to follow diamonds from the mine to the engagement ring. Canada’s Lucara Diamond Corp., which in 2015 unearthed in Botswana one of the largest diamonds ever found, has built an online marketplace to match sellers and buyers of individual stones, hoping to increase transparency in what remains a largely opaque business. London startup Everledger is tracking diamonds from the rough to the retailer using another blockchain system, which stores data on a stone’s provenance, size, color, and cuts in certificates, pictures, and videos. So far the company has files on more than 2 million diamonds. “Being able to prove the origin of a diamond will become increasingly valuable,” says Ola Sodermark, an analyst at Kepler Cheuvreux in Stockholm. “Customers want to know whether a stone has been sustainably produced.”

Blockchain systems need further testing to prove they can operate at scale. Mining companies may have to hire outside advisers or train employees to use the systems. And in many cases, human monitors are necessary, because companies can’t be sure if the data a mine uploads is correct. While blockchain technologies are considered secure, there have been hacking incidents, most notably an attack on the cryptocurrency exchange platform Coinbase. And there are more mundane issues—such as how to permanently link a digital file to a truckload of rocks. “That’s the question everyone asks,” Williams says.

His solution is to attach unique identifiers such as QR codes to pallets of tin ingots, for example. The data generated show details about the shipment, including origin, weight, and purity, as well as photos and signatures of the people who’ve handled the metal. A buyer can cross-check the information against the historical output of a mine or contact the people to verify the details. Williams is also working on composite and isotopic tracking (labeling a metal on an atomic level to make it uniquely recognizable) to make things even more secure. “We want to prove that end-to-end traceability is possible at scale,” he says.

Minespider is in talks with two countries in West Africa, Williams says, to set up blockchain-powered purchasing centers aimed at cutting into the black market by paying gold miners electronically. That would help solve another problem: how to cope with supplies that come from a large number of sources in very small lots. Gold, for instance, is often mined by individuals panning or digging in open pits and selling a fraction of a gram per day. Buyers consolidate those lots and move them up the supply chain, and it’s impossible to say exactly where every gram of gold comes from. But even a seemingly small step, such as paying for the gold electronically, increases transparency.

That would help miners, who’d benefit from better working conditions associated with more formal production, and companies, which would have greater assurance that the metals come from sustainable mines that treat their workers well. “It will be very difficult to trace micrograms of gold in a phone back to certain mines,” Williams says. “But maybe it’s enough to know that Apple’s or Google’s Tier 4 supplier bought all their gold from a blockchain-enabled source that came from these five countries that were all monitored and had the following checks.” —With Hanna Hoikkala and Niclas Rolander

To contact the editor responsible for this story: David Rocks at drocks1@bloomberg.net, Dimitra Kessenides

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