How blockchain provenance tracking can help to track conflict minerals

Contents

Rare metals are crucial to our electronics industry, but their mining often takes place at great human cost. Sometimes, as in war-torn Democratic Republic of Congo this cost is morally unacceptable. To ensure that only ethically sourced materials are used, technology is needed to trace their origins reliably. Blockchain might just offer a solution to this problem.

 

Conflict minerals—definition

Let us start with the obvious question: what are conflict minerals? In the broadest sense, this term may be applied to any raw materials that are extracted from conflict areas, i.e., countries or regions with ongoing armed conflicts, where extraction is carried out with no regards to human rights and usually for the benefit of various armed groups. In legal terms, however, conflict minerals are defined more specifically. Applicable laws in the USA list raw materials used for the production of tin, tungsten, tantalum, and gold, which can be found in the Democratic Republic of the Congo (DRC). Why these metals and this state?

 

The DRC tragedy

The DRC is at the center of this issue, because it is the main location where the tragedy of conflict minerals is unfolding. It is a resource-rich country with a large population but little infrastructure and weak governance. Years of exploitation and numerous civil wars have made it a largely lawless place where armed groups commit various atrocities, exploiting the DRC’s resources and population for profit. The situation in the DRC has prompted both the USA and EU to pass legislation aimed at stopping the use of Congolese conflict minerals, although EU law defines the term more broadly, allowing for other resources from conflict zones to be included.

 

The 3TG

These four metals in particular, tin, tungsten, tantalum, and gold, have been selected because they are all found in the DRC in their natural forms and at the same time they are rare and of key importance to the electronics industry. Tantalum is used in the production of tantalum capacitors. Lightweight and high capacity, they are ideal for use in small electronic devices, such as hearing aids and pacemakers, but also have uses in smartphones, laptops, etc. Along with the next conflict mineral, tungsten, tantalum in the form of carbide is characterized by hardness and wear resistance. Therefore, both these metals are used in the production of high-durability items, from drill bits to turbine blades. That little vibrating thing in your phone? It also uses tungsten.

A better-known mineral, tin is used for soldering and is therefore indispensable in any electronics manufacturing. Finally, the best known of them, gold, while most commonly associated with jewelry, is also used to coat various small parts in electronics and for other purposes, taking advantage of its malleability and resistance to corrosion. Together they are referred to as 3TG (i.e., three Ts and gold).

 

Why is supply chain data important for 3TG?

The main reason why supply chain data and tracing of conflict minerals is important is humanitarian. Every conceivable atrocity is committed by armed groups that extract the raw materials used for the minerals’ production. Both slave and child labor are used in the mines, where no heed is paid to the safety, health, or lives of the miners. Supported by income from mineral extraction, these groups commit further crimes: murder, terrorism, genocide, kidnapping, and violence against women—it is estimated that there are 200 thousand rape victims in the DRC. It is simply unacceptable from an ethical standpoint to condone and support this state of affairs.

For the more cynical, there are also practical reasons to ensure the transparency of supply chains and the traceability of materials. First of all, as was already mentioned, both the EU and USA regulate this issue and any company that wishes to conduct business in these areas must ensure regulatory compliance. Regulation (EU) 2017/821 of the Parliament and of the council on the supply chain due diligence obligations for importers of tin, tantalum, tungsten, their ores, and gold from conflict-affected and high risk areas mandates at least due diligence in supply chain management and tracing the origins of conflict minerals. In the USA, section 1502 of US Dodd Frank Act requires US-listed companies to disclose whether they use conflict minerals and if they originate in the DRC or any neighboring countries.

Finally, as consumers become more aware of these ethical concerns, companies risk incurring an increasing reputation cost associated with the use of conflict minerals or a lack of transparency in their supply chains. At the same time, as consumer behavior is increasingly driven by ethical concerns, being able to provide a trustworthy provenance process and prove adherence to ethical standards can be a base for building customer loyalty.

 

Benefits of blockchain technology in supply chain tracking

Why is blockchain technology a good choice for provenance processing and tracking the origin of material up the supply chain? The main advantage seems to come from the fact that it is a chain. Since every entry into the ledger contains the complete history of the previous block and all preceding transactions, data cannot be injected into the system further down the supply chain. As blockchain is an immutable distributed ledger, which is highly tamperproof, and the ownership history of every piece of ore starts at its original source (i.e., the mines), it is impossible for an unscrupulous smelter or distributor further down the supply chain to falsify the origin of an illicitly obtained batch of ore and thus “launder” it for further sale.

 

Why is a distributed ledger better?

Blockchain’s distributed nature also contributes to its ability to reliably trace data over global supply chains. First, there is no central authority that manages and controls the data that may be coerced or manipulated into accepting false information.

The mineral trade, which may include conflict minerals, is, so to speak, “narrow in the middle.” While there are many mining facilities and numerous producers that use the aforementioned metals, there is a limited number of smelting companies that convert raw materials into usable metals. These companies suffer neither the cost of fair and sustainable mining practices nor the reputation costs that come from offending consumers’ sensibilities. They are, therefore, tempted to increase their profits by accepting unethically sourced minerals. They would also be influential in any centralized body that would manage supply chain data.

However, blockchain-based provenance tracing must by nature involve all the stakeholders and relies on consensus to validate data. This takes power away from the major players and distributes it more evenly over the network of interdependent stakeholders. It also makes it all but impossible to tamper with the data if all the other stakeholders hold a copy of the whole ledger.

 

How Hyperledger Fabric solves issues with blockchain

It must be admitted that there are certain technical obstacles to overcome here: proof of work (PoW) slows down the system, while many forms of proof of stake (PoS) also tend to favor the bigger players over other stakeholders. These, however, can be overcome through smart design, especially in an ecosystem that involves companies rather than anonymous private individuals.

Another problem that comes from blockchain technology’s openness is a lack of confidentiality. While we strive for transparency in this case, any business requires a certain degree of privacy in its dealings, especially if smart contracts or other information are to be attached to the data. Hyperledger Fabric offers a solution to both of these problems.

In projects under the Hyperledger Foundation umbrella, the problematic proof of stake and proof of work systems are replaced by a permissioned blockchain network. Frameworks such as Hyperledger Fabric are meant to offer industry smart contract and blockchain technology tailored to the needs of enterprises. It provides a permissioned blockchain technology and allows for developing applications with modular architecture.

Its main objective is to allow nodes on the network to conduct confidential transactions and form sub-networks, while preserving the advantages of blockchain solutions. This makes it a perfect base for the supply chain management and blockchain provenance tracing needed in mineral trading. It has, indeed, been successfully used for such purposes in this and other industries.

 

Hyperledger Fabric in supply chain tracing—case studies

Blockchain technology has already been used successfully to trace data concerning supply chains and ownership history, notably in the food industry. You may have heard Markus Mutz’s 2020 TED talk about tracing sustainably caught fish from the sea to the plate. On a much larger scale, Walmart uses Hyperledger Fabric blockchain technology to track its food supply chains. While in the latter case food safety is the primary concern, the sustainable fish example is somewhat similar to the mineral trade problem. In both cases, the main issue is the difficulty of tracing the long supply chain between the producer, who may or may not follow ethical standards, and the consumer, who cares about said standards. There are, however, also examples of blockchain solutions designed specifically to address the conflict mineral problem.

 

Circulor’s Rwandan tantalum project

One of the best-known cases of using Hyperledger blockchain technology for supply chain data tracking in conflict mineral trading is that of Rwandan tantalum. Rwanda is the world’s biggest supplier of tantalum, but occasionally the ore would be smuggled into the country from conflict ridden DRC. This meant that Rwandan tantalum came under the scrutiny of both US and EU regulations on conflict minerals. A UK-based company, Circulor, was tasked with designing a blockchain provenance tracing system that would help prove the origins of Rwandan tantalum and its compliance with OECD norms.

Circulor’s initial proof of concept was based on the Ethereum blockchain because it was easy to build. It is, after all, a system designed for being programmable. However, it was too slow to use in a full-scale supply chain data system (at the time, the Ethereum blockchain network was still using proof of work). Another issue is Ethereum’s unpredictable cost, caused by fluctuations in the value of its associated cryptocurrency. Some other blockchain systems were also considered, but in the end Circulor chose Hyperledger Fabric, which is widely recognized as an enterprise-class platform. The developers found that it both met their technical requirements and was acceptable to customers in the industry.

The system tracks minerals through all supply chain participants, from Rwandan miners and buyers, through refineries in Macedonia, shipping companies, manufacturers in the USA and China, all the way to distributors. Along the way, it uses a number of innovative solutions, such as smart contracts and a facial recognition system used to verify the original suppliers of tantalum ore. The system went live in the fall of 2018, initially in three mines in Rwanda and a refinery in Macedonia.

 

Provenance processing in other blockchain network projects

That is not Circulor’s only foray into blockchain provenance tracking. It has also completed a project for Volvo, which allows the car manufacturer to use blockchain technology for provenance processing of the recycled cobalt used in electric cars. Circulor has done similar work using Oracle’s blockchain platform. Volkswagen is also using similar technology to control its cobalt supply chain, this time based on IBM’s blockchain network. Another similar initiative is the Minespider Protocol, which uses Ethereum to issue digital certificates to batches of minerals, assuring they do not originate from conflict zones.

Another project using Hyperledger Fabric to control global supply chains involving mining and trading in metals is the KrypC and MineHub cooperation. Its objective is to provide smoother cooperation between multiple parties, allow them to share data and relevant information in a confidential manner, and trace products from their point of origin to their final destination while remaining fast, scalable, and resilient to sudden upheavals in the market, such as the supply chain disruptions caused by the recent pandemic. However, it is MineHub’s intent to also introduce functionalities into the current system that would allow companies to assure ESG compliance.

 

Summary

Conflict minerals are rare metals that can be sourced from areas engulfed in conflict, where mining is carried out with no regard for human rights. The proceeds of this trade often fund criminal and terrorist organizations. A specific case of this, involving the so-called 3TG minerals and addressed in US and EU law, is the DRC tragedy. Companies need solutions that provide end-to-end traceability of product provenance to avoid using unethically obtained resources.

Modern supply chains require modern solutions. These solutions are offered by blockchain technology, thanks to its tamperproof nature and qualities such as immutability, traceability, and non-repudiation. From art provenance, through food safety and quality assurance to conflict minerals, blockchain technology provides an innovative way to trace products from their source, through manufacturing, to the end consumer.

Among various applications of this technology, Hyperledger Fabric specifically offers the scalability, modularity, and confidentiality that is needed by industry. The viability of this approach has been proven by numerous practical applications.

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