Could blockchain sift out conflict minerals and fakes from the supply chain?

The move by De Beers and Alrosa is indicative of the wider mining industry’s continuing shift towards digitalisation. According to a survey taken by Accenture in 2016, 82% of executives in the minerals exploration sector revealed plans to ramp up investment in digital technology over the following three years.

Blockchain, a decentralised and digital ledger, is clearly a technology that has a place in an industry that places great emphasis on the importance of traceability across its supply chains. Looking beyond De Beers and Alrosa, BHP Billiton has been using blockchain with its vendors since 2016 to record movements of its wellbore rock and fluid samples.

Likewise, Canadian miner Barrick Gold recently pledged to invest up to $75m in new digital systems geared towards reducing operating costs and improving productivity.

But it is perhaps in the gemstone industry where blockchain could make the biggest impact – particularly as it looks to clean up its image and rid itself of the scourge of blood diamonds.

“As a bedrock technology capable of integrating and sharing data between multiple stakeholders in a supply chain, blockchain is capable of revolutionising the diamond industry as it is currently understood,” says Angel Versetti, CEO of Ambrosus, a blockchain-powered Internet of Things network.

“From the extraction site, through ports, across the various middlemen responsible for reselling or preparing a diamond, a public blockchain provides an immutable digital certificate for each diamond.

“Through demonstrating the exact journey for each diamond that ends up on the market, blood diamonds stand to be eradicated from the industry, while market players intent on promoting sustainable practices stand to be rewarded for their transparency.”

Is there an opportunity for blockchain-based diamond tracking to become the industry standard? By all means, agrees Eric Piscini, a former global blockchain lead at Deloitte, and now CEO of Citizens Reserve, a high-tech start-up.

“Blockchain provides new levels of access to information, security and transparency that have not previously been available,” he says. “And because information is distributed across thousands of computers, it is much more difficult to introduce misinformation or fraud to the system.

“Being a niche market, the diamond market requires one single platform to manage all elements of the supply chain, as opposed to relying on many different supply chain platforms at once – which have led to inefficiencies, errors and a lack of a trust in the past. Blockchain could change all this.”

John Meyer, a mining analyst at SP Angel, also believes end-to-end blockchain could be increasingly applied to other conflict materials, such as tin, tantalum and cobalt – perhaps even more so than with diamonds.

“Its best commodity application may actually be in tin and tantalum,” he says. “It could also have some marketing value, although, conversely, knowing that the diamond you are buying has come out of a mine in Botswana or South Africa and transported in a 300-tonne dump truck may not appeal to everybody.”

As in the case of the introduction of any new technology, question marks still outnumber answers when it comes to the adoption of blockchain. For one thing, should we expect smart contracts – computer codes stored in blockchain that transfer digital assets when predetermined terms and conditions are met – to be drafted by coders, or lawyers? Versetti believes it may require both.

“Both lawyers and coders will be required to interact in order to design an optimal infrastructure for smart contract-based management of assets,” he says.

If blockchain is to wield any kind of positive impact on the sector, it will also require a number of miners to cast conservatism aside and take a leap of faith. To truly get the most out of distributed ledger technology, there has to be a network of participants, as opposed to a stand-alone product used unilaterally.

“The diamond industry needs to invert what has been traditional practice and become transparent in their operations,” says Versetti. “For many companies, this will require convincing other supply chain stakeholders of the added value in doing such a thing.”

Blockchain could certainly spell out a means for operators and traders to remove illegitimate sources of supply. This should be welcomed.

It is not, however, the silver-bullet that will end the appalling trade of blood diamonds, a scourge that can only truly be defeated by greater international intervention. As Meyer says, “non-compliant diamonds will still be traded around the world – just perhaps not on our high streets.”