Understanding the true potential of blockchain technology only becomes clear when it’s applied to solving a real-world, global problem. As drivers switch out their gas-powered cars for electric vehicles, a high demand for cobalt has emerged, a mineral used in lithium-ion batteries to power a wide range of products such as laptops, mobile devices and electric automobiles. The typical electric car battery requires up to 20 pounds of cobalt and a standard laptop requires around one ounce of the mineral. According to a report from Morgan Stanley, by 2026, demand for cobalt is expected to multiply eightfold, especially for its use in electric vehicles and consumer devices.
Yet the high demand for cobalt has shed light on a major concern surrounding the unethical production of the mineral. Most of the world’s cobalt comes from the Democratic Republic of Congo (DRC), a country plagued by political instability, legal opacity and child labor in its mineral mines. Still, more than 60% of the world’s cobalt supply is mined in the “copper belt” of the south-eastern provinces of DRC. According to Darton Commodities Ltd., a London-based research company that specializes in cobalt, at least 20% of this supply is mined by locals, such as children. The remainder is produced by industrial mines.
Of course, attempts have been made to track the supply chain of cobalt to ensure that companies are not using child-mined cobalt in lithium-ion batteries. However, many challenges remain, as a number of informal mine sites would have to be monitored, and accurate, electronic data would need to be transmitted from remote areas, all within the borders of a lawless country.
A Borderless Solution: Blockchain Technology
To ensure the responsible sourcing of industrially-mined cobalt, Ford Motor Company has joined forces with Huayou Cobalt, IBM, LG Chem and RCS Global to use blockchain technology to trace and validate ethically sourced minerals.
We remain committed to transparency across our global supply chain, said Lisa Drake, vice president of global purchasing and powertrain operations for Ford Motor Company. By collaborating with other leading industries in this network, our intent is to use state-of-the-art technology to ensure materials produced for our vehicles will help meet our commitment to protecting human rights and the environment.”
Built on the IBM Blockchain Platform and powered by the Linux Foundation’s Hyperledger Fabric, the project seeks to demonstrate how materials in the supply chain are responsibly produced, traded and processed. The overall goal is to create an open, industry wide network to trace and validate minerals and other materials for the automotive and consumer electronics industry.
With the growing demand for cobalt, this group has come together with clear objectives to illustrate how blockchain can be used for greater assurance around social and environmental sustainability in the mining supply chain, said Manish Chawla, general manager of the global industrial products industry for IBM. The initial work by these organizations will be used as a precedent for the rest of the industry to be further extended to help ensure transparency around the materials going into our consumer goods.”
The group, which includes participants at each major stage of the supply chain from mine to end-user, will begin with a pilot focused on cobalt, which is already underway and is expected to be complete by the middle of this year. Following this, the organizations will explore the creation of an open, industry-wide blockchain platform that could ultimately be used to trace and validate a range of minerals used in many consumer products.
From Mine To Market: Blockchain In Action
A simulated sourcing scenario was demonstrated to show the value and power of this pilot. The scenario starts with cobalt produced at Huayou’s industrial mine site in the Democratic Republic of Congo. The mineral will then be traced as it travels from mine and smelter, to LG Chem’s cathode plant and battery plant in South Korea, and finally into a Ford plant in the United States.
An immutable audit trail will be created on the blockchain, which will include corresponding data to provide evidence of the cobalt production from mine to end manufacturer. Lastly, participants in the network will be validated against responsible sourcing standards developed by the Organization for Economic Cooperation and Development (OECD).
As the validator of the network, we will bring our vast experience working on responsible sourcing at all stages of the supply chain at all times. Our collective effort allows participating companies to progress from human-led risk management to technology-led impact generation in a highly efficient and cost-effective manner. Augmenting crucial human expertise and experience, this is a demonstration of technology for good, empowering vulnerable communities and protecting the environment. We are proud to be a member of the network,” said Dr. Nicholas Garret, group CEO at RCS Global.
Traditionally, miners, smelters and consumer brands have relied on third-party audits to establish compliance with generally accepted industry standards. Coupled with these assessments, blockchain technology offers a network of validated participants and immutable data that will eventually be seen by all permissioned network participants in real time. Moreover, blockchain can also be used to help network participants address their compliance requirements.
According to Chawla, the key point is to look at this project as the world’s first mineral supply chain. “The intent of this is to become an open, democratic blockchain network open to all supply chain networks comprised of consumer facing brands that feel pressure to adhere to guidelines laid out by OECD.” Furthermore, while the initial focus of this blockchain project is on large-scale miners (LSMs), an important objective of the group is to help increase transparency in artisanal and small-scale mining (ASMs). This will enable these operators to sell their raw materials in the global market, while they meet their internationally ratified responsibility requirements.
The network can help enable ASM operators partner with due diligence data providers and, ultimately, join a blockchain-based network of validated participants. The pilot will also explore the use of incentives or financial benefits for ASMs and their local communities impacted by mining.
“We want to allow small scale companies that follow responsible mining practices the opportunity to join a network that would ensure a market for responsible or better cobalt. The long-term intent here is to encourage and allow a platform that will let an entire industry participate in a global economy, as the world moves to electric devices and vehicles,” said Chawla. Additionally, blockchain technology for supply chain management can help drive trade finance and logistics, while reducing the risk of fraud. For example, MineHub Technologies, Inc. and IBM today announced a collaboration to use blockchain technology to help improve operational efficiencies, logistics and financing in order to reduce costs in the high-value mineral concentrates supply chain, from mine to end buyer.
The $1.8 trillion global mining and metals market has traditionally suffered from inefficiencies due to manual, paper-based processes and a lack of transparency between supply chain participants. Blockchain technology helps address this by providing a shared ledger to create a single, real time view of transactions and data across the supply chain that can be seen by all permissioned participants.
Challenges To Overcome
Ultimately, there are plans to extend this pilot beyond cobalt and into tracing the supply chain of other battery metals and raw materials, including tantalum, tin, tungsten and gold. Focus industries for the solution include automotive, aerospace and defense, and consumer electronics. There is also the idea to set up a governance board representing members across these industries, to help further ensure the platform’s growth, functionality and commitment to democratic principles.
However, challenges remain. According to Chawla, one of the main challenges is verifying where these minerals are coming from. For instance, once minerals are processed, and other sources of cobalt move through the supply chain, the supply chain must be able to verify proof that each mineral comes from certain places.
“As different sources of minerals get mixed together, this becomes challenging for the supply chain. However, as the first step with our blockchain pilot, we are really encouraging companies to follow the OECD guidelines. Once this is accomplished, we will introduce technological solutions to provide better verification through the supply chain.”
The other challenge is for organizations to collaborate with local government agencies to make this more of a marque network, so that unlawful practices like child labor are brought up from a supply chain standpoint. Members can then address these challenges.
From a blockchain perspective, the purpose of this network is to help improve increased transparency so that we can focus on the fact that the minerals coming into the platform are all responsibly sourced, said Sai Yadati, partner for North America IOT, Analytics and Blockchain for IBM. The broad purpose is to make a positive social economic impact by addressing the root cause of the problem and incentivizing small companies to become a part of this network. This will ensure the responsibly sourcing of all minerals moving forward, and we are excited to start the pilot with Ford Motor Company and other leading organizations.”