Win-Win: How Blockchain Technology Can Kick-off a new Era of Investments in Mining

Gert Zwingenberger
Aug 22, 2017 · 5 min read

As I have talked about in previous articles, the blockchain technology is forecasted to disrupt all major industries and has become a hot topic in conversations and social media. Blockchain has started to receive a lot of funding and attention by small start-ups and financial heavyweights. As the hype continues, you see frequent mention of “Blockchain this”, “distributed ledger that” and Bitcoin is constantly in the news. But what concrete applications does blockchain technology have?

How can the Mining Industry, with a historic late majority, use this technology while it is still being developed and studied?

While this technology is still arguably in its infancy or early development stages, it can be used to address numerous issues that plague the mining industry (ex.: tax disputes). It can be utilized as a tool to promote investments by reducing risks, increasing transparency and efficiency, which results in large dollar savings.

But how would a mining company implement such a technology to achieve all the above listed outcomes?

Let us say an imaginary mining firm called DLT Inc. has a mine in a hypothetical country in Africa named Dacacia. The following paragraphs will outline what steps and infrastructure each of the stakeholders can implement to protect themselves from fraud, false claims and create full transparency towards investors and each other.

DLT has decided to implement a distributed ledger system for their operations based on blockchain technology; in order to show their investors their transparent and responsible mining practices. DLT decides what relevant information will be recorded in the distributed ledger (based on what the stakeholders deem to be necessary for transparent and easy communication and verification), as well as which stakeholder will receive writing and reading rights. DLT offers Dacacia’s government to partake in this project and they agree to use this technology as a way of storing and approving all transactions into an immutable blockchain. Detailed expenses, including taxes, royalties paid to stakeholders, as well as revenues from the export authority are to be recorded.

Every transaction or data recorded in the blockchain has to be acknowledged by the receiving party. The government of Dacacia will have to publicly acknowledge that it has received all taxes for this period as soon as DLT has sent them. This public record will then be mined and placed into the blockchain where anyone will be able to verify this information. This can also work in the favor of the government. The government will be able to start talks immediately if inadequate funds have been received or there is suspected fraud. This avoids court proceedings (or at least provides a transparent reference point where disputes can start from), reducing costs of operations to both parties. The main benefit will be the risk reduction within the jurisdiction of Dacacia, which in turn will attract more investors and companies willing to work with Dacacia.

Other stakeholders and parties that are needed to create the verified and accountable network will be added. A good example would be the railway company. The company will acknowledge payments made by DLT, as well as record the amount of received shipment. This then in turn gets handed over to the shipping terminal. The terminal also records received payments and the amount of shipment received. The port authority can then control the amount of ore exported out of the shipping terminal and calculate the relevant taxes and royalties to be paid. These then will automatically match up, assuming all information was diligently collected and posted to the network.

This growing network can support an increasing amount of stakeholders, such as the environmental agencies, international financing banks, local communities, contractors and others. All the information recorded will match each other and every stakeholder will then have an entire copy of all transactions ever made. This will reduce the likelihood of mistakes on the account of all parties; all payments can be tracked in real time and will have to be publicly acknowledged within the network immediately upon receiving. This will automatically eliminate late payments and show the accountability of each party. The more stakeholders there are, the more information is recorded in the blockchain, the more secure the network becomes, with each ‘peer’ validating and controlling all the other ‘peers’.

Blockchain Technology can be the answer to increasing the pool of investments available to mining firms or governmental jurisdictions. Lower risk and increased transparency will drive these investments allowing the mining industry to grow and flourish.

This transparency and the view-only aspect of this blockchain network created by DLT, Dacacia and the other stakeholders can be taken to an entirely new level and be mandatory in stock exchanges. With the normalization of this transparency, any current or potential investor can easily access all the recorded information (this can be adjusted for public vs private information) and watch in real time all the interactions taking place. This will help reassure confidence in the mining industry and mitigate most issues that can typically arise between stakeholders, particularly between DLT and Dacacia.

The above described example shows a win-win situation made possible by a distributed ledger technology based on the blockchain technology. The ability of everyone to view the interactions and the fact that each stakeholder has to publicly announce, accept and store each transaction makes it a powerful tool to prove transparency and allow the various entities to expand their portfolios into the mining industry based on the lower risk factor.

What type of risk can blockchain technology reduce and what ripple effects can it have?

The main risk reduction shown in the above example is the reduction of conflicts and disputes with local or international governments. This makes a particular project more attractive to investors, as a major issue of operating within third world countries has been virtually eliminated. On the other side of the coin, the overall risk of the country has potential to be reduced. If proven to have a transparent and operational record of healthy interactions with companies, the risk ratings of the country will become more favourable and in turn fuel more investment across all sectors.

Blockchain will not solve all the problems present in the global mining industry, but an early implementation of such a system can reduce costs and mitigate potential disputes, as well as increase the competitive advantage of the company implementing this disruptive technology.

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