December 2019

Adapt and perish: is the mining industry ready for the blockchain revolution?

  • By Dr Andrzej Gwizdalski, Lecturer and Honorary Research Fellow, UWA Business School

Blockchain has the potential to transform contemporary businesses and entire societies. But is the resources industry ready to adopt the technology, or does it remain a buzzword with an unproven business case for mining?

There is little doubt the mining industry must keep adapting to a progressively digital and automated environment as determined by Industry 4.0 (Dodd, 2019; Gooch, 2019; Sirinanda, 2019). Blockchain is ‘at the heart of Industry 4.0,’ or as Tapscott and Tapscott say, ‘blockchain is the revolution that will deeply transform contemporary businesses and entire societies’ (2016).

Efforts have been made, both globally and locally, to explore blockchain technologies for streamlining mining processes (Brightmore, 2019; Harris, 2018; Weiland, 2018). However, the technology is stil nascent, greatly overhyped and often misunderstood altogether (Warren and Deshmukh, 2019). It may take many years for the true blockchain adaptation to take place, but the mining sector should most definitely not ignore it. The best way to prepare for the future is to learn about blockchain now.

What is blockchain?

In the last few years, blockchain has become an overhyped buzzword without a standard definition. Almost any digital technology coupled with a few ‘magic’ words such as ‘smart contracts’ or ‘cryptography’ could pass as blockchain technology. The current environment thus encourages us to be cautious of blockchain marketing tricks and blockchain consultants, even those hiding behind the names of recognised global corporations.

Instead of investing in blockchain solutions, it might be wiser and more strategic to first invest in learning about the technology from reliable sources. When in doubt, it is always good to critically reflect on the key fundamental features that have made the technology distinctly innovative.

Blockchain can be defined as a particular type of shared database: a ledger. Although not as futuristic sounding as artificial intelligence, robotics or the Internet of Things, ledgers – such as the Babylonian clay tablets or double entry bookkeeping – have allowed for significant civilisational advancements and were essential for the development of the modern capitalist economy (Yamey, 1964). Trusted institutions, such as governments, banks and auditing firms evolved in parallel with ledgers. These third-party central institutions are required for recording, verifying and storing information of high value, such as records of financial transactions exchanged among peers in a global digital economy.

Blockchain has changed thousands of years of history based on centralised ledgers. Blockchain allows for direct peer-to-peer transactions to be securely recorded in a ledger shared by a network of computers that does not require any trusted third parties for validation. Instead, individual transactions are directly recorded and cryptographically secured in a data storage unit, known as a block. The block of data is then validated by one of the winning computers that first solves a particular mathematical problem set by the network’s software. To solve the mathematical puzzle, the competing participants need to use valuable resources, such as computing power and electricity. This investment proves commitment and disincentivises cheating (the proof-of-work makes any misbehaviour economically unviable). At the same time, honest behaviour (correct block validation) is economically incentivised by a reward of the network’s native money. Once the block is validated, it is added to the longest chain of valid blocks (hence the name blockchain) and the ledger is automatically updated across the network of thousands of computers. This particular type of decentralised open public ledger has proven highly secure, immutable and resistant to censorship efforts.

‘To properly reflect the innovative and decentralised nature of blockchain technology, any true blockchain model would probably behave like the Bitcoin system.’

However, not all distributed ledgers are created equal. The simplified description of blockchain above refers to the ingenious open public Bitcoin system introduced anonymously by the person or group of people known as Satoshi Nakamoto (2008) Nakamoto’s intention was to create a decentralised system of electronic peerto-peer cash transactions that cannot be stopped by third parties such as banks and governments. A decade later, it looks like Nakamoto has not only achieved their goal but has also created the technological foundation known as ‘the internet of money’ (Antonopoulos, 2016).

The internet of money, blockchain solutions and industry

The Bitcoin system (of which bitcoin currency is an integral part) soon captured the imagination of code developers, entrepreneurs and established tech companies. They all seemed to have their own ideas about blockchains magically solving their business-specific issues, such as saving costs by removing intermediaries, streamlining transactional processes, verifying the provenance of goods in a supply chain and even curing cancer.

Most of the currently proposed blockchain solutions for the mining industry fall into this category (see Weiland, 2018). Vitalik Buterin (2014) was the first to address the innovative visions of decentralised autonomous enterprises by expanding on Nakamoto’s single-purpose innovation (decentralised money) and creating a general purpose open blockchain, called Ethereum. General purpose blockchains can, in theory, decentralise and automate everything and this makes them potentially attractive to enterprises, including those in the resources sector.

However, the open public nature of blockchain technology was generally not well received by businesses and governments, who preferred a more private and business friendly version. In response to the demand, dozens of private blockchains owned by corporations and consortia have since emerged and offered technology that is proprietary, regulated and controlled by trusted third parties. But wasn’t the original blockchain innovation all about avoiding trusted third parties? Good question.

Decentralised versus private models

It is likely that most of the blockchain solutions out there in the market have little to do with Nakamoto’s innovation, as Halaburda (2018) points out. The word ‘blockchain’ was never mentioned in the original Bitcoin publication. This is because blockchain is not a single piece of technology that could be extracted from the Bitcoin system and freely applied to a current business model.

To properly reflect the innovative and decentralised nature of blockchain technology, any true blockchain model would probably behave like the Bitcoin system. The open public Bitcoin blockchain is a complex system that entails a network of computers, open software constantly updated by dedicated developers, cryptography, game theory, economic incentive mechanisms and a community that is not governed by a central authority. Bitcoin does not have a CEO, headquarters or customer service. It is an autonomous decentralised system. It is a system that was not created to work for centralised institutions but to challenge them by giving more power to individuals. It is not a system that can be controlled by a single business or a consortium and regulated by any legislation. This is where the great divide of blockchains begins. Those who believe in unstoppable decentralised and autonomous organisations embrace the open public blockchains (arguably the only blockchains). Those who opt for a traditional business-friendly ledger that can be centrally controlled by select authorities and owned by a business or a consortium are likely to choose the so-called ‘private permissioned blockchains’. However, the name ‘blockchain’ in the latter case is fundamentally confusing; instead, the term ‘distributed ledger technology’ (DLT) is becoming more commonly accepted.

It would be an exaggeration to say that all private distributed ledgers have no value and their proponents are disingenuous actors. These solutions often exist as a result of technological and regulatory limitations. Furthermore, the main limiting factor seems to be the traditional business model based on proprietary values and organisational culture that knows no other forms of governance but centralised ones. A truly innovative blockchain solution is unlikely to achieve its full potential in such an environment.

Instead, the current enterprise blockchain innovations are rather incremental and still at the level of proof-of-concept rather than mass adoption. Their main intended value proposition is to save costs by offering cheaper ways of verifying transactions and replacing old intermediaries with new ones (Catalini and Gans, 2016).

However, if the governance model remains centralised, the same and even better cost saving effects can be achieved with current technology, namely relational databases, such as Oracle and MySQL, as noted by expert developers (Greenspan, 2015; Song, 2018). Of course, relational databases do not have the same marketing appeal or buzz as the term ‘blockchain’. They do not sell to naïve investors or enterprises who are willing to pay premium dollar for having the latest technology, even if they don’t really understand it – or need it.

Despite this, truly decentralised blockchain technology is not over. Quite the opposite. Decentralised, autonomous organisations are on the rise among emerging technologies as assessed by Gartner research (Smith and Burke, 2019), but their adoption requires a long-term horizon. This is consistent with the definition of blockchain as a long-term foundational technology rather than a short-term disruptive gadget, in line with Iansiti and Lakhani (2017). Unlike disruptive technology that offers quick cost-saving gains over competitors, foundational technology is more substantial and longer lasting as it enables other technologies and solutions to emerge. An example of foundational technology is the TCP/IP internet protocol that was created in the early 1970s and took almost a quarter of a century to mature and enable the digital economy we are enjoying today.

Preparing for the revolution

To prepare for the blockchain revolution properly, one needs to approach it from a broader interdisciplinary perspective and a longer-term viewpoint. This is not about buying the latest software and doing facade restructuring, supported by trendy buzzwords displayed ostentatiously on one’s website. Proper preparation for blockchain involves the ability to reach deeper and answer challenging questions about organisational capabilities, cultural values and philosophical paradigms, and perhaps most importantly, to assess your (and your organisation’s) mental readiness to let go of the central locus of control and ‘perish’.

‘Proper preparation for blockchain involves the ability to reach deeper and answer challenging questions about organisational capabilities.’

A few quick suggestions may be of help in the meantime:

• Learn about blockchain technology as much as you can; preferably from reliable sources (not profit-driven). Consequently, be sceptical of anyone (this article included) telling you about blockchain solutions. Instead, conduct your own research.
• Start thinking about your long-term strategy an organisational capabilities that may require letting go of your current business model. Not ready to go that far yet? Then be prepared for a new type of competition that may emerge from nowhere one day and take over your business. Taxi drivers did not believe that a mobile app with no real car fleet could take over their business.
• Start slowly and use the tech that already works; for example, you could explore how to pay salaries in cryptocurrencies, like bitcoin, to your staff. This may attract the right kind of people who will help you with the transition. New Zealand is already legally doing it. Talk to your politicians about legislative changes to enable this option. You do not want to be left behind.

About the author

Dr Andrzej Gwizdalski designed and teaches one of the first Master level units on blockchain in Australia, BUSN5001 ‘Blockchain and Distributed Ledger Technologies in Business’.

References

Antonopoulos A M, 2016. The Internet of Money, 136 p (Merkle Bloom LLC).

Brightmore D, 2019. MineHub and IBM collaborate to introduce global mining supply chain solution via blockchain [online], Mining Global. Available from www.miningglobal.com/technology/minehub-and-ibm-collaborate-introduce-global-mining-supply-chain-solution-blockchain

Buterin V, 2014. Ethereum Whitepaper. A next generation smart contract & decentralized

application platform [online]. Available from www.ethereum.org/pdfs/EthereumWhitePaper.pdf.

Catalini C and Gans J, 2016. Some Simple Economics of the Blockchain. SSRN Electronic Journal.

Dodd C, 2019. To maintain growth, Australia’s mining companies must adapt [online], AusIMM Bulletin. Available from www.ausimmbulletin.com/feature/to-maintain-growth-australias-mining-companies-must-adapt/.

Gooch A, 2019. The path to autonomous mineral processing operations [online], AusIMM Bulletin. Available from www.ausimmbulletin.com/feature/the-path-to-autonomous-mineral-processing-operations/.

Greenspan G, 2015. Avoiding the pointless blockchain project [online]. Available from www.multichain.com/blog/2015/11/avoiding-pointless-blockchain-project.

Halaburda H, 2018. Blockchain Revolution Without the Blockchain?, Communications of the ACM, 61(7): 27-29.

Harris F, 2018. Discussing blockchain technology in mining [online], Global Mining Guidelines Group. Available fromgmggroup.org/discussing-blockchain-technology-in-mining/.  

Iansiti M and Lakhani K, 2017. The truth about blockchain, Harvard Business Review, 95:118-127.

Nakamoto S, 2008. Bitcoin: A Peer-to-Peer Electronic Cash System [online]. Available from: bitcoin.org/bitcoin.pdf.  

Sirinanda K, 2019. Skills needed for digital mines [online], AusIMM Bulletin. Available from www.ausimmbulletin.com/feature/skills-needed-for-digital-mines/.

Tapscott D and Tapscott A, 2016. Blockchain revolution: how the technology behind bitcoin is changing money, business, and the world, 368 p (Portfolio: New York).

Song J, 2018. Why Blockchain is Hard [online]. Available from medium.com/@jimmysong/why-blockchain-is-hard-60416ea4c5c.

Smith D and Burke B, 2019. Hype Cycle for Emerging Technologies, 2019 [online].Available from: www.gartner.com/en/documents/3956015/hype-cycle-for-emerging-technologies-2019.

Weiland M, 2018. 4 ways blockchain will transform the mining and metals industry [online], World Economic Forum. Available from www.weforum.org/agenda/2018/07/4-ways-blockchain-will-transform-the-mining-and-metals-industry/.

Warren S and Deshmukh S, 2019. Is blockchain overhyped? 5 challenges to getting projects off the ground [online], World Economic Forum. Available from: https://www.weforum.org/agenda/2019/07/blockchain-project-challenges/

Yamey B S, 1964. Accounting and the Rise of Capitalism: Further Notes on a Theme by Sombart. Journal of Accounting Research, 2:117-136.

Image: Ink Drop/Shutterstock.com.

Share This Article