Circulor is hoping that its blockchain system will give manufacturers a trusted way of responding to these challenges.
CEO and founder of Circulor, Doug Johnson-Poensgen, first became interested in blockchain back in 2010, when he was working in BT’s global security and defence division and the team introduced him to bitcoin. But it was only in 2016 that the technology had evolved to a point beyond pure hype, when he started searching in earnest for the right use case to launch a product. He explained:
“Two years ago, blockchain was the answer to everything, including world peace. And we've obviously just passed through peak hype. I started thinking, where can I find a business problem, that needs the characteristics of a distributed ledger, that you couldn’t solve with some enormous database - if such a thing existed - where there is this complex global supply chain with no central authority and a need for commercial confidentiality and an immutable record of transactions.
“We started looking at the range of potential business problems that we could see that could potentially scale. We picked raw materials, particularly focused on cobalt. Obviously we all know that the demand for electric vehicles is likely to grow, we know that cobalt is essential to lithium ion batteries, we know that cobalt comes with concerns around human rights abuses. There is a problem that’s going to grow, that everybody already knows exists and that potentially a new technology could help unlock.”
While cobalt – a key element of smartphone batteries - was the catalyst for the company forming, Circulor’s first public project was around the mining of tantalum. Tantalum is one of the four conflict minerals listed by the Organisation for Economic Co-operation and Development (OECD) – minerals and natural resources extracted in conflict zones and sold on to fund wars or support unrest.
Tantalum is used in the capacitors found in smartphones and other consumer electronics, and carries the same challenges as other conflict materials. It is mined in central Africa, shipped to chemical refineries in Asia, and then ends up in the hands of consumers across the world in the form of your iPhone or tablet. Companies like Apple and Samsung are incredibly keen to prove that the raw materials that make up their devices are conflict-free.
Circulor signed an agreement last year with the Rwandan government and mining association, to use its blockchain system to track raw materials extracted in Rwanda right along the supply chain, from mine to shelf.
“So you've got 300 tantalum capacitors in your iPhone or your consumer electronics. Like cobalt mined in Central Africa, it often ends up in chemical refineries in Asia and eventually is incorporated into your phone. It ends up in chemical refineries in China, becomes cathodes, becomes batteries, ends up in your electric vehicle. So that's the problem we're solving - mine to manufacturer traceability.”
More efficient and free
For the small mining companies based in Rwanda, there is little impact to their workload. They don’t even know they’re using blockchain technology, Johnson-Poensgen points out. They’re just using a mobile app, which is pretty straightforward to use and best of all for these smaller companies – free.
“I'm not having to teach people to bag and tag raw materials, that's been happening for 10 years already. There are existing bag and tag schemes out there, but they're expensive. markets for your material and you don't have to pay anything.
“So if you are operating legitimately, why wouldn't you go with a solution that's more efficient and no cost. You have to register on the system, and then the final step of that registration is the regulators saying, yes, you've allowed on, so I don't take the risk of who's a good actor and a bad actor.”
Once in the app, there are only three buttons on the front page. Click Start and the app takes you step by step through a process that begins with facial recognition, then the scanning of a tag, and then entering the details of the material.
While the small mining companies get to use the blockchain system for free, further up the supply chain there are charges. Circulor’s first client in Rwanda is Power Resources Group, a tier-two supplier of Apple, which provides refined material to a tier-one Apple supplier, a manufacturer of capacitors – it’s this type of refiner or component manufacturer that currently bears the cost.
And while the mobile app is simple to use through a few quick clicks, companies like PRG and those businesses further up the chain wanting to sign up, would require some user interface work to start using the technology. However, this effort should prove worthwhile, as they’re the ones which stand to see the most value.
“What we're talking about is traceability from mine to manufacturer. The benefit accrues with the original equipment manufacturer, whether that's Apple or a car manufacturer, because they're the ones that have to make Conflict Minerals Declarations. Also if you're Apple, you want to be able to tell consumers that you source responsibly.”
Custody of material
This application of blockchain technology means that everyone involved in the supply chain can demonstrate custody of material, especially important for raw minerals like cobalt or tantalum. Unlike with the provenance of a diamond or a piece of tuna, a layer of complexity is added with every processing step, as the raw material changes from when it's extracted from the ground to the point at which it ends up in a phone or battery.
“We've coded that as a series of smart contracts so that you know something arriving is the same material that leaves a particular process.”
Circulor is using Oracle technology to power its system, which itself is based on an open-source blockchain project run by Linux. The firm turned to Oracle in its pursuit of an enterprise-class system, which would offer customers like car manufacturers a platform that can integrate easily into their existing systems, is secure and maintains commercial confidentiality.
“The Oracle blockchain solution gives all that out the box, so when we adopted it four months ago, we were able to get from nothing to a production system within a matter of months.”
The number of use cases for blockchain is growing steadily. Diamond company De Beers developed its own Tracr technology to check its gems are free from conflict or child labor, while shipping giant Maersk has teamed up with IBM to manage and track millions of shipping containers across the globe. However, Johnson-Poensgen maintains this is still very early days for an area like raw materials traceability.
“We spent most of last year proving to people this could work and we're starting to get enterprise clients like Apple, like car manufacturers to go, yes let’s try it. And of course when the first few do, I think that starts the snowball. When one car manufacturer can use blockchain and demonstrate with 100 percent certainty precisely where they’ve sourced everything from, you've created a new benchmark. It's inconceivable that others won’t do it too.
“No-one manufacturer has market power. Even Apple, which is enormous, is just one purchaser of lithium ion batteries clearly, and so actually you need a number of manufacturers and a number of battery manufacturers and a number of cathode manufacturers to be participating.”
The next project for Circulor is working with a European car manufacturer, to improve traceability for batteries manufactured and recycled in China.
While Apple is part of the process in as much as the tantalum from Rwanda is what’s being used in its iPhones, the company is not currently signed up as a paying customer – yet.
“We've been talking to Apple since last summer, saying, look, we're doing this in your supply chain, do you want to play? And actually now they’re really interested, whereas beforehand they were intrigued and making warm, encouraging noises, but that's not the same as actually doing anything.
“They are receiving information that comes with known provenance that has been tracked. If we had this conversation in a month, I think it would be a different conversation.”
As Johnson-Poensgen said himself, there has been a lot of hype around blockchain as the answer to all our security and trust woes, but there has been little evidence of how the technology is actually achieving this, especially at scale.
All that could change with the buy-in from one company: Apple. Johnson-Poensgen makes the point that the iPhone maker is just one buyer, and you need a number of companies right across the supply chain to sign up to any blockchain system to make it a success.
But you can bet that if Apple came on board, the rest would come running. From its position at the very top of the supply chain, the tech behemoth would be able to exert pressure right down the line to even the smallest suppliers to sign up and guarantee the provenance of materials ending up in Apple products.
If Apple does indeed sign up within the next month, that could prove a major turning point for blockchain uptake.