At its core, blockchain is a next generation of database that enables direct peer-to-peer transactions of any asset by fostering trust in the transactions through technology. Cryptocurrencies represent one specific application of this technology for financial assets, and this application is currently the only one that has achieved scale.

But there are many other ways blockchain could provide benefits—such as helping businesses authenticate their assets' provenance and quality as well as facilitate their digital transfer.

Blockchain thus has the potential to unlock significant value for companies or to disrupt their current business models through disintermediation. At the same time, however, the technology is still in the early stages of development and has yet to prove its commercial viability and application.

Today, as blockchain technology matures, organisations across industries, including mining, are exploring its possibilities. We see three use cases, in particular, in mining:

•             Tracing assets to prove provenance and prevent counterfeit

•             Managing logistics and trade

•             Tokenising assets for trading

Tracing assets to prove provenance and prevent counterfeit

Many of today's mining companies lack consistent and transparent data on the status of their assets across the value chain, including assets' physical characteristics, location and custody. In addition, certification of asset provenance is often dealt with manually, and compliance or quality management processes are complex.

As a result, mistakes occur, the risk of counterfeit rises, customers' trust erodes and supply chain management costs increase.

To tackle the provenance challenge, companies can use blockchain to assign a unique identity to each asset and track it throughout the supply chain. The outcome is a secure, single source of truth for all transaction records and asset data—from mine through manufacturing to end consumer. The resulting proof of assets' provenance boosts downstream players' and end customers' confidence that the product is of high quality and socially or environmentally responsibly sourced.

One case in point is Yamana Gold.

The company has partnered with Emergent Technology Holdings on a blockchain solution to track responsibly sourced gold from its origin all the way to the vault. Another example is Tracr, which aims to become the industry-wide traceability solution for the diamond industry. Initiated by diamond producer De Beers, the venture launched a pilot project with five selected manufacturers of polished diamonds, which has already tracked 100 high-value diamonds along the diamond value chain.

Blockchain can also help companies prevent fraud and low-quality counterfeit gold bars, other precious metals or mining supplies from entering the market and eroding legitimate players' profitability. LBMA, for example, is exploring solutions aimed at strengthening the integrity of the gold supply chain through use of technologies including blockchain.

The best of such traceability solutions address both technical and commercial challenges. On the technical side, they establish confidentiality safeguards for sensitive value chain data such as individual company volumes or transaction prices. They also ensure that each physical asset remains uniquely linked to its digital register despite potential changes in its physical form (for instance, gold moving from raw form to bar). This further reinforces confidence in an asset's provenance and authenticity.

On the commercial side, all traceability solutions need adoption by players across the value chain to be useful and to create economic value. Thus, initial adopters may need to eventually give up control of the solution to get other industry players on board. Effective governance mechanisms will be vital for fostering the required collaboration.

Managing logistics and trade

Despite digitisation in many parts of today's supply chains, paper-based trade documentation (with its greater risk of manual errors) still constitutes a significant share of the total costs of physically transporting an asset. Blockchain-based logistics or trade platforms seek to reduce such costs by providing verifiable authenticity of digital documents used across the value chain, including ownership certificates and custom papers. Participants—such as miners, manufacturers, suppliers of equipment and consumables, and transportation companies—can use such a platform to automate the processing of these documents.

To illustrate, Open Mineral metals exchange and ConsenSys created the Minerac Blockchain Consortium to connect the minerals supply chain, from mining, shipping and surveying to warehousing and even financing. Given that mining is characterised by extensive manual work and complex processes, the consortium's goal is to enable participants to simplify and automate trading processes. What's more, BHP has looked into using blockchain to track movements of wellbore rock and fluid samples. The objective is to achieve near-real-time data capture and create decentralised storage of critical trade documents such as letters of credit—all essential for fostering accountability and efficiency in the supply chain.

Tokenising assets for trading

Blockchain-based cryptocurrencies such as Bitcoin cannot (yet) replace gold as the ultimate store of value, because they do not provide sufficient value stability.

However, blockchain ventures can solve this challenge by using the technology to tokenise valuable assets such as gold or diamonds to create an efficient way to trade the assets' digital equivalents. In contrast to Bitcoin, the resulting cryptocurrency is backed by the physical asset, which links the digital asset's price with its physical counterpart. Examples of such cryptocurrencies include RGM (gold-backed) and CARATS (diamond-backed).  Such solutions can provide an additional and convenient digital trading channel for physical assets, minimise total cost of ownership transfers, reduce time to liquidity and enhance asset security.

However, to deliver these advantages, blockchain solutions must comply with newly established regulatory frameworks to foster trust among investors and customers. They have to enable investors to trade tokens at scale—that is, quickly and at low cost. Finally, they need to maintain investors' confidence that the tokens are truly storing value.

Additional uses of blockchain

Some miners are exploring applications of blockchain in addition to those outlined above. Take Canamex Gold Corp, which has formed the Ethereum Blockchain Strategic Alliance for gold and silver asset-backed crypto-tokens to improve green- or brownfield funding processes. The aim here is to provide investors with an easier way to fund new mining projects, including exploration and mine development.

Mining companies could also consider combining blockchain technology with machine-to-machine communication. Resulting autonomous peer-to-peer telemetry (ADEPT) could facilitate precision machinery or the automation of internal processes such as consumable stock reorders and supplier payments.

Commercialisation challenges

Despite its promise, blockchain has yet to prove its commercial mettle in mining.

Challenges to be surmounted include increasing technical scalability, which today is limited by the cost of validating transactions on the blockchain.

Resolving the trade-off between public and private access to data will also be key. A still-immature legal and regulatory environment and nascent governance models represent additional hurdles. Miners will also need to consider how to recoup upfront investments required to establish a successful blockchain ecosystem that provides significant value to participants.

Recent blockchain technology advancements and a high degree of flexibility in how to apply the technology are paving the way to solutions to such challenges.

Nonetheless, to assess the potential of a specific use case, companies should explore these in a proof of concept that evaluates the viability, feasibility and desirability of the blockchain solution under consideration.

*Dr. Jan Philipp Bender (bender.jan.philipp@bcg.com) is a partner and managing director and Tobias Kuhr (kuhr.tobias@bcg.com) is a consultant at The Boston Consulting Group