German automobile giant BMW is working towards eliminating Cobalt produced by child labor from their batteries. They have partnered with Circulor, a London, UK-based blockchain start-up for this project.
Majority of companies manufacturing electronic and electric vehicles need a large supply of Cobalt for the batteries that they manufacture. 67% of world’s Cobalt supplies originate in the Democratic Republic of Congo. It is estimated that approximately 20% of Cobalt produced in Congo comes from informal, unregulated mines that are also called ‘artisanal mines’. There are very disturbing reports of child labor being used in these mines. It’s been widely reported that thousands of children work in these unregulated mines, most often in working conditions that are dangerous and inhuman. At the end of the day, they earn just about 1 US $, and the children sustain their families with that small amount of money. These children working in these unregulated Cobalt mines can never hope to go to school. With democratization of information, consumers, especially in matured markets, can now easily know about the horror stories emerging from war-torn countries, or countries that exploit their citizens. Increasingly aware and conscientious consumers demand that the businesses that serve them shouldn’t source raw-materials from these countries. Many businesses world over are now very serious about ensuring that the raw material they use are ethically produced and sourced. Automakers such as BMW need to demonstrate the same level of responsibility as well. However, determining whether raw material is produced ethically in a far-away country is often hard, especially if that country is wracked by civil war or other kind of violent turmoil. If the country in question doesn’t have rule of law securely established, or if cartels with criminal intention control production of raw materials, then also it’s hard to determine whether raw material is produced ethically. Typically middlemen operating at every level in such countries, and forgery of documents, make it hard to know the actual truth about production of raw material. If a technology solution can eliminate middlemen and ensure tamper-proof records, it will help businesses to ensure that they source ethically produced raw materials.
This is where the partnership between BMW and Circulor assumes importance, because Circulor will look to use blockchain, and artisanal mines will use the platform to prove that they don’t use child labor. Blockchain, famous for it’s applications such as Bitcoin and other cryptocurrencies, is a technology that eliminates middlemen by design. It’s a distributed database, where every computer on the network, also called ‘nodes’, have a shared version of mathematically proven information. All nodes have the latest and complete information on blockchain. Blockchain can’t be destroyed by taking out any central server. All nodes have equal authority, and updates to blockchain needn’t be routed through any central authority. These design principles eliminate middlemen. Block records, also called ‘blocks’ are interlinked via predetermined protocol in blockchain. No existing block can be deleted or modified, hence new block needs to be added to update blockchain. Since any node can add a new block, it’s imperative that the sequence of transactions is maintained accurately, without which data integrity on the blockchain can’t be ensured. Blockchain uses consensus mechanism for this. Consensus mechanism may use proof of work (POW) algorithm where majority of all participant nodes have to validate a transaction. Alternatively, proof of stake (PoS) algorithm may be used, where majority of nodes that had staked their own crypto tokens have to validate a transaction. Either way, only after a node solves a complex cryptographic puzzle at high-speed using very significant computing power, and majority of approving nodes validate the transaction, a new block can be added. Such rigor makes hacking blockchain economically non-viable. Also, smart contracts govern relationship between stakeholders on a blockchain. Smart contracts are pieces of code that enable execution of legal functions, for e.g. allowing a stakeholder to take control of an entity. This removes the need to explicitly trust an entity or organization, since trust is ensured by mathematical algorithms on blockchain.
BMW and Circulor plan to first track all ‘clean’, i.e. ethically produced Cobalt, on the blockchain platform using one type of barcodes. Countries such as Australia or Canada produce Cobalt in properly regulated mines. Cobalt from these countries can be considered as clean Cobalt and tracked using appropriate barcodes. The entire life-cycle of this clean Cobalt can be tracked on blockchain. This is the first step. Once a reliable system has been established, then BMW and Circulor will work with the artisanal mines to record every step of their Cobalt production on blockchain, and the transparency involved in the process will eliminate sourcing Cobalt produced by exploiting child labor.
BMW has also recently partnered with Singapore-based VeChain, a blockchain company specializing on supply chain, to ensure transparency in their supply chain management. With their partnership with Circulor, BMW joins a growing list of organizations looking to use blockchain to certify that they produce responsibly, and source raw materials ethically, for e.g.
- Global risk management giant DNV GL has partnered with VeChain to enhance their assurance service using blockchain;
- World Wildlife Fund (WWF) is spearheading a blockchain project to bring transparency in the Tuna industry in the Pacific Islands geography, which will help eliminate illegal fishing and slavery.