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Blockchain in the Mining Industry

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September 20 and 21 saw the latest edition of Smart Mining 2.0 held in Toronto. The presentations covered a broad range of topics related to technology in the mining industry, including artificial intelligence, cybersecurity and data management. Included in the proceedings was a panel featuring Dentons partner Adam Allouba and Ryan Darbyson of Blockchain Guru, speaking on the benefits for the mining industry of integrating blockchain into their operations.

Although blockchain is suitable for any situation involving data storage, a few applications in particular were highlighted during the discussion. This includes traceability of resources along the value chain to build confidence that they are not conflict minerals (as required by regulations in the United States and, as of 2021, the European Union). Blockchain can also be used to store information generated by Internet of Things (IoT) sensors, which can then predict outcomes through the use of AI algorithms (a topic Dentons has covered extensively at events earlier this year held in our Montreal and Toronto offices). In addition, smart contracts can be used to ensure an automatic link between, for example, shipments of resources by a producer and payments by the customer. Those transactions are written to the blockchain and can be viewed by the appropriate stakeholders in real time. Such a mechanism can contribute to the efficiency of various arrangements, such as joint ventures or option agreements.

 On the practical side, the panelists emphasized that it is essential to have enthusiastic cooperation from the staff on the ground who will be working with the technology. As one of the panelists during the conference said, “Culture eats strategy for breakfast.” As a result, if personnel dismiss blockchain as just another passing fad or, worse, something that threatens their position, it will be impossible to get the full-throttled buy-in necessary for the success of any major project. To that end, it is crucial for management to communicate clearly with staff the benefits to the company and to themselves of the new technology. In addition, to avoid friction and encourage personnel to feel ownership of the technology, the external consultants integrating blockchain must work hand-in-hand to educate employees who will be using it.

As with any novel tool or technology, blockchain comes with its own legal challenges. Among these is jurisdiction over the data, and smart contracts in particular. Since information on a blockchain can be stored anywhere in the world, it is not obvious before which court a dispute would be heard. In the case of smart contracts, which consist of lines of code, embedding choice of jurisdiction and forum language in the comments to the code can help avoid lengthy and expensive disputes about where litigation should take place.

Another challenge in litigating a smart contract is the difficulty of debating source code before a court, since neither the lawyers involved and the judge hearing the case are likely to be expert programmers. As a result, expert testimony may be required to translate the programming language into plain English. To mitigate the costs and delays such testimony can entail, just as a programmer would document their code with embedded comments to help colleagues understand how it works, the parties should document their agreement in the same way.

Finally, it is important to consider confidentiality issues. As a distributed ledger technology, blockchain entails storing data across multiple nodes controlled by multiple actors. That decentralized approach ensures blockchain’s robustness and immutability, but also makes it essential to identify mechanisms that prevent anyone with access to the blockchain from reading all the data it has recorded. Encryption is a must, while layered permissions enable finely-tuned control of who has access to what and “need to know” access, rather than a binary approach where whoever has the encryption key can see the entirety of the data.

As with any new technology, it is important in evaluating blockchain to separate fact from fiction. While it has faded somewhat from the public eye, blockchain’s adoption is proceeding apace among businesses that see the benefits of a robust, immutable mechanism for data storage and sharing. The potential uses are vast, and while the legal issues must be addressed properly and early on, the right advice will help your implementation succeed and create value.