Early 2017 was an unstable time. The world was waiting to see what regulatory changes would be introduced by the incoming Trump administration. Then the Washington Post published an article discussing how some prominent brands didn’t want to see the Conflict Minerals legislation rolled back.
They were excited by the prospect of their products being ‘conflict-free.’
Since 2010, the Dodd-Frank Act Section 1502 required US companies to perform due diligence to ensure the gold, tin, tantalum, and tungsten were not funding armed conflict in the Congo. Millions had already died in the conflict and stemming the violence meant cutting off their funding.
This regulation served as the basis for the OECD’s responsible sourcing guidelines — and ultimately for the EU to adopt similar legislation in 2017.
Coincidentally, I was introduced to blockchain around the exact same time. My background was in emerging technology in industrial settings, with my previous company being Subvise, a chemical regulations tracking platform.
The applicability of blockchain to supply chain due diligence was clear.
Exploring the problem space
When considering a new startup idea, I believe it’s best to spend most of your time exploring and truly understanding the problem, instead of immediately starting work on the solution.
I began by emailing everyone quoted in the aforementioned article. I asked them what they felt the biggest problems were, what had been done already, what had/hadn’t worked, and what the biggest pain points were.
This was the beginning of a long exploratory process where I had to learn as much as possible about the mineral industry and conflict mineral policy, as well as blockchain and how to apply it.
What did I discover during the process? Two key (unintended) consequences of regulatory efforts on conflict minerals;
- Companies that wanted to be responsible simply stopped sourcing from Congo. This left the market to unscrupulous actors, making the problem worse.
- Collecting due diligence data has a cost, and this cost is usually paid by the miners. This is a disincentive for legal sourcing. A Congolese miner who pays for additional due diligence measures, still gets the world market price for their minerals — the same as a mine in the west.
For over a year, I met with people in innovation and blockchain divisions of some larger players in the mining industry, and was told of more immediate and practical problems:
- Minerals are fungible and can be mixed together at the smelter, obscuring their source.
- Supply chain data is very sensitive and companies do not want other companies to be able to see it.
- Third party gatekeepers in a system have way too much power and control over the supply chain.
The more I spoke with the industry, the more it became clear that this was not a simple problem, but a complex issue with many facets that need to be addressed.
Crafting the solution
We originally had the idea of creating tokens that represented the minerals from a mine, and passing them along the supply chain like a baton in a relay race.
It’s intuitive but it presents a couple of problems:
- When the tokens reach the end of the supply chain, how do we prevent them from being reused?
- When minerals are smelted together, how do we reflect the multiple sources of those materials to the companies downstream?
Upon reflection, we created a different utility for the tokens, and stored the data without tokens using the data structure now featured in our white paper.
It took about a year and a lot of thoughtful iterations to come to our current design. Yet all that effort paid off when the white paper was cited by the Responsible Mineral Initiative in their blockchain guidelines. I was subsequently introduced to many of the major players in the electronics, automotive, and gold industries.
Since then, we have secured our first investments, won multiple startup contests, hired some terrific team members, received a lot of press coverage, and are moving forward with a pilot project soon — all because we have a solution that truly satisfies the industry’s requirements.
It has been a long road, but in many ways we are still right at the beginning. Over the next few quarters we will be growing the team further, securing the next round of investment, preparing a token sale, and executing on our first pilot projects with our partner organizations. But it all began with that Washington Post article.