How Digital Assets are Transforming The Mining and Metals Markets
Jeremy Samuel, CEO, MetaliCoin
Jeremy Samuel, CEO, MetaliCoin
Digital Assets are emerging as a key application of blockchain technology and are underpinning significant changes across the metals supply chain.
So what are Digital Assets and how will they impact on Metals mining, processing, supply chains, and trading?
Digital Assets are electronic stores of value, created with blockchain technology, that can be traded securely, cheaply, and efficiently via peer to peer networks. They can be connected to physical artefacts (a kilo of Copper, a proportion of a building), financial instruments (a future contract over zinc, a US Dollar, loyalty points, shares in a company), digital items (an image, a song, 100 Gb of data), access rights (entry to a theme park, access to a video game, entry to a conference) or anything else that has value or generates an income stream. Crypto-currencies like BitCoin, Ethereum, and USD Tether are the best known examples of Digital Assets, but increasingly the category is being expanded to include digital representations of real estate, shares, derivatives, metals, gems, and almost every other type of asset you can imagine.
One of the key applications of Digital Assets is to make previously illiquid assets highly liquid–think real-estate, fine art, ore reserves, business data, and almost any class of financial assets. What’s more, when assets are digitized, they can be traded globally, sometimes (psudo-) anonymously and without the need for trusted intermediaries/middle-men. Exchanges such as tZero, CezEx promise to make trading Digital Assets easy and fast.
This means global, transparent markets can be created for any of these assets that allow them to be traded easily and cheaply without reliance on traditional institutions and intermediaries.
Digital Assets generally feature so-called “smart contracts” that encode the rules of exchange into the assets themselves. This allows the assets to determine if they can be transferred, under what circumstances, when and for what cost without the need for human intervention.
Just as physical assets are stored in a vault and digital files can be stored at home on a hard drive or cloud-drive, Digital Assets are stored in a “wallet” which is a secure application that uses cryptographic methods to secure the assets. Wallets can be in software, even in the cloud, or in hardware, in which case the hardware wallet can be stored in a safe or other secure location. The analogy to having cash in a physical wallet or a 100g gold ingot in your safety deposit box is very close. If the passwords are lost, the software and files get erased or the hardware wallet is damaged beyond usability, the assets are gone. At least Digital Asset wallets can be backed up! Just as custodianship is a critical part of physical asset management, custodianship of Digital Assets is rapidly becoming big business.
By way of example, a physical ounce of silver can simply sit in a vault. If it is sold, it may need to be transported. Humans may need to: confirm the transaction; retrieve the metal, dispatch, provide logistics/transport, receive the metal, vault and allocate the metal, and make an entry into the register.
Insurance needs to be arranged. Audits must be conducted. Of course, the metal itself has no say in stopping itself being stolen, sold to a sanctioned party or melted.
In contrast, 1oz of digital silver can be traded on a digital exchange, the transfer of ownership and custody is immediate, nearly free and automatically recorded on an unchangeable blockchain database (referred to as “immutable storage”). It can also determine if a proposed transaction can occur and stop itself being transferred if the transaction is prohibited (eg the buyer has to be an accredited investor, the seller has escrowed the asset, etc). The owner can open an app on their smart-phone, post a sale, and be done. The buyer can do the same.
"One of the key applications of Digital Assets is to make previously illiquid assets highly liquid–think real-estate, fine art, ore reserves, business data, and almost any class of financial assets"
The digital asset may be backed by real metal that is vaulted somewhere but it doesn’t have to be. It could be backed by a derivative contract, an ETF, a reserve in the ground or some other agreed claim on metal.
So how are Digital Assets impacting on mining and metals? There are already a number of blockchain based applications being used in the industry and more are coming.
Some key applications are;
• Asset digitization
• Supply Chain and Logistics Management
• Peer to Peer trading
Several metal-based Digital Assets are live in the market. For example, the Perth Mint has released GoldPass which is a digital gold certificate app that allows people to buy, store, and sell gold from their phone.
Leading bullion information and sales provider Kitco has also released VaultChain that allows customers to buy and sell digital gold and silver.
Also, a number of gold-back crypto-currencies have already been released, backed by vaulted metal or even mine output.
Some, like Kinesis with their KAU (1 coin = 1 g of 9999 gold) and KAG (1 coin = 10 g of At) coins even issue a debit card that lets users spend coins in retail outlets. Such coins seek to replace fiat currency and take money back to the days of metal backing.
There are also a number of coins that offer equity in mines, dividend, or royalty streams. For example, CobaltCoin pays mine royalties from Cobalt from the DRC–a market that has not been available to investors previously.
SUPPLY CHAIN AND LOGISTICS MANAGEMENT
Supply chains span multiple organizations and jurisdictions. This is a perfect application for decentralized blockchain technology and distributed applications. In essence, metals become digital assets that are transformed from ore to concentrates/dore into refined metal which are delivered as the metals move through the supply chain.
MineHub is a leading consortium, partnered with IBM, that is seeking to deliver an end to end supply chain solution for the mining industry. It promises significant efficiency gains and cost savings and gives all industry participants a clear view of the process.
One of the key benefits of automating logistics and supply chain solutions on the blockchain is the data created. Miners and processors can use the data to generate insights, create efficiencies, reduce cost of site identification and exploration, and even monetise the data itself.
A key feature of blockchain solutions is “permissioned data”—allows the creators and owners of data to determine who has access to the data, under what circumstances, and for what compensation. This is becoming a major issue with consumer applications such as Facebook and Google (that sell user data to advertisers to make billions with no return to the users) and is also moving into business applications as organizations generate more data and begin to appreciate its value.
Consumers and governments increasingly demand strong provenance for metals and mining operations, including compliance with anti-child labor, anti-conflict metal, and anti-counterfeiting initiatives.
This movement is already well advanced in diamonds, with de Beers collaborating with major retailers to release track to track stones from mine to store and Everledger providing independent solutions for the industry.
The rise of provenance solutions, along with sensors, artificial intelligence, and machine learning solutions, will make it harder for fraudsters, thieves, and scammers to move metals from point of origin into the supply chain, as is already done for diamonds. This will improve confidence in the industry and lower the cost of fraud.
PEER TO PEER TRADING
Metals trading is dominated by the major exchanges–LME, CME, Shanghai Futures Exchange–trading houses like Glencore and brokers such as MRI and Transamine. Typically there are multiple layers of brokers and middle-men, or trades are conducted over the counter and in private.
Digital Asset exchanges are emerging that will create transparent, open markets in a much wider range of metals and allow anyone to trade peer to peer, without middle-men. This will lower costs for traders, speculators, producers, processors, and end users alike, increase efficiency and create more open markets for metals not currently traded on the legacy exchanges, such as Lithium, Indium, and Rare Earths.
MetaliCoin is making it as easy for anyone to trade metals as it is to trade forex or crypto-currencies. We will provide very small trade sizes–typically 10 kg against the 25 tonnes minimum required today – without margin accounts or high fees. Moving forward, we will also allow trading in minor and tech metals, trading on leverage and in derivatives with equal ease and efficiency.
By digitizing assets, collapsing supply chains, and disintermediating middle-men, automating outdated manual processes, creating greater transparency and accountability, and making cross-organization collaboration easier, Digital Assets and blockchain-based Distributed Applications are disrupting the metals industry, saving money and time, and making the business more efficient.
If you are not looking at how this technology impacts your business, it’s time to start.
BIO:Jeremy Samuel is the CEO of MetaliCoin, a company that is delivering the Crypto Metal Exchange (CMX). The CMX allows everyone to trade metals as easily as they can trade Forex or crypto-currency, at low cost, from their smart phone, 24 hours a day. See www.metalicoin.com