Ethical gold tracking involves having transparency throughout the extraction process until it reaches the consumer. So, when it comes to chain visibility, DLT can link up supply chain information and enhance visibility in each transaction. But having accurate records, verification and industry responsibility remains essential for reliable sourcing.
Why Gold Traceability Matters
Gold’s journey to the buyers is from miners, to traders, refiners, manufacturers, and retailers. This means that gaps occur with every transfer and gaps can be utilized for illegal mining, fraud and sourcing controls. This contributes to the confidence in the gold market and in responsible supply chains via traceability.
Origin signs may be removed from gold during mixing, melting and refining. Therefore, it will be difficult for downstream purchasers to confirm the source or methods used by the producer. Investors, refiners, jewelers and consumers are impacted by this issue because they are looking for responsible sourcing evidence.
Compliance is assisted by paper records and databases, however they can be subject to manipulation and reporting errors. In contrast, distributed ledgers maintain common transaction records of the participants in the supply chain. But integrity of the record still relies on the accuracy of information when it is entered.
How DLT Tracks Gold
Distributed Ledger Technology records each gold transaction on a digital ledger. So, miners, traders, refiners, and participants can create a chain of custody. All entries are resistant to change, allowing later users to view the transfers without the company’s private database.
Records can be tied to physical gold via DLT systems with QR codes, product passports, sensors, or markers. Furthermore, shipment information and transaction information can relate a shipment to its traceable origin. The tools provide enhanced traceability, but physical checks during form or ownership changes are still required.
Smart contracts can incorporate automated compliance steps and rules to transactions. For instance, if a transfer needs to be approved, the proper paperwork will be required and the next step will be noted on the ledger. However, DLT does not claim to be able to verify the authenticity of each document by itself.
Industry Projects and Practical Use
The Gold Bar Integrity Programme demonstrates the testing of digital gold tracking by industry groups. The World Gold Council and London Bullion Market Association launched the programme for authenticity and transparency. Moreover, aXedras and Peer Ledger showcased the distributed ledger technology during the initial stage.
The project’s objective was to document gold bar histories from the mines via vaults and eventually market agents. Thus, a digital record of origin and ownership, including where it is and how it is moving, would be possible on each bar. These systems can minimize the likelihood of counterfeit and enhance the validity of responsible sourcing claims.
Brazil is a good example and the Fênix DTVM implemented the Minespider technology on gold traceable to blockchain. It included product passports that contained information on the origin of the product, seller, volume and transaction data. But subsequent research around individual suppliers revealed that blockchain usage does not eliminate greater sourcing risks.
DLT, ESG, and Ethical Sourcing
DLT can be used to track evidence throughout the supply chain, thereby assisting in environmental, social and governance reporting. Examples of records can be sourcing documents, labor checks, environmental certifications and transaction history. For the buyer, this means that they can check an evidence trail and then make decisions on whether or not to accept claims of responsible production.
The technology can also be used to aid conflict mineral due diligence and other compliance activities. Approved parties will be able to capture the supplier details in an uniform way, and companies will be able to audit transactions against sourcing policies and regulatory requirements. However, compliance is of no value without audits, inspections and verification of the digital records.
Artisanal mining poses problems, and many miners operate in informal or risky mining conditions. Furthermore, transactions may become traceable, while the use of mercury and unsafe working conditions and limited financing may persist. Hence, alongside digital tracking, it is necessary to have ethical sourcing complemented by technical support, market incentives and better practices.
Limits and the Path Forward
Information added at the start of blockchains cannot be falsified. Therefore, the data collection continues to play an important role during the mining, trading point, refinery and certification processes. This can be addressed by independent audits, strong identities, physical tagging and good supervision.
It is crucial that the certification quality is high and in the case of low quality, it can create an illusion of responsibility. So, third party verifications and unambiguous criteria and reporting build trust in ethical sourcing statements. DLT is a complementary control, and should be used in conjunction with these controls and not instead of them.
Everything can be tracked and verified with DLT and can be audited because of its transparency. But technology is not the answer to all the issues related to illegal mining, environmental damage, exploitation of labor, corruption and lax enforcement. Last but not least, trusted and good governance should be backed by digital ledgers in responsible gold markets.
