Applying Blockchain Technology for the Benefit of the Global Precious Metal Industry
Today, the precious metal industry faces a number of considerable challenges and pain points. Increasing compliance and regulatory requirements are adding materially to the costs of operating. Reputational and legal risks are mounting. When stolen and forged bars or products of questionable origin are mentioned prominently in the news, the entire industry cringes and suffers. This applies to all participants across the value chain – miners, refiners, transporters, vaults, dealers and banks.
Moreover, based on high confidentiality requirements and a lack of global inter-company data standards, industry participants find it difficult to achieve inter-company processing and data-sharing efficiency. This leads to incomplete product provenance and low data integrity which results in fragmented inter-party data processing and a lack of transparency.
In addition, in most jurisdictions, the precious metal industry has not yet been as strictly regulated as, for instance, financial services. However, regulators have set their attention on this fact and the “grace period” is rapidly coming to an end. The industry is coming under more and more stringent regulatory scrutiny. There is a high likelihood that financial market regulations will be applied to the precious metal industry as well.
As a result of the changed focus from investors and clients to responsibly sourced gold, the search for a technology solution to ensure product integrity over the whole product life cycle of a precious metal product is of high priority.
In the last few years, the development of Blockchain technology was tremendous. The latest generation of Distributed Ledger Technology (DLT) has overcome the disadvantages of significant energy consumption and slow transaction processing time. This latest DLT generation enables members to exchange product data in an immutable, efficient and secure manner without giving up the members' data confidentiality. As a result, the technological basis for a product integrity solution for the precious metal market is available.
In my view, the industry has today a unique opportunity, albeit there is only a limited time window to proactively and constructively define strategies and standards that address the regulatory requirements and jointly reap the benefits of smart digital industry solutions.
This is the context in which aXedras™ has been founded. As completely independent technology company aXedras™ built the Bullion Integrity Ledger™ as a DLT platform solution. It connects all industry stakeholders in a trusted data ecosystem enabling the efficient and safe digital flow of products addressing the aforementioned industry pain points. Our business concept is not disruptive. Instead, it is founded on a cooperative and interoperable win-win philosophy.
How does it work? The digitalized product life starts with its registration at the time of production at a refinery. The Bullion Integrity Ledger™ allows LBMA-certified refiners and mints to register their bars and to attach relevant upstream documentation to the products on the DLT platform.
Once registered, each bar receives a unique code and its Bullion Integrity Certificate™ as a digital birth certificate. By refiners registering their daily production, a global product database for high quality and fully documented products is generated. For this reason, banks, traders and other market participants can rely on receiving digital integrity data for their purchased physical products.
Furthermore, as the bar is transferred from one vault to the next one, the digital twin is also transferred and updated along with it. That generates a chain of custody which is recorded immutably on the product’s digital certificate – the Bullion Integrity Certificate™. As an interested buyer one can check where the bar comes from before actually buying it, reducing ones compliance work substantially.
This kind of solidly constructed and trusted data network affords a multitude of benefits in the realms of:
Transparent integrity data of each product stored on immutable blockchain technology
High automation of data management and data transfers between business partners
Safeguarding the confidentiality of each member and its data
Lower compliance costs due to immutable provenance and chain of custody at the product level
Detection of any fake products at first point of contact by a member ensures high brand protection of all members
The use of information technology as a tool to re-engineer workflows is nothing new. However, the unique characteristics of the modern DLT do indeed add another level of opportunity by connecting and digitalizing the precious metal industry ensuring the integrity of the products in circulation.
I am confident in and excited about the significant improvement potential that DLT brings to the precious metal industry. Please reach out to us via firstname.lastname@example.org if you have questions. We are happy to assist you.
Article was originally published in Bullion Bulletin, Vol. 9, Issue 12, DOP 6 December 2020