Numerous articles, blogs and commentators are singing the praises of blockchain technology and its potential for humanitarian assistance. It has been hailed as a possible technological solution for distributing aid, storing identities, issuing land registrations, managing remittances, enhancing donor transparency and even tackling climate change. https://singularityhub.com/2017/09/03/the-united-nations-and-the-ethereum-blockchain/?utm_source=Singularity+Hub+Newsletter&utm_campaign=1c73d77e0a-Hub_Daily_Newsletter&utm_medium=email&utm_term=0_f0cf60cdae-1c73d77e0a-58140549 The UN’s interest in this emerging technology was documented in a ‘Request for Information: Blockchain-based International Assistance’, https://www.unops.org/ApplyBO/File.aspx/UNOPS-2017-RFI-Blockchain-001-2%20.pdf?AttachmentID=11df148d-ee13-43ee-9fdc-2a07a42777b1 issued in April 2017. Seven UN bodies ‘[have] identified the potential of blockchain technology to dramatically improve the efficiency, transparency and accountability in international humanitarian, development or peacekeeping assistance.’ Potential uses and benefits of blockchain identified by the request include: gateway for contribution (accept contributions in multiple currencies + cryptocurrencies); management of pool fund; tracking of the fund – from contributors to end-beneficiaries; tracking of goods and products (supply chain); self-executing function (smart contracts); self-auditing; AML/KYC; identity management; data storage; user accessibility to the system; distribution of value (value chain) tokens etc – offline value transactions; regulations; and interoperability.
But blockchain implementation in the humanitarian and development sectors is still in its early days, and the promises of potential made in excitable articles lack critical assessment of both the humanitarian context the technology would be applied to, and the current state of the technology itself – both its maturity, and its scalability. This article briefly describes the current state of blockchain in the humanitarian and development sectors, with some prominent use cases. It addresses the current problems facing implementation of blockchain technology, and determines what needs to be improved and changed to allow it to live up to its potential.
In tech jargon, blockchain is a peer-to-peer, immutable, transparent, distributed ledger technology. In plain English – in its absolute simplest form – it is an online record book of transactions which is accessible by all, and which cannot be altered. Blockchain allows people to transfer assets to one another directly, without having to use a third party such as a bank, a government authority, a law firm or a private company. This transaction is stored in a ledger, a copy of which everyone on the network can access. As many people have a copy of this ledger and it is not stored in one single place by one central authority, it cannot be hacked or corrupted and is not subject to system failure. Transactions cannot be altered once entered into the ledger, therefore presenting the ‘digital truth’. Blockchain can be used to transfer both on-chain assets such as cryptocurrencies (i.e. Bitcoin), and as a record of off-chain asset transfers such as land title. Because of this versatility, blockchain can be used in almost every sector, for innumerable different applications.
Current uses and future opportunities
Several UN bodies are exploring blockchain, and a number of start-ups are designing and piloting blockchain applications that could potentially be used by UN bodies, NGOs, charities and governments. The following is a (non-exhaustive) list of current and potential uses.
Although cryptocurrencies are often associated with anonymous, illegal purchases on the dark web, this type of ‘alternative’ currency (i.e. non-government-regulated money) can have humanitarian applications. It allows transfer of value between unbanked people without requiring official/legal identity, improving financial inclusion. Its peer-to-peer nature cuts out the middle-man and reduces third-party costs, making micro-financing and micro-loans cheaper. Humanitarians and organisations operating in countries with depreciating local currency may also benefit from using cryptocurrencies. However, cryptocurrencies are still associated with black market trade, and have not yet received mainstream recognition. The anonymity of cryptocurrency transactions risks falling foul of Know-Your-Customer and Anti-Money-Laundering regulations. Bitcoin has shown the potential volatility of cryptocurrency, and until there is a better understanding of cryptos and their use (including how beneficiaries can exchange cryptocurrency for local currency), they are unlikely to be the first choice for humanitarian organisations.
As well as transferring cryptocurrencies, blockchain can also be used to transfer legal tender. Cutting the banks out reduces fees, meaning that more money reaches the beneficiary. This is the model used by British start-up Disberse, whose pilot saved the NGOs involved 2.5% in fees. While seemingly a small saving, it was enough to fund three students to attend school for a year. The transfer of the money could also be tracked in real-time and was visible to all parties involved. Because blockchain money transfers still require intermediaries and currency conversions, the main benefits are currently limited to small cost savings and improved transparency.
One of blockchain’s main attractions is that it removes the need for transacting parties to trust one another, and instead embeds the ‘trust’ element of transactions into the blockchain code. As supply chains involve numerous transactions between parties that don’t trust one another, blockchain offers an exciting alternative management system.
The commercial sector is enthusiastically exploring blockchain, with some big names such as IBM, Walmart and MAERSK piloting applications. In the humanitarian and development sectors (and social enterprises more broadly), blockchain can be used to track the provenance and production of products. Provenance used blockchain to track tuna and Everledger to trace blood diamonds, Fairphone is exploring its use in tracking ethically sourced cobalt and Fairfood to inform consumers how much the farmer of their food received for the product (Fairfood use Provenance’s platform for this).
While blockchain could potentially be used for humanitarian/development logistics (such as aid or disaster relief), this is quite far down the road. The urgency and unpredictability of humanitarian supply chains may prove too volatile for blockchain technology, which is still in its infancy.
Identity (verification, management, storage)
Around the world, 1.1 billion people do not have an officially recognised identity, excluding them from basic services and economic opportunities. ID2020 – a public and private sector alliance dedicated to giving these ‘invisible people’ an identity – is looking into blockchain technology for identity storage. The issue, however, is what to store in the blockchain if these people currently do not have information identifying themselves, and/or are not recognised by their governments. While blockchain is a potential solution for storage, management and verification of identity, it cannot create or authorise identity. This responsibility is still held by governments. However, blockchain can be used to help build up elements of identity. BanQu, for example, uses blockchain to help refugees compile an economic identity, giving them a chance to present economic histories, for instance when applying for loans or jobs.
Blockchain can, at its simplest, be used as a more secure database for central authorities. Estonia – with one of the most technologically advanced government systems in the world – runs a fully digitised e-government based in part on blockchain technology. In this case, the main appeal is not the decentralised nature of blockchain, but rather its security and resistance to hacking. The tamper-resistant nature of blockchain is also appealing for countries with high levels of corruption. Ghana, for example, is using blockchain for land registration in order to respond to corruption and to signal to foreign investors that its system is robust and trustworthy.
Countries with government-authenticated identity could potentially look to blockchain to store this information. This would replace current paper-based and siloed database system(s), making access, verification and management of individuals’ identities more efficient. However, while blockchain offers potential improvements for database management, it often isn’t necessary. Governments, UN bodies and NGOs that already have robust and secure data management systems should be wary about jumping on the blockchain bandwagon solely because of the hype currently surrounding it.
Cash-based interventions: the World Food Program’s Building Blocks
The World Food Program (WFP)’s Building Blocks project is the most developed UN blockchain pilot. Starting with a proof of concept in Pakistan in January 2017, Building Blocks officially piloted in Jordan in June 2017, and its operations are ongoing. Some 10,500 Syrian refugees in Jordan are currently receiving their entitlements through a system run on blockchain technology.
Cash-based interventions traditionally rely on financial intermediaries such as banks. The process goes as follows: WFP advances the selected bank some money a month in advance. It then provides a list of beneficiaries and their entitlements, and the bank creates individual accounts for each of these beneficiaries. Beneficiaries go to a designated store, make a purchase and the purchase request is pinged to the bank for authorisation. Once authorised, the transaction is processed at the store. The bank then makes periodic money transfers to the store and sends WFP a monthly record of transactions. This process is costly and time-consuming, and accounting and reconciliation are both expensive and laborious. WFP is also concerned about privacy issues – having to share beneficiaries’ data with the bank. Any changes to the system (i.e. adding a beneficiary or changing an entitlement) has to be authorised by the bank and risks delays. Delays mean that some beneficiaries may go without food for a time.
Building Blocks replaces the financial intermediary (the bank) with the blockchain. In this pilot, the beneficiary’s information and entitlements are stored in the blockchain, meaning that, when a store requests authorisation for a purchase, it is the blockchain that is pinged and not the bank. Storing this information in the blockchain means that a beneficiary’s data is not shared with a third party. As WFP has access to and control over the blockchain (it is a private blockchain), it can make changes to beneficiaries’ information without having to go through the bank. Most importantly, reconciliation and accounting are much cheaper and easier. WFP has saved 98% of costs through this process.
It’s important to note that, in this pilot, the blockchain is being used for recording and accounting purposes – it is not moving any money. WFP is still using its own bank accounts to transfer money to the stores, but it is doing so based on transactions stored and recorded in the blockchain. WFP suggests that, in the future, it may carry out cryptocurrency and/or digital national currency transfers through blockchain, but for now it is only being used for information management purposes. For more information on this pilot, watch WFP present at the 2017 DevCon: https://www.youtube.com/watch?v=vXVcuWvR5Z0&feature=youtu.be&t=5012
Blockchain technology, while very exciting, is still in its infancy and there are many hurdles to mainstream adoption. Beyond technology challenges, blockchain also faces legal and ethical questions, as well as challenges specific to the humanitarian sector.
Despite being plagued with many potential technology challenges, such as computing power, storage, interoperability, lack of developers, scalability, governance, energy consumption and cost, blockchain developers and enthusiasts are working hard to overcome them. The open source nature of most blockchain protocols and networks means that developers can quickly identify problems, and collaboratively find solutions. Issues such as computing power and energy consumption are being dealt with by alternative protocols that are less burdensome to operate. The problems of expensive development and the lack of talented developers will also be overcome as blockchain becomes more widely known and appealing to tech enthusiasts.
Legal and regulatory
These are the most prominent challenges cited by blockchain developers and operators. Cryptocurrencies face stiff government restrictions, with countries such as China barring citizens from trading in cryptocurrency exchanges. Governments cite potential money laundering and terrorism as reasons to ban a currency they cannot regulate. Non-financial uses of blockchain do not yet pose significant legal risks beyond data responsibility rules. With the broad-reaching EU General Data Protection Regulations (GDPR) coming into effect in 2018, there is uncertainty as to how blockchain would comply, particularly with provisions such as the right to be forgotten, which is in conflict with blockchain’s inability to be erased or altered. Transferring off-chain assets such as land still requires ‘real world’ laws, and it is not clear yet how the blockchain ledger will act as evidence of ownership and transactions. These issues all relate to the fact that blockchain is in its infancy, and will be dealt with incrementally as more legislation and case law arises.
Unlike the commercial sector, where the primary concerns are scalability and profit, for the humanitarian and development sectors new technologies need to consider the vulnerability of affected people (end-users and beneficiaries), connectivity, persuading field workers/actors to use new technology, the risk aversion of these sectors, privacy/consent issues, the affordability of the technology, and power relations and the politicisation of aid. As a new technology, actors exploring blockchain face the early adopter’s challenge – any pilot or adoption requires technical expertise and high risk tolerance.
Blockchain has the potential to be both a disruptive and incremental technological innovation, depending on how and why it is implemented. Currently only small and segregated pilots have taken place, and blockchain is still far from mainstream adoption. However, strong use cases are already emerging thanks largely to private sector exploration, and it is important that actors in the humanitarian and development sectors are aware of the technology and its possible uses, and keep an open mind towards potentially funding and piloting applications.