Social assistance is undergoing an upgrade. Traditional practices are being replaced by a more secure and cost-effective system: Blockchain. However, with virtually no proven track record in the public or humanitarian sphere, the success of this technology is far from guaranteed.
The unique properties of blockchain technology
As explained in an earlier blog post, blockchain technology acts as a digital database, storing a record of every transaction carried out on the network for all users to see. Unlike traditional databases that are typically used in the humanitarian sphere, these are permanent (meaning nobody can delete or hide the record of previous transactions) and distributed(being stored on multiple computers, or ‘nodes’, and not just one) (Berryhill, Bourgery and Hanson, 2018, p. 7).
It is these unique properties that humanitarian organisations and governments believe may reduce corruption and transaction costs, whilst boosting security and efficiency, in the management of information. Accordingly, the use of blockchain technology could allow humanitarian actors to more effectively and efficiently transfer cash-based assistance to those in need.
Whilst governments have been relatively slow to explore this possibility, humanitarian organisations and private start-ups have acted with haste. Already, dozens of growing blockchain-based initiatives have sprouted up across the globe, tackling previously illusive problems in new and exciting ways. For example, BVrio’s use of blockchain technology allows it to monitor the Brazilian timber trade, thus combatting the pervasive problem of illegal logging (Blockchain For Good, p. 3).
Large organisations, typically seen as bureaucratic and slow to innovate, are also investing resources in research and development. The first of these was the United Nations World Food Programme (WFP), which today, through its blockchain-based ‘Building Blocks’ scheme, distributes cash-based assistance to hundreds of thousands of Syrian refugees in Jordan every year (Ibaraki, 2019). Numerous other humanitarian organisations are trialling or running similar schemes across the sector.
The analysis: The pros and cons of blockchain in social assistance
What exactly is in it for these organisations? Why are some clamouring for the opportunity to invest in blockchain whilst others are seemingly disinterested? It’s time to explore the technology’s pros and cons from a social assistance perspective.
- The pros of blockchain
Perhaps the most well-recognised benefit to using the technology to distribute social assistance concerns the potential for substantially lower transaction fees. This is a result of verification processes shifting from costly intermediaries, such as banks, to the blockchain itself. After all, with the technology storing a permanent record of all previous transactions, banks are no longer required to step in and verify these. The WFP’s Building Blocks scheme saw transaction costs fall by a staggering 98% upon the introduction of blockchain technology (Hope, 2019), with further savings incurred due to reductions in foreign exchange fees too (Poorterman, 2017).
With the role of intermediaries greatly reduced, humanitarian organisations can also become more efficient in the delivery of social assistance. Just take cross-border financial transactions. Whilst these ‘often require multiple intermediaries and take an average of 3-5 business days to clear’ (Pisa and Juden 2017, p. 6), the use of a blockchain slashes these times to minutes and means processing can occur 24/7. Feedback can also be obtained in real-time, as all assets stored on the blockchain are fully traceable and permanently accessible.
Security and privacyare two crucial considerations for humanitarian organisations. This is because the consumers of their services are often the world’s poorest and most vulnerable individuals. Blockchain technology largely negates any such concerns, as a requirement no longer exists for the mass transfer of personal information to financial intermediaries (Zambrano, Young and Verhulst, 2018, p. 5). Instead, this sensitive data can be stored (privately) on the blockchain, never leaving the organisation itself. In an era of increasing data breaches and state interference, it is hardly surprising that the humanitarian sphere appears to be turning to blockchain technology for its social assistance needs.
- The cons of blockchain
Despite this emerging technology promising governments and humanitarian actors lower costs, greater efficiency, and improved security, it also carries with it a number of quite substantial risks.
The most serious of these concerns the possibility of data breaches. Although extremely rare, firms using blockchain-based systems have been hacked before, and whilst these hacks haven’t exposed security flaws within the technology itself, the systems organisations must put in place to accommodate the technology are particularly vulnerable.
This was seen in 2016, when hackers targeting acrowdfunding campaign called ‘The Decentralised Autonomous Organisation’ extracted over US$ 45m from the blockchain’s accounts in only three hours (Blockchain For Good, p. 5). This explains why a number of blockchain pioneers, including UN agencies, are now turning to alternative storage methods such as cloud-based solutions. This sees as little personal data as possible being stored directly on the blockchain.
Consulting and development costsmust also be considered by any organisation looking to implement a blockchain-based social assistance delivery programme. After all, actors must devise a blockchain strategy, build platforms and programmes, and integrate new practices with existing ones. Being such a nascent technology, these experts charge a premium price for this advice and expertise, with smaller firms often excluded from the market as a result. Those familiar with the industry estimate that the development cost of a typical blockchain project can easily reach US$ 200,000 (Azati, 2019).
Scalabilityis the final substantial cost to consider. Only by being able to effectively serve millions of people can blockchain technology offer a credible and practical alternative to the use of traditional social assistance practices. Particularly at such an early stage of its development, it appears that this may be a large hurdle to overcome.
For example, ICF, a consulting firm, writes that ‘Blockchain’s energy costs and storage requirements, as well as the uncertainty that accompanies any nascent technology, make it a far less scalable solution than existing databases’ (Bloomberg, 2018). In addition, those receiving social assistance payments through blockchain-enabled processes may also need to possess specialist infrastructure, such as internet-enabled smartphones. Of course, these are rarely present in humanitarian emergencies where the world’s poorest are fleeing for their lives, or many developing country settings for that matter (Conference of International Investigators 2018, p. 3).
It appears that despite the apparent risks, humanitarian organisations and private start-ups are voting with their feet, investing heavily in a new wave of blockchain-enabled social assistance projects. This is hardly surprising, given that through the use of this technology, transaction fees can be slashed, efficiency boosted, and data breaches avoided.
This doesn’t mean that there are no challenges to overcome. Consulting and development costs still prohibit small actors from entering the sector, whilst scalability concerns threaten to constrain the reach of these innovations. It is clear that social assistance is certainly becoming more modern, however the technology enabling this is very much a work in progress.
Azati (2019). How much does it cost to develop blockchain in 2018, [online] Azati.com. Accessible: https://azati.com/how-much-does-it-cost-to-blockchain/
Berryhill, J., Bourgery, T. and Hanson, A. (2018). Blockchains Unchained: Blockchain technology and its use in the public sector, OECD Working Papers on Public Governance, No. 28. [online] Paris: OECD Publishing, p.7. Accessible: https://oecd-opsi.org/wp-content/uploads/2018/06/Blockchains-Unchained-Guide.pdf
Blockchain For Good (n.d.). Humanising the Blockchain, [online] Blockchain For Good, pp.3-5. Accessible: https://static1.squarespace.com/static/584b0a4b37c5812f78aa6669/t/5851803a5016e172dab2b897/1481736252705/The+Blockchain+For+Good+Manifesto.pdf
Bloomberg, J. (2018). Don't Let Blockchain Cost Savings Hype Fool You, [online] Forbes.com. Accessible: https://www.forbes.com/sites/jasonbloomberg/2018/02/24/dont-let-blockchain-cost-savings-hype-fool-you/#23d3362e5811
Conference of International Investigators (2018). Follow the Money: Blockchain Technology for Fraud Prevention, [online] Conference of International Investigators, p.3. Accessible: http://www.conf-int-investigators.org/wp-content/uploads/2018/10/Plenary-1_WFP-Adaptify.pdf
Hope, J. (2019). Can blockchain transform foreign aid?, [online] Development in Action. Accessible: http://www.developmentinaction.org/can-blockchain-transform-foreign-aid/[Accessed 20 Apr. 2019]
Ibaraki, S. (2019). Are Industries, Governments and UN Agencies Ready For 5th Machine Age Blockchain Adoption?, [online] Forbes.com. Accessible:https://www.forbes.com/sites/cognitiveworld/2019/04/08/are-industries-governments-and-un-agencies-ready-for-5th-machine-age-blockchain-adoption/#3d7de2f17b7b
Pisa, M. and Juden, M. (2017). Blockchain and Economic Development: Hype vs. Reality, [online] Washington DC: Centre for Global Development, p.6. Accessible:https://www.cgdev.org/sites/default/files/blockchain-and-economic-development-hype-vs-reality_0.pdf
Poorterman, A. (2017). Start Network in new partnership with Disberse to test revolutionary technology, [online] Start Network. Accessible: https://startnetwork.org/news-and-blogs/blockchain-experiment-humanitarian-aid
Zambrano, R., Young, A. and Verhulst, S. (2018). Case Study: Connecting Refugees to Aid through Blockchain- Enabled ID Management: World Food Programme’s Building Blocks, [online] GOV LAB, p.5. Accessible:https://blockchan.ge/blockchange-resource-provision.pdf