Blockchain Positioned to Save Bangladesh
Bangladesh is an unregulated developing country with 155M people in an area smaller in land size than the state of New Jersey. As of November 2016, 94% of all transactions in Bangladesh were in cash with 12% of all value transacted through electronic channels. In 2011, the value transferred electronically was $0 and has quickly grown to over $1B per year. According to the report Building Digital Bangladesh, Bangladesh could save $146M annually across 6 major social safety net in the Government to Person space (G2P) by digitizing these transfers. Furthermore, retail payments make up half of all transactions although only 3% are digital.
In 2007, the Bangladeshi Government started the path of updating its electorate roll and soon, it contained biographic and biometric information on 85 million Bangladeshis. Afterward, since they saw that the impact was great, the government decided to create a national ID system and so they issued ID cards. In 2011, they launched IDEA — the Identification System for Enhancing Access to Services project. Every citizen received a unique identifying number (UIN) and a biometric smart ID. By the end of 2017, 100 million Bangladeshis were issued their own smart national identification that should replace the current laminated paper-based cards. The problem with paper-based cards is that those can be forged or replicated, but smart cards protect citizens and agencies from fraud.
Bangladesh National ID Security Flaw
Bangladesh’s initiative to issue national identifications to replace the paper-based cards is certainly a step in the correct direction, as a digital identity is often the 1st fundamental building block in establishing a digital country.
Every smart ID has a 10-digit UIN and 25 different security features that are in three layers in order to prevent forgery. Replication is discarded because personal information are engraved with a laser. So far, 33 agencies signed on to use the ID authentication service which represents progress. The National Board of Revenue uses the NID database to verify the identity of people who are applying for electronic income tax identification numbers, whilst the Department of Immigration and Passports uses is to verify the identity of people whom are applying for a passport. All mobile operators use it to authenticate their user base.
Unfortunately, this national ID system that holds sensitive data for over 100M Bangladesh citizens is centralized and not built with blockchain technology. Neighboring country of India had set up a similar infrastructure with their national identity using a centralized database called Aadhaar. Unfortunately, many people gained illegal access to this centralized identity database, and have exposed the nation’s sensitive data through anonymous handles on the messaging app WhatsApp for a mere 500 ruppees or about $8 USD. This problem could have been avoided if India had followed Estonia or Dubai’s example by creating cryptographic hashes of this data and storing that “digital dust” on a blockchain. Bangladesh looks destined to succom to the same error as India and it is just a matter of time that Bangladesh’s national ID database becomes exposed, unless they can fix the security flaw and implement blockchain in time.
How can blockchain be used to give Bangladesh a digital identity?
Distributed ledger technology could be used to create a decentralized, secure, privacy-respecting, and completely user-controlled online identity system that is often called a self-sovereign identity (“SSl”). There are many legal issues and technological challenges that firstly need to be resolved.
The user starts its journey as a block with its user’s identity attributes (hashed) and the user’s public key, signed with the user’s private key. Other entities like banks or different providers with whom the user has a relationship are represented within the blockchain and have their own sets of hashed attributes and public keys. A user can establish a relationship with these entities by signing the particular hashed attributes that are relevant. A passport office could sign the hashed name, address and photo of the subject if the attribute values asserted by the user match those on record at the Passport Office.
With more established relationships, the confidence in the accuracy of the attributes grows organically. As transactions take place that involve the user, the reputation capital of the identity grows. The confidence in the identity’s accuracy and of the trustworthiness of the person behind it grows based on what they do online, and all that they do online is transparent and visible to anyone via the blockchain, while still preserving their privacy and concealing their identity.
Addressing Bangladesh’s Unbanked
With over 155M people in Bangladesh, it is almost incomprehensible that still today over 80% of the country do not have a bank account (Unbanked) and well over 90% are considered Under-Banked. Comparing the financial difficulties experience in the United States pale in comparison to the financial hardships experienced by the people of Bangladesh where the majority of the people live on less than $5 per day. Additionally more than 70% of the population live in rural areas that do not have much access to banks. Big banks have a struggle to justify the ROI in opening up bank branches in the rural, poor areas of Bangladesh where the people simply do not have much money to store in the banks. This creates a bit of a catch 22 situation, where banks are not able to open branches to provide banking access and thus preventing a majority of the country with access to basic banking services. The unbanked represents a market opportunity of about $380B.
Blockchain is perfectly poised to help the unbanked. One of the fundamental problems with providing banking services to the unbanked is the lack of a verifiable digital identity. The lack of a clear identity prevents the banks from executing their Know Your Customer (KYC) practices, thereby preventing banks to justify providing the unbanked access to bank accounts. Blockchain enables the ability for anyone with a simple smart phone to establish an immutable identity on the blockchain from biometric data obtained from the device: fingerprint, selfie, name. This provides a means for those previously without a digital identity to form one from the ease of using a $10 smartphone from the comfort of their home.
With an established digital identity, users can then plug into one of many blockchain services that are focused on providing financial access. One such platform is OmiseGo (OMG) technology which enables peer-peer value exchange and payments using an ethereum based digital wallet platform platform. This platform allows other companies to utilize the services and provides a decentralized exchange on a public blockchain. The goal of OmiseGo is to unbank the banked and to bank the unbanked.
Bangladesh Receptive to Mobile Financial Services
In 2011, bKash entered in the Bangladesh market to provide a means to electronically transfer money in Bangladesh by users that are not required to have an existing bank account. A bKash account is a virtual storage of money that can be access via a mobile phone. bKash users must meet the requirements of being 18 years or older, be a Bangladesh citizen and having a national ID. By 2013, bKash rapidly grew to 11million accounts and by 2017, over 22% of adults use bKash daily accounting for about 4.5M transactions each day. bKash has paved the way for Bangladesh by focusing on providing small scale, unsecured credit.
Bangladesh is recognized as the global leader in Mobile Financial Services (MFS) platform as mobile money is the lowest cost of transaction in Bangladesh. bKash and other services like Rocket have truly pioneered the path and have changed the economic dynamic of their society where using MFS is now a daily ritual. Bangladesh already has a widespread adoption of mobile phones which already boasts 117M smart phone subscriptions. This has been made possible as the average cost of a smartphone in Bangladesh is $123 which was the lowest out of the 17 developing countries.
The underprivileged people of Bangladesh could finally get a chance to improve their economic status and plug into the global digital economy, an advancement which would benefit the entire country. Furthermore, in just a couple of years, the country could save hundreds of millions of dollars annually with digital transactions and would gain security and prevent fraud within the system. Land title fraud could also be eliminated if the DLT technology expands.
If this blog post has entertained or helped you to profit, please follow, share, and/or consider incentivizing me to write many more of these!
BTC Wallet — 14i7M8Mh9ZCzgEYsdW6VRwM2GMtjZcQ5eC
ETH Wallet — 0xebd9b9de1807f8b61b1bf5a80bac35030bef14dc
LTC Wallet — LKszoJoBVv75a43aSLWsr4ytYzqHPdRhPp
Other Articles I’ve written:
