Blockchain & Impact Investing: Why Do We Need Blockchain for Social Finance and Social Development ?

7 min readJun 13, 2018

The following writing is my personal reflection after the Smart Impact Bond 1.0 Workshop in Zurich on 7th and 8th June, 2018 (About the event: click here).

Can centralized technology also make social finance and social development more efficient? The answer is yes. But if so, why do we need blockchain? I want to argue that the answer is not about efficiency to save cost, but about new ethical logic to maximize the value of the underserved.

In the Smart Impact Bond 1.0 workshop organized by ixo Foundation and UBS Optimus Foundation, 40 experts from different disciplines sat down and spent 48 hours together with each other. I feel in the current speculative blockchain development and investment atmosphere, it is already unprecedented, because it is literally difficult to talk to anyone in this industry for more than 30 mins. The discussion was solid and highly intelligential. I am sure all participants will believe blockchain is relevant to social finance. But undoubtedly it was a biased group. So let’s talk about it here.

There are a few basic layers of social development data infrastructure. First of all, it is the pay-for-success smart contract protocol, a linkage between what happen from the ‘ground’ and what happen in the ‘bank’, which used to be taken by middlemen. Thanks to ixo foundation’s team building the decentrazlied infrastructure of it for the last 5 years to replace the middlemen. Most importantly, this protocol requires validated impact data from the ground, i.e. the impact oracle layer. With blockchain technology, we are able to create a trustless environment to replace another type of middlemen, who used to collect data and audit data for the impact validation.

Oracle is the term in the blockchain community describing the process of data is generated within a trust environment and technologically gets into the network of blockchain. Again, ‘trust’ is the more important concept than ‘technology’. In our last 3.5 years works to datafy developing regions for impact measurement, we advocated partners to move from deincentivization strategies (or accountability-based data collection) towards incentivization strategies (or value co-creation data generation). We found incentivization mechanism literally just generates better quality data. Incentivization mechanism turns one-way data flow (from people to cloud) to a bilateral data interaction process (between people and cloud). We are able to capture behavioral data of users. Sometime the user knows and sometime they do not. In this case, we are able to collect data they we can trust. All internet data start-ups deploy strategy like this.

The System of Bilateral Trust

To me, we definitely can stop the exploration here, because we have been able to get what we need — quality data. However, seems like such solutionism mentality started to get more problematic when the general users are getting more and more aware about individual identity in both analog and digital space. Indeed, thanks for the timely facebook incident, as it is exactly the product of internet age and getting into problems by just considering in such solutionism mentality. I assume this will make my above and following discussions a lot easier to understand and resonance.

The question is not about if the data is trustful. We should ask why an individual should trust the system? I think the intention of ‘value co-creation’ mechanism is usually rather tactical instead of ethical. The gaming behind such ‘incentivization’ mechanism is intentionally ignoring the equality of accessing to information between data contributors and data collectors.

Data sovereignty is the idea came across many times in the workshop. It means the digital territoriality of an individual. This turns the concept of personal data from commodity or intelligential property, to personal owning, which needs to be protected, properly documented and always used with consent from the owner. Bilateral trust is the dynamic cycle for an individual to trust the system and the data is trustful, then vise versa. Finally, actual value co-creation process should be with full awareness from individual about what and why I am contributing to generate data. Moreover, only giving the data back to the owners can improve the quality of it, because the owners are the one caring about their possession.

Who hosts my economy

In developing regions, money (I mean actual paper bills) is always the scarcity, but values are consistently generated through local economic activities — let’s call it shadow economy for now. Without money, shadow economy cannot be monetized, thus not recognized as ‘value’ in the capitalist logics. Once data technologies are able to document the activities of shadow economy, value is countable, auditable and eventually becoming relevant to other external economic systems. It is a very simple concept behind all kinds of currencies.

So blockchain as a decentralized unreservable ledger technology works for this propose in developing regions, where money is still scared but digital devices are increasingly popular. Digital payment solutions are highly in need and indeed currently rapidly expanding in developing regions. At least it is faster than paper bills spreading in developing areas.

Technology is only the result, but we need to understand that the fundamental need is about why the ledger doing all the counts can be trusted, so that no one can manipulate it. There are two options: (A) a solution that always needs a host, or (B) a solution hosted by no one. Isn’t it simple choice?

Who hosts my things

The quick answer is yourselves. But apparently in the past, the internet business logic is that, if A provides B a bit value (can be just about efficiency or convenience to get a taxi), A by default owns data of B and store those data in A’s database. So when A is protecting B’s data, it is either to fulfill some sorts of legal liability or to protect A’s own benefit. A is able to provide B an authentication process to login to see his own data from A’s database, and usually charging B. Lastly when A tries to use B’s data, it is a matter of choice for A to notify B or not.

Shouldn’t the logic be reserved? It should be a matter of choice for B to agree or disagree for others to use his own data, and B should share the economic benefit generated by its personal data.

Blockchain is the Hope

Can blockchain create the decentralized and trustless space, without middlemen, owned by no host, so that the community is willing to actually participate in value creating process?

Can blockchain create the decentralized and trustless space, so that individuals can have the ultimate control of their own data, instead depending on someone else to create their ‘login’?

Lastly, is blockchain technology able to create such bilateral trust system between people and system, so that quality data can be collected through a transparent mechanism based on only incentivization?

We should not pretend that we know what blockchain can actually deliver. But I found paradoxical for any defense for centralized technology from the ethical logic perspective. I have a lot of hope in decentralized technology, because it seems tending to work towards a fairer rule of game. Especially after this workshop, I believe it is only a matter of time to solve the technicality issues.

There are four of us in the workshop will co-publish one whitepaper about how community participation is able to generate investor interest in smart impact bond.

About Impact Oxygen Foundation (iO2)

Impact Oxygen Foundation, iO2, is a Hong Kong-based decentralized autonomous organization for crowd-enhanced impact investment on the blockchain, underpinned by iO2 Token which incentivizes the communities to provide trusted data for impact measurement. Since 2015, the iO2 team has successfully developed and executed over a dozen social impact projects in China via its service platform named “ShanZhai City” (shanzhaicity.com), and now are engaging blockchain-based projects in Myanmar, Laos, Thailand and Brazil. Join our Telegram group (http://t.me/io2_impact_oxygen) to share your thoughts and get your questions answered.

Blockchain & Impact Investing: Why Do We Need Blockchain for Social Finance and Social Development ?

Can centralized technology also make social finance and social development more efficient? The answer is yes. But if so, why do we need blockchain? I want to argue that the answer is not about efficiency to save cost, but about new ethical logic to maximize the value of the underserved.

Written by Dr. Tat Lam