I would like to thank Sandesh Pandey for co-authoring and helping me gather details for this article.
Please consider this the annual update of Sikka: Working at the intersection of blockchain and humanitarian innovation. Lessons learned and experiences from our first pilot and recent developments.
In August 2017, the first iteration of Sikka was ready for a pilot in Gorkha district of Nepal when Nepal Rastra Bank issued a directive that banned all activities related to the transfer of cryptocurrencies. Although, Sikka never intended to create a cryptocurrency of its own or allow the transfer of existing coins, the team thought it best to reflect on the design structure of Sikka and make sure that it would not be misunderstood as a crypto trading platform.. Fast forward to April 2018 and we had already completed our first field test and now are in talks with a number of other organizations to explore possibilities of collaborating or conducting pilots to further test out the system in more challenging scenarios.
A few weeks following the ban, Sikka was in sort of a limbo where there wasn’t a clear direction on how to take the project forward. However, with hindsight, a few months of hiatus gave us a chance to go back to the drawing board, redesign the system and its definitions to realize a more robust platform that met the compliance with NRB’s directives and served as a one of a kind monitoring tool that works effectively in one of the most challenging scenarios like that of Nepal.
However, it wasn’t without any impediments that we were able to develop Sikka to what it is now.
The following is not an exhaustive list of obstacles, but will adequately illustrate that many of the difficulties associated with developing an innovative humanitarian aid tool on the blockchain have very little to do with the technology itself and more to do with the regular, boring problems facing any proposed solution. Blockchain obviously poses its own challenges, as well, but we contend that the benefits outweigh the potential difficulties.
- Infrastructure: The lack of an adequate telecommunications infrastructure and the delayed adoption of smartphones were driving factors behind the choice to rely on SMS as the sole means for interaction between end-users; however, in our recent pilot in Nepal, we found that some beneficiaries subscribed to smaller mobile carriers still found it difficult to send and receive SMS. There were also a certain number of beneficiaries who did not know how to use a feature phone well enough to redeem their tokens without assistance. While the vast majority of user feedback was overwhelmingly positive, it is clear that an adequately-designed solution must make allowances for edge cases that require additional assistance: lack of network connectivity, lack of technical understanding, lack of a phone, lack of literacy skills, and impaired vision must be addressed: in certain situations, a technical solution (such as interactive voice recognition) might be devised, but social mobilizers in the field are critical to success — the objective with Sikka is to reduce the burden on their time by making the technology as accessible as possible.
- Acceptance Networks: We would be happy to see the eventual creation of our own acceptance networks for redemption of aid goods and cash, as this would certainly provide some value to potential partners; however, we neither intend to duplicate nor replace existing aid programming. In that spirit, we work within the relationships and networks established for the purposes of distributing aid goods and cash to our end-users.
- Regulatory Hurdles: Several months after we began working on Sikka, Nepal’s Central Bank issued a statement saying that “Bitcoin” (read broadly, this clearly applies to all cryptocurrencies) is and always has been illegal, citing regulations concerning remittances and capital controls. This announcement was followed up by several police actions in which cryptocurrency exchanges and miners were shut down and, in some cases, arrested. We had to make sure Sikka was in line with the central bank’s directives and wasn’t seen as some new cryptocurrency or trading platform.
- Liquidity: In the interest of expanding local capacity and working within local markets, Sikka works with financial cooperatives in Nepal to create an acceptance network for its tokens. Research has shown that many cooperatives in Nepal have very high liquidity risk, which often poses problems for working with many aid and charitable organizations. By tracking assets over a distributed ledger, Sikka provides the basis upon which some basic banking software features can be implemented to digitize both a cooperative’s processes and records, which also contributes greatly to building trust between parties. However, absent regulation that might work to increase requirements for a capital base, capital must be deposited in advance to cover cash-based transfer programs if the program partners find liquidity to be a great enough risk with any particular institution. To the extent that the use of Sikka encourages users to open and maintain a current account with a financial cooperative, such engagement has the potential to boost credit to deposit ratios, if managed wisely.
- Security: Naturally, we follow all industry standard security practices for a Web-based application and those measures are constantly being evaluated and improved. In addition, our token contract is deployed to the Ethereum main network, which allows us to benefit from the security of Ethereum’s hashrate (as opposed to running our own private network). I’ll just add here that our data model is very minimalistic: We don’t store any unnecessary personally-identifiable information on our own servers (or anywhere on the blockchain, in case you were wondering). As noted above, our service is designed to integrate with our partners’ systems, which includes beneficiary registration and all associated storage of data. Sikka needs a list of beneficiary phone numbers and we can optionally store a unique identifier to make it easier to generate reports and provide data visualization during and after disbursement of the tokens.
Experiences from the first field test
We conducted our first field test in the first week of April in Phulpingkot VDC of Sindhupalchowk District in Nepal. Like our colleague Jef mentioned in his article, we were able to conduct the pilot with only few minor programmatic challenges and no technical issues. We had to distribute payments for 105 beneficiaries under a cash for work program conducted by World Vision International Nepal. Out of the 105, 73 had registered their own phone numbers and the remaining 32 had registered a proxy phone number (a registered person or a phone number that could receive the funds on beneficiary’s behalf). Although the numbers in terms of size of distribution wasn’t that comprehensive, the field test helped us get proper insight to how the distribution process could be made easier for the beneficiaries, as well as the aid agencies. Also, post pilot analysis of time and costs clearly showed reduction of operational costs by over 78% compared to conventional distribution process. To add on to that, Sikka also helped cut down distribution time from a whole day (considering time it would take for beneficiaries to head to the banks in district head quarters, receive payments and head back compared to the time it took for them to reach the local financial cooperative for the same) to a few hours. Although this cost reduction is not a blanket figure, and was specifically for this small pilot, we think this showed the potential of how Sikka can reduce costs for aid agencies to a significant extent.
This was the first time that beneficiaries received payments through SMS on their phones. We had also prepared a feedback form to collect their reviews in order to get better insight of their experiences of using Sikka. The reactions we got from beneficiaries were overwhelmingly positive as we learned that this process made it easier for them to collect payments from the local cooperative. Moreover, beneficiaries said that the process was more reliable as there was lesser risk of losing a paper based voucher. Since the point of distribution was only a 15–20 minute walk from their village, the women who were to receive payments and who previously had to send their husband or sons, were able to collect it themselves, for some a first time experience!
However, it wasn’t all sunshine and rainbows as we had to deal with a few issues as people had registered one number on LMMS and brought a phone with a different SIM card in it. In addition, a few phones didn’t have English as the default language and some of the beneficiaries struggled to reply to the SMSs in English. Since most of the beneficiaries used their phones solely for the purpose of receiving and making calls, a few beneficiaries didn’t really know how to use SMS. Apart from two beneficiaries who had phones with damaged displays, Sikka mobilizers stationed at the point of distribution were able to help all the beneficiaries through the process without major hiccups.
In the Media
At Sikka, as we have been looking to build more connections and seeking interested agencies to conduct more pilots, for the last year, Sikka itself has been gaining some attention in the humanitarian and development sector. Leaders of humanitarian/development organizations have acknowledged the effectiveness of Sikka like blockchain based applications in this sector. An opinion piece was published in Devex analyzing how blockchain based applications were faring in the humanitarian and development world. The article mainly elucidates how such applications have shown promise on significantly reducing aid distribution costs through applications like Sikka.
Another article, published on Convergences, examines if blockchain based applications have lived up to the initial hype and how Sikka like applications can help strengthen services like microfinances “given the establishment of adequate normative and ethical boundaries”.
We got a chance to present Sikka under the cross-cutting thematic session of “Blockchain and the BoP: a disruptive technology for economic inclusion?” at the 2018 Tech4Dev conference held in June 2018 at the École polytechnique fédérale de Lausanne (EPFL) campus, Lausanne, Switzerland. Aradhana Gurung, the lead manager at WV Nepal Innovation Lab, who has also been steering the design and development of Sikka from the initial stages was at the Humanitarian Blockchain Summit where aid workers from around the world convened at Fordham University, New York to discuss how strengths of blockchain could be leveraged to help the people in need . The discussions were mostly around how design impacted the outcome of such humanitarian tools and how context and culture should be considered from the outset while designing such applications. Suyog Raj Chalise, Program Coordinator at WV Nepal Innovation Lab also shared about Sikka among other projects hosted at the Lab at the Campus Party 2018 held in Singapore.
HumanityX recently published their work on Blockchain for Humanitarian Aid Decision Tree. It is an interesting tool for humanitarian workers to use that helps explore the potential and limitations and decide on using blockchain for humanitarian aid. They have used Sikka as an example use case on how tokenizing fiat helps avoid volatility and regulations of cryptocurrency and also helps record transactions in a transparent manner.
Sikka being a last-mile payment solution and keeping interoperability in mind we have developed an API that allows existing beneficiary management systems to directly plug Sikka into such systems. It’ll allow aid agencies to incorporate last mile payment option into their existing ID management systems. The API currently supports disbursement of Sikka tokens and retrieval of transaction data.
With the experiences we’ve gathered over the last two years we’re working on a Hyperledger version of Sikka in addition to the current Ethereum version. This will allow agencies working in countries where there is a lack of a regulatory environment, like Bangladesh, Jordan and Indonesia with stringent policies around blockchain and cryptocurrencies to use Sikka’s fiat tokenization/voucher system to be used in an open manner. Although Sikka tokens in itself function as a digital voucher, and we would like it to be seen more as a M&E tool, Sikka being based on Ethereum platform might make it difficult for agencies in such countries to be used because of the associated gas charges that’ll require payments to be made in Ethereum. The new Hyperledger version will hence provide an additional option for aid agencies in making decisions around what version to use depending on country specific regulations.
Sikka is currently implementing a new token standard defined in ERC865 (Ethereum Request for Comments). This standard allows an intermediary third party to carry out transactions on behalf of the sender. With this, as there will be no need to provide beneficiaries’ wallets with ethereum (for gas charges) to carry out individual transactions, it’ll help further reduce transaction costs for Sikka tokens. Moreover, we’re also exploring possibilities of using Infura’s infrastructure as an alternative to maintaining our own node, which usually incurs huge costs associated with server and its maintenance. If all goes to plan, this might markedly help us cut down Sikka’s operations cost.
Like we’ve mentioned, the 78% cost reduction in overhead costs in the first pilot we conducted is not a blanket figure we can promise for every transfer program, at least not with the number of pilots we’ve done. However, we believe this result does provide a strong case to test out the system in diverse contexts with more pilots and see if it could help further bring down costs with economy of scale and system improvements.
Esatya, a blockchain initiative by Rumsan Associates in Nepal that specializes in development, consulting and awareness has been regularly organizing blockchain meetups in Nepal. We’re glad to share with you that Aradhana Gurung, the Lead Manager for the WV Nepal Innovation Lab has been invited to talk about Sikka in the next meetup, “Women in Blockchain” this Sunday, March 31, 2019. She has been overseeing Sikka from the onset and will be sharing her experiences along the journey of taking Sikka from a mere idea to a full fledged tool. If you’re around and are interested to attend and learn about her experiences feel free to checkout the event page here.
Finally, I would like to thank Jefferson Davis and Aradhana Gurung for reviewing the article and providing insightful comments to make this piece comprehensible.