How Blockchain Will Help To Eradicate Global Poverty
I was planning on doing my dissertation on blockchain and poverty but opted out as I didn’t have enough data to justify the QRM element but I wrote a little something about my initial interest:
During October 2008, a white paper was published on the internet by an unidentified programmer, going under the pseudonym Satoshi Nakamoto. The white paper detailed the framework for the now very popular cryptographic Bitcoin and the platform on which it runs Blockchain. The emergence of the new technology once confined to online black market transactions is now promising great things for the future, particularly in the developing world. Bitcoin is an open-source, peer-to-peer digital currency…the world’s first completely decentralised payments system’. Bitcoin’s success is formed from technology’s ability to create a consensus mechanism that eradicates the double-spend problem. The double-spend problem occurs when there is no central party that can authenticate transactions and as a result you are unable to account for spend that may fraudulently be spent again. The blockchain is the public ledger upon which the transactions are accounted for and are the proof of spend. Bitcoins are more traceable than cash which makes it a trusted source of finance. As the 10-year anniversary of the white paper and subsequent birth of the technology approaches, significant developments have been made that make the once hidden platform a game-changer for governments. Not only have Bitcoin and Blockchain been a lucrative investment for some; but it has also started to reimagine the way we serve those in the world who need it most. The use of blockchain technologies in fighting poverty serves multiple purposes the main ones being: shaping the remittances process, access to banking facilities and financial inclusion, smart contracts and property ownership
Just last year the World Bank recorded over $429 billion in remittances received by developing countries. The industry is huge but is steadily declining, this is due to banks closing accounts in fear of money laundering and the excessive fees placed by intermediaries. The cost of remittances are absorbed by the poor who need the additional funds. Via emerging ‘rebittance’ platforms such as REBIT and RIPPLE people are able to send money virtually free. Not only are these companies allowing for finance to be sent person to person but business to business. Blockchain remittance services provide a simple experience that removes the roadblocks often posed by banks and other middle-man services. The service is instantaneous and as a result gives people greater understanding and control over their spending, this allows for more flexible budgeting.
Using blockchain technology is one of the safest ways to send money. According to Tapscott and Tapscott (2016 p.39), ‘safety measures are embedded in the network with no single point of failure, and they provide not only confidentiality, but also authenticity and nonrepudiation to all activity’. Additionally, the technology is best placed in developing countries, that lack the legislative infrastructure to provide affordable banking services. In response to these growing concerns and fears, blockchain technology has and is being developed as a viable and free alternative to the standard Western Union format. Most recently UNICEF’s Alternative Finance Lab has been investing in the technology to develop a system of exchange.
Financial inclusion is imperative to alleviating communities from poverty. According to research conducted by the Asian Development Bank, increasing financial inclusion or reducing involuntary financial exclusion lowers income inequality. When over 2.5 billion of the world’s adults do not use or have access to formal bank accounts how do we financially enfranchise people? The lack of access to banking facilities means that many people keep their assets wrapped up in livestock which can be harmful and risky. Though formal access to financial resources is not available to many, it does not stop us from aiding those people.
By the year 2020, 6.1 billion people will have access to a smartphone, massively surpassing those who do not have access to a bank account. This provides a great opportunity to use the recent developments in online technology to provide hard to reach individuals with financial support. This is where the simplicity of blockchain comes into play. The cryptocoin market has made way for the development of makeshift banks that provide access to micro-loans and payday loans at the fraction of the usual cost. Examples of these are companies like Wayniloan that offer multiple banking services for Latin Americans. According to the World Bank Group less than 50% of Latin American adults have access to a bank account and even less have access to affordable loans. Companies like Wayniloan allow for blockchain and crypto technologies to provide important financial inclusion. Wayniloan provides better returns savings and investments than usual Latin American banks. Due to the online nature of the banks and the lack of ID people make have, Wayniloans also uses social media profiles to evaluate loan risk.
In order for wealth to be fairly distributed, it needs to pay to play by the law. In a lot of instances bureaucracy costs and makes access to services and support expensive. This creates uncertainty and instability for those who cannot afford it, which is the poor. For example, land grabbing often happens to those who cannot afford to legally own their land. Blockchain’s development of smart contacts — a piece of special purpose code that executes a complex set of instructions on the blockchain — plays a pivotal role in providing accessible legal contracts to give people rights to both real and intellectual property. Though the idea has been around since 1994, with Nick Szabo coining the term, the technology has never been quite fitting to foster it’s true benefits until now. Sweden, Honduras and Georgia are among the several countries that are now trialling the technologies in the form of land registries. The simplicity of the smart contract reduces and easily resolves land disputes and is likely to prevent fraud. Not only is the technology making the legal world more accessible but it is using the same systems to make aid donations transparent and accountable. This can happen through donations being tracked on the blockchain and organisations reporting on where and when the money has been spent via the unique code called a hash it produces. This technology has been launched by UNICEF as a means of revolutionising online transactions and donations by increasing trust. On the UNICEF website they discuss their Ethereum — another type of cryptocurrency — smart contract based platform that will allow people who donate to UNICEF and view where and how their donations help. In addition to this, they have invested in the online platform Amply that seeks to revolutionise child development in Africa by developing and combining the technologies of both mobile and blockchain. They have created a digital identity protocol that allows children from the continent to receive services, benefits and track development. They have been using the technology in its initial state to create a register of school attendance and over time track the progression and development of young African students.
To summarise, the digital ledger that is blockchain serves many functions within government and NGOs that allow for progress to be made. The development of safer, quicker and cheaper remittances services means that the cost of remittances carried by the poor is less and they have more to invest. Furthermore, microloans and peer-to-peer finances, provided by cryptocoin based banks are creating greater financial inclusion that allow for investment in poorer communities. Through the development of smart contracts that allow for clear land registry information, it is possible to substantially reduce land grabbing and give ownership of land to the poor. Beyond this, the technology is being used to create a more transparent system of donation which allows people to trust their money is going to the cause they want to support. Lastly, using the ledger as a way to track aid donations directly to recipients allows organisations to collect data on the impact of their work and reshape their services to meet the need. Overall, the development of blockchain is instrumental in reshaping the way we think about and approach relationships between poverty, financial inclusion and technology.
