Blockchain: Help the UN to find new ways to involve private sector in social impact projects

Written by Michael Schnabel & Ronald Steyer — November 26, 2018

Livelihood improvements on our planet — spelled out recently in the ambitious Sustainable Development Goals (SDGs) — still need huge resources: US$1.4 trillion a year are needed to reach global goals for world’s poorest, the UN estimates. In health alone approx. US$90 billion to reach global access to basic sustainable health services.

There is frustration because of limited impact and sustainability of the traditional, government focused system of development support. And although money is important, it is by far not the decisive element. Experience from decades of work to fight global poverty and other challenges shows what is crucial: How money is used in smart and conducive frameworks to address social and economic challenges.

One of the few points with relatively broad consensus is that in future private sector should play a greater role in development aid. One of the instruments to achieve a stronger role of the private sector are public private partnerships (PPPs). Such partnerships are not new. They were strongly promoted about 20 years ago, especially in Great Britain. Since then, enthusiasm has calmed down, because the focus was very fiscal: mobilizing private capital to conserve state revenues or - much more frequently - shifting public debt to private debt.

In response to this challenge, People-first PPPs (Pf-PPPs), a concept coined by the UNECE, have recently been added to this approach. They should put people first at the core of such partnerships, so they need to prove effective in regard to the SDGs.

As work continues on the concrete design on such People-first PPPs, we want to make the case for Blockchain technology to be taken into consideration as a technological enabler.

What is a blockchain and what makes it so special

A blockchain basically is used to store data. That’s how simple it is to begin with. Obviously, blockchains are a special form of a database, otherwise the hype about blockchains, that even reached out to the broader public would hardly be justified. Databases and blockchains have in common, that both save data and provide interfaces to write and read data. But there are two major differences though: The first is the architecture and the second are the rules about writing data to the storage.

Architecture

Conventional databases use a client-server network architecture. A user (also known as client) can edit data, which is stored on a central server. Access control is performed by a designated authority, which verifies the clients’ credentials before granting access to the database. As there is a administrative authority to the database, there is a possible single point of failure, when the security of the authority is breached. The data can be altered, added or even deleted when this happens.

On the contrary, blockchain databases consist of a network of nodes, physically spread out and being connected via the internet. Every node is part of the verification process when new data should be added. New data is added blockwise at regular intervals of time. When someone wants to append the database, the majority of nodes has to agree to make that change. Every node in the blockchain network mirrors the database locally and checks additions to the database for consistency. If a contradiction is found, the new block is rejected. If everything is fine, the new block can reach the canonical blockchain by consensus. The consensus mechanism guarantees the security of the network, as all nodes have to agree on a common database. To make sure that not everyone can confirm any transaction made on the network, a proof-of-work has to be submitted by the node that wants to add a block. Calculating this proof-of-work is a complex task that requires lots of computing power. This secures the network from malicious attackers.

If a single node is compromised and some malicious attacker tries to alter the database (in some old blocks), the majority of nodes would consent to not accept the state of the attacker node’s database, because altering old blocks would make the following block headers invalid.

Rules about writing data

In a conventional database every user can execute four different functions on the data: create, read, update and delete (CRUD). A central administration can alter the rights for every user or group of users. When having “create” or “update” rights, the user can create or alter data, no further rules apply.

In a blockchain architecture, there are several rules that have to apply when blocks are added:

• new data cannot conflict with data already in the blockchain - consistency is always assured (consistent),
• it’s only possible to append data, deletion is impossible (immutable),
• each data is bound to a specific actor, it’s ownable (ownable),
• all members agree on a common state of the database (canonical).

There are public and permissioned blockchain architectures out there. In a public blockchain, everyone can participate by downloading the open source software to host a blockchain node. After syncing up the chain to the latest block, the node works as a full member/validator in the network which verifies new blocks and participates in finding consensus. Also interactions with the blockchain become possible such as sending transactions in order to modify states on the blockchain. In a permissioned blockchain, the access to the network is restricted by an authority. In order to participate, everyone has to undergo an identification process off-chain, to prove its identity and membership to the group which runs the permissioned blockchain. Every node in a permissioned blockchain only accepts and sends new blockdata and states to known and permissioned members of the network.

What sounds very technical here is a significant extension of the Internet. It’s most prominent implementation to date is Bitcoin, the already iconic cryptocurrency. The buzz about Bitcoin pushed Blockchain up the hype cycle. Blockchain peaked the hype in 2016 and is currently at the edge of "trough of disillusionment" according to market analysts. That is not at all a bad thing. In the hype the blockchain concept was thrown on any problem in reach. But the specific qualities of blockchains should be carefully assessed with regard to the intended application to avoid disappointments.

Problems that can be tackled by blockchain

When thinking about use cases for blockchain, one has to carefully consider pros and cons for a blockchain solution. The major cons that stand against usage of a blockchain are: bad user experience, bad scaling possibilities and low performance in terms of data throughput. The major benefit of a blockchain is however the decentralized consensus, without the need for a trusted authority. This never existed within traditional architectures, is truly stunning and paves the way for a whole new generation of decentralized applications.

This walks you through a short decision path on whether the solution should be using a blockchain backend or not.

Firstly there has to be the necessity to store states. If that is not the case, a blockchain is not needed and neither a database. If there will be only a single writer to the backend system, a central database is the best option. If there is the possibility to establish a 3rd party, which every actor trusts, the design choice should probably be a shared central database. Also there must be the need for transaction interaction, if not, everyone is better off with a distributed database.

The next question to ask is, if all the users that should use the system are known or if access to the system should be restricted. In this case a permissioned blockchain is the way to go. If the answer is no: run a public blockchain!

Long story short: Blockchains are superior, when there is an unknown group of people wanting to interact within a network, but do not trust each other nor a central authority.

However, interacting within a blockchain includes way more than just storing states and defining ownership like in Bitcoin. Some blockchains are featuring a touring complete “world computer”, which allows every user to remotely execute code on every node that is in the blockchain network. This code is invoked by signing and sending a transaction to the blockchain and is called a “smart contract”. Smart contracts are deployed on the blockchain and have access to their own “storage”. The storage is the persistent data on the blockchain which can only be altered by invoking the corresponding smart contract. Forging fake storage is really hard, because the succeeding blocks include hash values of the previous block headers, which means: altering the storage in an old block would need recalculation of all succeeding block headers, which requires lots of computing power.

Smart contracts enable the creation of distributed apps (Dapps), which rely on cryptographically backed data, that are tamper proof. No central authority can modify or delete the data.

There is the possibility to not only interact with smart contracts manually or via a Dapp. Smart contracts are the missing link enabling peer-to-peer contractual behavior without any certifiers. The interacting peers may also be Internet of Things (IoT) devices. Blockchain technology used with IoT devices eliminates the problems with single point of failure, time stamping, record, privacy, trust and reliability in a very consistent way. Blockchain technology can provide a simple infrastructure for two devices to transfer digital properties or digitally represented real world properties like money or data, very securely and time-stamped. To exchange messages, IoT devices can utilize smart contracts which then model the conclusion of a contract between two actors. IoT devices can function autonomously and without a centralized authority. If this method is enhanced to human to human or human to platforms, the result is a complete distributed trustworthy digital infrastructure.

Why blockchains offer great opportunities for PPPs

A PPP is a cooperation between the public and private sector stipulated by specific contractual agreements. The aim of PPPs is the division of labor, with the private partner assuming responsibility for the efficient provision of services, while the public sector ensures that public-interest objectives are pursued.

Speaking of People first-PPPs now is a reaction to the critical perception such PPPs created as they suffered from an exclusive focus on financial criteria and value for money. In addition, the approach came into discredit because it was often designed at the expense of government partners with weak capacities. The design of PPPs has been weak in addressing poverty concerns, and there has been an absence of consideration of the impact of such investments on different social - especially vulnerable - groups. That is why for Pf-PPPs the core values should be first and foremost poverty eradication and protecting the environment.

So the main challenge Pf-PPPs have to take up is to make PPPs ‘Fit For Purpose’ regarding inclusive sustainable development. It should increase access to basic services like water and sanitation, energy, health etc. They should promote equity, leaving no one behind, social justice and cohesion as well as make basic services accessible without restriction on any grounds.
In this triangular of interests — public institution, private investor and beneficaries — the group of beneficiaries usually is the weakest party.

To deliver up to the ambitious goals of Pf-PPPs - often in a context of vague legal frameworks, substantial social disparities, difficulties to enforce rights - creating trust is the key challenge.

With decentralized consensus which all participants can rely on even without one central trusted authority, blockchain technology can address three key elements to create trust:

• Accountability: PPPs are division of labor arrangements to deliver services. This can only work if all stakeholders feel accountable to the arrangement and their specific responsibilities. Whatever information is used in this context might be subject to discussion if there is doubt about the quality of that information. Blockchain-based systems provide consistent, immutable and canonical data storage - an excellent basis to hold all parties accountable based on the shared understanding of their respective roles and responsibilities. Relevant data might even be collected automatically by sensors or other devices in the Internet of Things (IoT). This might for instance be useful for clinical data.
• Fair allocation of risk between stakeholders ("de-risking"): As the role of the private partner is efficient provision of the basic service, he has to bear substantial risk in a dynamic and complex environment. The business case needs to be viable for the private provider and predictable. However the private partner usually has a quite broad leeway in how the services are delivered. A service can be modified in a lot of dimensions - let’s think of time, quality, place. Risk sharing in Pf-PPPs has to hedge the disadvantage of individual stakeholders because of disparity of power or information asymmetries. Blockchain-based systems can maintain an agreed risk sharing and technically represent a governance system to deal with such situations, even in codified and therefore automated and tamper proof way (by smart contracts).
• Transparency: Accountability and fair risk sharing both benefit by handling these in a transparent way. Blockchain-based systems can provide all the information stored in an indisputable way, to the beneficiaries and the broader public.

So there is obviously a case for blockchain in Pf-PPPs.

Earlier we concluded that blockchains are superior to traditional ways of storing data, when ...

• "there is an unknown group of people": With basic services in infrastructure and health, that depends on the setup, but either permissioned as well as permissionless systems can make sense.
• "wanting to interact within a network": Pf-PPPs need interaction among the stakeholders and especially the service users to maintain the level of accountability and trust needed to keep the "people first" focus despite power ... and information asymmetries.
• "but do not trust each other": There are substantial conflicts of interest within the stakeholders and towards the service users. So it’s not unusual for participants of such networks to mistrust each other.
• "nor a central authority": A central authority can be tasked to build trust and manage the partnership, although this usually creates a substantial overhead and slow coordination processes.

So there are good reasons to consider blockchain for Pf-PPP

A multidisciplinary working group is currently forming to develop and launch first concrete projects in the health sector along the lines of People-first Public-Private Partnership principles. UNECE takes a leading role in these efforts.

You can be part of it!

If you want to contribute to the development of an innovative instrument to finance health infrastructure and services, join the team with diverse backgrounds from health sector, blockchain technology and business development to move the boundaries.

PositiveBlockchain.io, the open-source database, media platform and community exploring the potential of blockchain technologies for social and environmental impact, is supporting the initiative of establishment of UNECE PPP Centre of Excellence in Sustainable Health to explore ways of using blockchain for Public-Private Partnerships (PPP) in the Health Sector.

Get in touch with the team and find some additional information here.

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