Blockchain, Cryptocurrency, and Social Good
Who could transform philanthropy and the world?
Blockchain technology is one of the most exciting breakthroughs in innovation in the last decade. But, there’s a lot of hype around blockchain-based cryptocurrencies, and it’s important to recognize that blockchain’s powerful technological capabilities are also capable of implementing worldwide social change. Whether Bitcoin can be harnessed to empower marginalized communities and build new means of solidarity-based finance?
Philanthropies, non-profit organizations, social enterprises, and government agencies are all beginning to look into the possibilities and benefits of using blockchain. One of such organizations is GOODdler (see below).
So, let’s figure out, what a blockchain is, what a cryptocurrency is, and how is it possible to change the world using them.
According to Investopedia (1), a blockchain is a digitized, decentralized, public ledger of all cryptocurrency transactions. Blockchain uses, what is called “a distributed database”, meaning that storage devices are not connected to the common server or processor, but rather are using peer-to-peer technologies to maintain the growing list of records (also called blocks). Each block has a timestamp and a link to the previous block.
According to the Harvard Business Review magazine (7), there are five major innovations that have been driving the development of blockchain technologies.
The first one, of course, is a bitcoin. Just as recent as in 2008 Satoshi Nakamoto, who we still don’t know whether he is a real person or group of people (8), released the whitepaper “Bitcoin: A Peer to Peer Electronic Cash System” (9), where he describes a peer-to-peer version of electronic cash.
Even today, most people believe that Bitcoin and blockchain are the same things. They are not. At around the year 2014, people started to realize that blockchain could be used for more than just cryptocurrency. And so the second major innovation of a blockchain technology came to life: The Blockchain itself.
The third innovation is called the “smart contract”. In short, the “smart contract” allows different financial instruments, rather than just cash-like tokens to be embodied into the blockchain.
The fourth major innovation is called a “proof of stake”. Instead of securing blocks by a “proof of work”, in which the group with the largest computing power makes the decisions, the new system is replacing the decision making with some complex financial instruments.
The fifth innovation is called a blockchain scaling. Right now, in the blockchain world, every computer in the network processes every transaction. This is slow. A scaled blockchain accelerates the process, without sacrificing security, by figuring out how many computers are necessary to validate each transaction and dividing up the work efficiently.
These five major innovational breakthroughs are important, as they show the direction the Blockchain technology as a whole is taking. It is now a lot more than just the new method of the online currency exchange, but a securely and relatively inexpensive way to store and exchange many different forms of data.
One of the main benefits to businesses using blockchain technologies is the security and data breach preventions. Bitcoin, the first blockchain application, allows a network of users to perform transactions without requiring the trust of anyone on the network, or a third party. Everything is encrypted, and nobody can tamper with the blockchain without everyone else noticing it immediately.
But security is not the only benefit. There are some other benefits. According to Entrepreneur Magazine (2), there are at least eight additional benefits to different, beyond the Cryptocurrency, industries:
Supply chain management, which provides transparency for B2B system’s payments or transferring ownership.
Quality assurance: blockchain technology makes it easy to track down to the point of origin if some irregularity is detected.
Accounting: since every record is verified every single time, the human error is basically eliminated.
Smart contracts: the agreement can be validated and signed automatically, saving the companies time and money.
Voting: using blockchain principles, the transparency in particular, can reduce the likelihood of electoral fraud. Ironically enough, one of the first such initiatives to use blockchain in local elections came from Russia (3).
Stock exchange is another obvious area where blockchain technologies can succeed, with Australia Securities Exchange being the first major Stock Exchange to adopt it (4).
Energy supply: in certain parts of the globe, commercial establishments and households can now take advantage of blockchain-enabled “transactive grids” for sustainable energy solutions that accurately track usage. Examples are here: Powerpeers of Netherlands (5) and Exergy of Brooklyn (6).
Peer-to-peer global transaction: more and more users prefer cryptocurrency for international transactions over the traditional ways to pay like Paypal, not only because they are more secure, but also because users are granted more freedom and transparency when moving their funds.
While Bitcoin remains its most popular application, the potential for blockchain technology use is endless.
Philanthropies, non-profit organizations, social enterprises, and government agencies are all beginning to look into the possibilities and benefits of using blockchain.
One of such organizations is GOODdler (http://www.gooddler.com/)
Gooddler is a technology startup company from San Francisco, California. It offers an enterprise software to public and private organizations working on aid, sustainability and development to increase an effectiveness of humanitarian assistance by localizing response to humanitarian needs. It digitizes an inventory of local retailers and allows civic and charitable organizations to tap into their resources while delivering aid.
Some of the areas that have been identified as critical for humanitarian and social impact businesses are affordability, accountability, reliability, and marketability. In order for GOODdler to be able to deliver on its mission, it must stay within the budget without sacrificing the quality. It must be transparent and accountable to the public. It must be reliable in terms of flow of funds in order for its operations to continue. And finally, it must market itself effectively to the partners, donors, and charities.
There are many problems GOODdler is facing. First, its customers, donors, charities, and retailers are all located in different countries and operate using different currencies. The GOODdler itself, of course, is located in the US and must receive the money in US dollars, all while paying to retailers in the currencies of their countries. Converting currencies is not only expensive but it also dramatically slows down the process and the speed of a service that GOODdler delivers is a crucial aspect of the business. What complicates the matter, even more, is the fact that different countries have their own payment systems, which, in most cases, don’t communicate with each other. A solution — the cryptocurrency. The tokens are generally held in trust or only partially given to participating charities until very specific achievement metrics are reached. By making funding contingent on accomplishment, charities are incentivized to be effective, transparent, and efficient.
Second, supply chains are complicated, and their complexity only increases as our economy becomes more and more globalized. This makes it difficult for international humanitarian organizations to find out basic information about existing local producers and local goods. On top of that, small size retailers in many developing countries are not a part of the financial system and don’t have bank accounts.
Third, outside of financial difficulties with currencies, payment systems and access to the financial landscape, there are also political complications. This issue appeared unexpectedly when GOODdler started doing business in some “hot spots” of the world. It realized that US government closely monitoring and, in some cases, even blocking financial transactions with the countries it considers terrorist countries, even though people in these countries are in as much or even more need of an aid as people in other countries.
Blockchain technology would help GOODdler to solve most of the above-mentioned problems and be successful in an underdeveloped field of social entrepreneurship.
The Blockchain technology is exciting, because of its transparency, security of data stored, and its ability to facilitate the trust and efficiency between users in an unprecedented way.
Author: Seva Fridman
Sources:
(1) — https://www.investopedia.com/terms/b/blockchain.asp
(2) — https://www.entrepreneur.com/article/306420
(3) — https://www.newsbtc.com/2018/02/23/moscow-looks-blockchain-fair-elections/#
(4) — http://fortune.com/2017/12/07/blockchain-technology-australian-securities-exchange-asx/
(5) — https://www.powerpeers.nl/about
(6) — https://lo3energy.com/
(7) — https://hbr.org/2017/02/a-brief-history-of-blockchain
(8) — https://en.wikipedia.org/wiki/Satoshi_Nakamoto
(9) — https://bitcoin.org/bitcoin.pdf
(10)http://www.unrisd.org/80256B3C005BCCF9/(httpAuxPages)/196AEF663B617144C1257F550057887C/$file/Brett%20Scott.pdf
