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Blockchain for social impact in aid and development

Blockchain technology is increasingly being used in humanitarian response around the world with humanitarian agencies, including the United Nations (UN), beginning to use this technology.

Blockchain is also known as the technology behind cryptocurrencies, such as Bitcoin and Ethereum. Cryptocurrency, an encrypted digital currency, allows transactions goes directly to the recipient without the presence of third parties, which makes money transferring easier without additional cost.

This can be key in humanitarian contexts, so much so that now AIDcoin has been developed, boosting the ability for people to give in a transparent way. UN Women have coordinated with Innovation Norway to develop programs that use blockchain and UNICEF is currently preparing to launch its trial for blockchain start-up projects and developing its own prototypes. The Humanitarian Blockchain Summit conducted in New York in November discussed strategy and exchanged knowledge about blockchain amongst practitioners and academics.

So, behind all the hype and jargon about blockchain use in humanitarian response, how does it work exactly?

What is blockchain?

Defining blockchain is not an easy task.  Blockchain is a common shared ledger that anyone can use without being regulated by any one party. In other words, blockchain is a decentralised peer to peer network where the record of transactions can be shared with other people and places. Blockchain technology can be continuously updated and verified by its users, also called peers, but other people who have access won’t be able to change that record.  In a permissioned blockchain, the ledger sits within a permissioned network with peers connected for a common purpose, again without a central administrator. This technology is useful for supply chain management, identity management, data storage, financial inclusion and other uses.

Basically, blockchain combines several existing technologies such as cryptography, distributed databases, consensus algorithms, and decentralised processing.  Blockchain also have control to allow participants within their ledger. The consensus component in blockchain can determine whether the blockchain is public or private. As defined, the public blockchain network is an open ledger where anyone can join, whereas a private blockchain requires an invitation and validation by another network. In simpler terms, they need permission to enter.

Blockchain can be used for digital information such as data transferring, e-voting and smart contracts. Blockchain cuts down third-party involvement, which in turn cuts down on fees and charges when moving money, which is why blockchain is currently mostly used for financial transactions. It can speed up money transfers, reducing the risk of fraud and of being hacked.

Blockchain in humanitarian response

In humanitarian response, blockchain has the potential to be used for information management, coordination of aid delivery, management of crowdfunding, tracking supply chain, cash-transfer programming and boosting humanitarian financing. The technology can provide solutions to existing challenges in humanitarian assistance such as transparency and accountability. Blockchain also can allow organisations to gather large quantities of data about vulnerable populations by using the distributed database component. To maintain data privacy of these populations, organisations can use private blockchain to allow only certain networks to gain access to the data.

Blockchain technology is relatively new and many humanitarian practitioners are unfamiliar or quite sceptical with this system and technology in the field, although this is beginning to change. Blockchain is currently being used in humanitarian response through cash-transfer programs, meaning money is delivered directly to recipients without involvement from a bank or other financial services. Blockchain continues to gain momentum with the United Nations gradually embracing blockchain technology in its work, with at least seven UN entities undertaking blockchain initiatives as alternative approaches to aid distribution. Their decision to use blockchain is driven by the need for complementary methods for financing, including direct distribution to recipients in the hope of reducing corruption.

An example of humanitarian blockchain in action is a pilot project run by the World Food Programme (WFP) called ‘Building Blocks’, a cash transfer program for 10,000 Syrian refugees in Azraq camp, Jordan. They distribute electronic cash using blockchain that can be redeemed at participating markets. These markets use the blockchain technology co-developed with the WFP Innovation Accelerator team. The project has been hailed a success by many members of the affected population with them being able to purchase goods using iris scan technology. The refugees’ data was also securely managed by WFP. More than 10,000 Syrian refugees received USD $1,000,000 through 100,000 in transactions. To scale up the project, WFP has chosen Baltic Data Science as a partner to expand the use of blockchain technology to other areas. The Building Blocks project has illustrated the benefit of using advanced cash transfer systems in certain contexts whilst protecting data of affected populations, and seeing a 98% reduction in transaction fees.

Another revolutionary project using blockchain is Disberse, a distribution platform for aid funding to track money and limit the losses. Disberse has already been successful in a development project with UK-based charity, Positive Women, which was able to reduce its transfer fees and trace the flow of funds to a project in Swaziland. Recently, Disberse has entered into a partnership with the Start Network to develop blockchain in the area of humanitarian financing. The partnership is hoped to allow funding to become more efficient, effective and transparency which drives accountability to both taxpayers and those affected by crises.

Potential use of Blockchain in the Asia and Pacific region

The Asia and Pacific region has 40% of all-natural disasters and 84% of people affected by natural disasters worldwide. The means humanitarian response in the region requires large scale distribution of goods and cash-based programs in short periods of time. In a recent symposium in Melbourne to discuss the outcomes of the World Humanitarian Summit, representatives from region strongly promoted cash-transfer programming. As discussed at the recent Humanitarian Blockchain Summit, there is immense potential to use blockchain for executing smart contracts. Smart contracts can help to anticipate the numbers of people affected from potential disaster, how many people will be displaced, and calculate how many goods and services need to be delivered.

Blockchain can be useful in the provision of humanitarian relief, connecting suppliers of clean drinking water with helicopter pilots and scheduling deliveries at specific locations within certain timeframes. Through smart contracts, the organisation can determine which offer is the best one based on community needs, triggering acceptance of the offer and setting in motion the delivery. Blockchain can also support the creation of digital ID for refugees, asylum seekers, and other vulnerable groups in the Asia and Pacific region, who often do not own legal document or have lost them during their journeys.

In the next stage, the digital ID can be utilised by refugees and asylum seekers as a payment system. But this requires proper technology set up from the market side and field agents from the organisation’s side to monitor the use of digital ID. A pilot project that tests this through a Research 4 Development Approach is “Project I AM”, which is a Blockchain for Refugee and Asylum Seekers online ID and skill building project. This project aims to empower refugees through IT Skill training and matching with digital jobs in receiving countries, as well as skill building in the transition countries until they move to their final destination.

Blockchain can help to address the humanitarian funding gap that is currently being faced globally. In our think piece about Joint Funding Mechanisms, the benefits of such mechanisms include increasing humanitarian funding overall, whilst at the same time reducing fundraising and administrative costs. Blockchain technology could provide the opportunity to improve the efficiency and effectiveness of money transfer processes, funding allocation, and data monitoring in real time. It could also provide opportunities to partner with private sector technology specialists in blockchain.

Challenges for Blockchain in humanitarian response

Although blockchain can offer an easy, more affordable and safer solution for cash transfers and data transaction during and after disasters there are some significant challenges to its widespread adoption.

Despite using a combination of existing technologies, blockchain is still not widely understood because of its complexity. While the WFP pilot project was successful for Syrian refugees in Jordan, further research is needed before expanding the blockchain technology in a wider humanitarian response. Cash-based transfers through blockchain are only effective when there is access to the markets.  Moreover, it will be difficult to set up the technology that requires internet connectivity and electricity and other infrastructure inside a crisis area. The legality of using cryptocurrency in certain country contexts may also hamper the process to use blockchain.

Despite the bigger data and easier tracking for transactions to minimise the effort for bookkeeping from the organisation’s side, Blockchain does not guarantee your data safety 100%. There is still the possibility that scammers can use the anonymity status to undertake fraud, and hacks and manipulation may still occur. In humanitarian response, measures must be taken to ensure that the resources get to where they are most needed.

Image source: The-Contributor