Tune into any event on digital innovation for development these days and you are bound to hear about the virtues of blockchain technology. It promises to make transactions of any type of personal data more efficient, transparent and secure – from finances to identity records and property titles. But before we entrust this new technology with the most sensitive data, shouldn’t we ensure that we’ve cut sufficiently through the hype to understand exactly where blockchain could benefit development – and where it cannot?
Ledgers, blocks & chains: What the heck is it?
Let’s start with the most obvious question: What is the blockchain? If you’re like me, you may also feel a little embarrassed not to know a clear answer already. After all, everyone seems to be talking about it. The UN has launched a Blockchain Commission to assess its benefits for realising the SDGs. And both the World Bank and Germany’s GIZ launched their own Blockchain Labs to invest in pilots that test how it can benefit their development projects.
But look closely: Labs, pilots, test cases – there obviously is much common curiosity and excitement to explore the potential of blockchain technology for development. The flipside of this excitement is a common lack of knowledge as to the benefits of blockchain technology as well as its challenges.
So, what is a blockchain? A search on Google will reward – or overwhelm – you with over 23 million results. A more targeted search for publications reveals a number of insightful reports on it from think tanks such as the International Development Research Centre:
“Blockchains can be defined as a public spreadsheet that sequentially records transactions among users operating within a decentralized peer-to-peer network. Every network node stores an up-to-date copy of the data and updates automatically diffuse among all nodes.”
Blockchain: Unpacking the disruptive potential of blockchain technology for human development (Zambrano, 2017)
Sounds confusing? That’s because it is. But this short video by the Institute for the Future’s Blockchain Future Lab that explains the concept behind blockchain technology in just over two minutes:
A network of trust
The gist of it is this: Blockchains can help us manage and verify online data. Unlike traditional centralised databases, blockchains store data across a network of personal computers. This means that the stored information is not just decentralised but distributed
As a result, no central company or person owns the data – e.g. unlike Facebook or Google who earn money with the personal data they own about us. Moreover, the distributed network of data-storing computers makes it virtually impossible to take down or disrupt the network – because there is no single point of attack.
Beyond this general concept, the technical intricacies of blockchains are notoriously difficult to explain. The following infographic gives a brief explanation:
IBM has published an even more extensive infographic that’s too long to add to this post but helps you understand the technology and use cases.
The fact that each addition of the data in the blockchain is verified by participants in the network creates trust among them – because it makes it nearly impossible to meddle with data without anyone noticing. This is why blockchain technology has been called a ‘trust machine’ (The Economist, 2015) or a ‘trust protocol’, i.e. “a public ledger to which everyone has access, but which no single person controls.” (Tapscott & Tapscott, 2016). What’s special about this trust is the fact that it is established by the network and without any intermediary institution. This is where one of its key benefits in a development context lies.
What’s in it for development?
The best-known use case of blockchains are cryptocurrencies such as Bitcoin that required a digitised trust system. They are the reason why blockchains were conceptualised in the first place. However, people quickly realised the potential of decoupling the technology from Bitcoin and apply it to other use cases (Volpicelli, 2018).
So, when does it make sense to use blockchain technology? As a rule of thumb, blockchains are most impactful in environment where two conditions are met: firstly, multiple institutions are sharing and accessing data records via a central system; and secondly, this central system is too slow, too inefficient or too expensive (Nienhaus, Schieritz, & Tönnesmann, 2018).
In other words, blockchain technology can be beneficial in contexts where (personal) data needs to be exchanged reliably and securely but where the existing mechanisms are not working properly. It can improve such exchanges by “reducing reliance on intermediaries and the frictions associated with them” (Pisa & Juden, 2017). It’s hardly surprising that this rang a loud bell in the development community: Could blockchain help improve (or, if necessary, bypass) inefficient institutions in low-income or fragile countries? Could they make the delivery of services more efficient and less costly?
This vague hope has given rise to countless trials of using blockchain technology in development projects. A 2017 report by the Centre for Global Development (Pisa & Juden, 2017) summaries four of the most notable use cases as follows:
- Faster and cheaper international payments: For example, WFP is using blockchain to facilitate cash-to-food transfers in refugee camps in Jordan without having to rely on banks and expensive transaction fees.
- Secure system to verify identity records: For instance, UNICEF is supporting digital identity system that uses blockchain to improve the management of educational records in South Africa meant to support youth in accessing education services.
- Securing property rights: For instance, the government of Honduras invested in creating a system to improve the management of land title registrations via blockchain in an effort to reduce corruption.
- Secure and transparent aid disbursements: For instance, the Start Network – which brings together over 40 NGOs active in humanitarian response – is exploring the use of blockchain technology to improve the efficiency and transparency of aid transfers.
Cutting through the hype
The examples indicate the potential that blockchain technology seems to bear for development – by improving any sort of data transactions of any sort that are currently slow, inefficient and expensive. Yet it seems that the “hype is leading the charge” (Zambrano, 2017). Therefore, it is all the more important that we try to cut through the hype and look at some underlying concerns with regard to the technology – before entrusting it with any personal data. There are four concerns I’d like to focus on.
Firstly, context matters more than technology. This should be a mantra for anyone working in ICT4D projects – but it’s all too easily forgotten. What this means for blockchain technology is that we need to consider contextual factors such as infrastructure and institutional capacity. For instance, it requires internet access to function – which roughly half of the world’s population still lacks. Yet, as discussed above, people in low-income or fragile countries are the ones to benefit the most from the technology. How exactly are they supposed to do so if they cannot access it? Do we risk reinforcing their socioeconomic exclusion (Zambrano, 2017)?
Secondly, running blockchain technology requires an extensive network of computers and people to run it. This raises the question whether it would even work in low-income or fragile countries that may have under-developed infrastructure. Of course, it could be implemented with massive donor assistance – but would that be a sustainable solution (Purvis, 2017)? This exposes one of the key benefits of blockchain technology – the removal of expensive intermediaries – as a myth. Blockchain technology may make expensive middlemen such as banks unnecessary. But at the same time, it replaces them with technical middlemen necessary to provide the IT backbone. So, how do we ensure that we don’t create new dependencies by utilising blockchain technology?
Whose data is it anyway?
Thirdly, the fact that blockchains are built on distributed networks means that they lack central control system – but it also means that they lack any sort of governance structures. While it may be great that no one instance controls the personal data stored via blockchains, there should at least be regulations or principles that help ensure that the technology is not abused. But then who oversees the adherence to such regulations? Moreover, the lack of a central data storage may be beneficial to data security because it makes hacking difficult. But it raises questions about data ownership and accountability: if no one instance is responsible for the data storage, then who is liable for data breaches?
And fourthly, the data stored in the blockchain is accessible by and replicated to any computer in the network. This is the basic concept of its distributed structure. However, raises concerns about data privacy when it concerns sensitive data that is linked to individuals – e.g. land titles linked to home owners or ID records linked to individuals. Moreover, if such data is permanently stored in the blockchain, how can individuals realise their right to be ‘forgotten’ in the online space?
Towards common principles?
While blockchains clearly bears potential in some instances, there are important concerns that need to be reflected on and resolved – before we employ this infant technology at full scale and entrust it with sensitive data.
Where do we go from here? I believe a good first step would be to work towards common principles – similar to the Principles for Digital Development – of good practices for using blockchain to support sustainable development (Pisa & Juden, 2017). There are signs that this is already happening. The think tank Blockchain for Good is advocating for ‘duty of care’ in applying blockchain technology along with guiding principles. Here’s hoping that the new commissions and innovation labs will contribute to this – and avoid being blinded by the hype.
Nienhaus, L., Schieritz, M., & Tönnesmann, J. (2018, March 1). Der Blockchain-Code. DIE ZEIT, pp. 23–24.
Pisa, M., & Juden, M. (2017). Blockchain and Economic Development: Hype vs. Reality (CGD Policy Paper No. 107). Washington, DC: Center for Global Development. Retrieved from https://www.cgdev.org/sites/default/files/blockchain-and-economic-development-hype-vs-reality_0.pdf
Purvis, K. (2017, January 17). Blockchain: what is it and what does it mean for development? Retrieved March 13, 2018, from https://www.theguardian.com/global-development-professionals-network/2017/jan/17/blockchain-digital-technology-development-money
Tapscott, D., & Tapscott, A. (2016). Blockchain Revolution: How the Technology Behind Bitcoin and Cryptocurrency Is Changing the World. Kulmbach: Portfolio Penguin.
The trust machine. (2015, October 31). The Economist. Retrieved from https://www.economist.com/news/leaders/21677198-technology-behind-bitcoin-could-transform-how-economy-works-trust-machine
Volpicelli, G. (2018, March 10). Does blockchain offer hype or hope? Retrieved March 10, 2018, from http://www.theguardian.com/technology/2018/mar/10/blockchain-music-imogen-heap-provenance-finance-voting-amir-taaki
Zambrano, R. (2017). Blockchain: Unpacking the disruptive potential of blockchain technology for human development (White Paper). Ottawa: International Development Research Centre. Retrieved from https://idl-bnc-idrc.dspacedirect.org/bitstream/handle/10625/56662/IDL-56662.pdf
Photo credit: Feature image (c) Elsa Hammond (via Flickr)