Can Bitcoin Make a Difference in the Global Aid Sector?
CoinDesk explores whether bitcoin and blockchain technology could make a difference in the global aid sector.
Cash and gifts-in-kind are the two main types of relief when it comes to assisting those who have suffered in the face of natural disasters, but bitcoin is becoming an ever more popular option.
In the aftermath of the 2004 Indian Ocean tsunami, over $14bn was pledged by the international community for the relief and recovery of the 14 countries affected by the natural disaster – one of the deadliest recorded in history.
Paul Currion, an independent consultant for humanitarian organisations, told CoinDesk this "huge outpour of public support" meant a lot of organisations had more funding than they could easily process and distribute.
Cash donations can be favoured over in-kind donations, with the latter having been criticised in the past for making it more difficult to match the needs of the recipients, and in doing so, disempowering them.
According to Currion, who is currently working with the Start Network to explore the potential of blockchain technology, one of the biggest downfalls in aid in the past has been using a "blueprint response" for every disaster. He said:
USAID's Office for Foreign Disaster Assistance, Food For Peace and Global Development Lab echoed Currion's assertions that cash can be more beneficial than gifts-in-kind, noting that, under the appropriate circumstances, cash-based interventions can stimulate local economies.
Currently, aid cash is either distributed directly, transferred into a bank account or into a mobile money system such as Kenya's M-Pesa or through the use of vouchers, which can be reimbursed at local merchants.
With aid groups looking to deliver funds in the cheapest and most efficient manner, it is not surprising some incumbents are searching for alternatives, seeking to leverage existing and new technologies to improve the way in which aid is distributed.
As blockchain technology continues to be lauded by banks and with bitcoin's potential to serve the unbanked being continuously highlighted by enthusiasts, the question that remains is how – or whether – both can be applied in the global aid sector.
"I think the idea of using cryptocurrencies as a kind of managed response – as a halfway between vouchers and cash – has got a lot of potential," said Currion.
Currion recognises that, with new technologies come new challenges, but he believes cryptocurrencies can provide a way of "distributing cash more safely, more quickly and more cheaply and in a way that's much more easy to manage".
If you can reach agreements with local merchants, he added, you are actually able to protect vulnerable communities from market volatility by using cryptocurrencies instead of fiat cash.
However, he understands the importance of there being multiple aid channels and methods, so he sees cryptocurrency aid operating alongside fiat aid, not instead of it.
According to Currion, there's also potential for blockchain technology to be used in the sector: "The second approach is using the underlying blockchain technology for various kinds of tracking. That could be registering and tracking displaced communities of refugees, but most importantly it could be tracking funding."
Reflecting on some of the issues facing aid organisations, Currion noted how difficult it was to account for the destination of funds. "It's not because anyone is trying to obscure it, it's just because the system is really complicated."
A new agency
Ann Kim, portfolio director, public sector at IDEO, an award-winning global design and innovation consultancy, told CoinDesk both bitcoin and its underlying distributed ledger could help the sector in "multiple compelling ways".
The blockchain, she added, offers new levels of transparency. "International development has had its share of corruption. The blockchain enables new kinds of capabilities, like smart contracts, that could tie funds to agreed-upon activities to ensure that all partiers are accountable."
Another idea, Kim said, was smart escrow, whereby a donor sends funds to a particular project. "Through this digital escrow system, funds could be released on specific milestones reached."
"Donations as they stand now are often provoked by crises or making end-of-year donations in times of taxes," Kim said, adding:
Donors, she added, also want to feel more proximity to recipients. "On top of all this, people want giving to be easy. With the blockchain, there are whole new possibilities for designing for these user needs."
Kim told CoinDesk that a team in the Bits + Blocks Lab has created an early prototype which piggybacked on a very common everyday habit: opening the fridge.
"When I open my fridge to get a snack, could there be a way that triggers an automated micro transaction to give to a food-related cause?"
Although Kim said additional work was needed, she noted this was a way to start moving towards the right direction, thinking about the entire donation process differently and better connecting donors to the actual end goals of development and aid.
Room for improvement
For Currion, it's about building a portfolio of different options when it comes to financing and distribution.
"Aid organisations need to have a range of tools at their disposal and to choose the best type of response for a particular situation. I think we stand a better chance of meeting the needs of people more effectively."
Currion acknowledged that the current humanitarian system is outdated, but any potential changes need to be assessed with both caution and flexibility.
"The test for new technologies like mobile money, e-vouchers and digital currencies that offer innovative solutions is whether they can be safer and more cost-efficient for both the beneficiary and the host institution," said the digital finance team at USAID's US Global Development Lab.
Currion agrees, stating that when having technology-driven discussions, it is important to not feed the hype machine, rather, the key is to ensure the requirements of those in need are still being met.
"It is very exciting to talk about this stuff, I get excited by it, you have to always remember that at the other end of this there are people who may have lost absolutely everything and hype doesn't help them. We have to make sure that our ideas are grounded."
This topic will be discussed further at Consensus 2015 in New York on 10th September. A full agenda can be found here.
Cash image via Shutterstock, Pulo Aceh image via Red Cross.
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