Although Wall Street pundits and big bank proofs-of-concept often steal the bulk of the attention, they’re not the only global groups with an interest in blockchain technology.
In fact, behind the scenes, the world’s largest and most influential non-profits and multilateral organizations are turning to blockchain solutions as a way to improve social and economic outcomes in the developing world.
The UN World Food Programme has already implemented pilots to distribute aid to refugees in Jordan; the World Bank launched a Blockchain Lab in June to help develop solutions that can be deployed in its client countries; and the Inter-American Development Bank is working on a digital asset registry designed to help businesses in Latin America more easily access credit.
But while these institutions bring significant resources and institutional muscle into the blockchain arena, they also face unique hurdles to implementation.
Like all organizations, not only must they stay up to date on the latest technologies and bridge the chasm between ideation and finding scalable solutions, but they must do so within risk-averse internal bureaucracies funded by donor-country tax dollars.
These institutions also face a different set of financial incentives than private companies or sovereign governments when it comes to deploying new technologies. This is a key reason blockchain investment in the international development space has lagged behind other sectors.
Despite millions pouring into blockchain and financial technology investment, there remains a “big gap when it comes to deploying blockchain in social impact and governance” areas, said Tomicah Tillemann, head of the Bretton Woods II program at New America.
Gabriela Andrade, a financial markets specialist at the IDB in Washington, D.C., put it differently, saying:
“On paper, it makes sense – the value proposition is clear. The question is, how can we implement it?”
In short, there remains a gap between the two parts of Andrade’s question.
The fact is, development professionals face a delicate balancing act between leveraging the latest hip technologies and being realistic about the actual needs of client countries and aid recipients.
“A lot of the countries that you engage with are poor. They barely have education or electricity, they barely have water,” said Rose Chan, who recently left the World Bank after helping to start an internal blockchain working group.
Chan referenced the advent of mobile payments and banking as an example of a technology solution that outpaced the ability of many of its intended beneficiaries to actually use it.
She told CoinDesk:
“Even four to five years ago, smartphones were out of reach for poor people, so it’s stupid to talk about technology when they are barely putting food on the table.”
Also, the humanitarian nature of multilateral organizations means that there’s little margin for error when tinkering with existing systems that may not be perfect but have been refined over the years.
“Everyone is kind of in the same place in the development community: everyone wants to be on the cutting edge, but they’re making what can be life or death decisions in terms of aid distribution, so they have to get these things right,” said Michael Pisa, a policy fellow at the Center for Global Development.
The author of a soon-to-be-released research paper on how development organizations should be approaching blockchain, Pisa highlights the multiplicity of use cases for blockchain as a development tool.
These include how it could be applied to aid disbursement, international payments, digital identity and property rights, but he argues that a premature utilization of the technology could have adverse consequences.
“While this excitement is understandable, it also creates a risk that development organizations embrace and begin to rely on the technology before they fully understand it, which raises concerns about data security and potential financial losses.”
When your only tool is a hammer…
Experts emphasize that development organizations must not fall into the trap of viewing blockchain – or any other technology – as some sort of magical solution to the challenges they face.
After all, there has been no shortage of proposed technological solutions to issues like poverty, humanitarian relief, property rights and financial inclusion over the years – but these problems persist.
There have been ongoing efforts to reach unbanked populations for decades, explained Chan, but 2 billion people worldwide are still without a bank account.
“The problem isn’t going to be entirely solved by blockchain. It’s a cool new tool, but it’s not a panacea for everything,” she said.
Because countries sit on different levels of the development continuum and have unique historical and political considerations, blockchain use cases that work well in a certain country may not necessarily work in the next.
Land registries, for instance, have become a popular use case in former Soviet Union countries, but in Latin America there are often significant questions as to who is the rightful owner of the land.
These disputes can date back decades, if not hundreds of years to the colonial era.
“It won’t solve the problem of land formalization or who owns the land. We need to solve that before we start talking about blockchain,” said Andrade.
Because Latin America is further up the development ladder than some other regions, use cases like digital identity (that could be game-changing in sub-Saharan Africa or South Asia) don’t project to be as impactful.
With this in mind, the IDB is focused more on creating an asset registry designed to tackle the region’s more pressing issues, like improving access to credit and capital for small- and medium-sized businesses.
Chan emphasized that these institutions must remain focused on what they do well and approach blockchain as a means of complementing their current strengths:
“Our competitive advantage is an understanding of developing countries and markets – we have people in the field, people on the ground. That’s our competitive advantage, not developing blockchain software.”
Another major hurdle to using blockchain to improve governance and economic outcomes is generating the political will within target countries that is necessary to do so.
Specifically, the transparency that blockchain offers will be a tough sell in developing countries where regimes are often kleptocratic in nature and the local economies revolve around soliciting favors from the state.
Pisa emphasized that blockchain is, at the end of the day, a technological tool that requires proper implementation to be effectively utilized. He went on to note that various institutions and governments have for decades sought to make aid distribution more transparent through technology.
“The reasons that that hasn’t happened – that donors haven’t been able to make aid more transparent, that governments haven’t been able to make aid more transparent – I don’t think the main reason preventing that from happening is technological,” he said.
“[Blockchain] can facilitate doing some of these things, but it still boils down to political willingness.”
Metal globe image via Shutterstock
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