Blockchain Opportunities for Social Impact in Developing Countries

Overview

Blockchain is changing the financial sector but it is also creating new opportunities to generate social impacts, e.g. in the energy sector. In June 2017, Accelerator Frankfurt brought together start-ups and academics to discuss and learn more about new applications of this exciting technology.

Prof. Dr. Philipp Sandner, Frankfurt School Blockchain Center, introduced the blockchain technology briefly. His university is a front-runner on this topic as they have created a think tank and a research center which investigates the implications of the blockchain technology for companies and their business models. Luis Bezzenberger from Brainbot Technologies presented a list of organisations and companies working on applications including blockchain technologies. Björn Fischer, the final speaker presented an example of how blockchain technology could possibly change the energy access sector.

Definition: Blockchain

“In essence, blockchain technology constitutes a fascinating new approach to keeping track of, for example, asset ownership, without requiring a central authority and with minimal transaction costs. This in turn supports business models with the potential to trigger radical changes in society and the economy.” Philipp Sandner, Frankfurt School Blockchain Center

Distributed Ledger Technology: Blockchain is a ledger of transactions maintained by a network of computers. New transactions are registered and compiled in batches called "blocks" and then are added to the existing chain of blocks and hence the name, Blockchain.The users can then look at the transactions to verify that a particular transaction took place at a particular time.

Blockchain technology allows us to transfer values (e.g. money or energy) in the future. For money transfer (the most common use of blockchains), blockchain system is the central system that everybody trusts to send electronic money instead of a central system like a bank.

• It allows sending values directly from one client to another. This is as easy as sending an email. Even without the central provider that you might not trust.
• For example in Bitcoin, it takes less than 10 minutes and the transaction costs are close to zero.
• Furthermore, blockchain allows for payments between devices (as they can have their own accounts).

Theoretically, using blockchain technology the car could pay for the parking ticket by itself. This option is also true for international transfers: development cooperation could send money worldwide and guarantee that it will get where it is supposed to go. Blockchain technology is a very young discipline: it was introduced in 2009, with the establishment of BitCoin. Today, the companies and organisations involved in blockchain technology are researching its huge potentials including the social impact it could have in developing countries. First applications to be used in developing countries are expected to come out in the year 2017. Especially Asia is very active in this field and Sander expects many innovations to come from China and South Korea.

How does it work? After the set-up of a jointly created database, there is a register of all assets in a table for everyone to check in. Therefore, we are able to transfer money (or identities, or energy, or reputation) because all transactions are recorded and the ownership shifts from one account to another. Furthermore, this is possible directly from customer to customer without an intermediate bank or otherwise trusted entity.

In addition, blockchain offer redundant storage. This allows a blockchain system to be robust against potential errors. Similar to the internet for information transmission, a blockchain will still operate even if several nodes drop out of the network.

Weak institutions: Usually, people trust institutions like big banks and national Governments: blockchain allows us to trust solely in the technology. Upcoming publication by the Frankfurt School Blockchain Center.

• Solving Challenges in developing countries with blockchain technology by K. Schmidt and P. Sandner
• Effective Disruption: How Blockchain Technology can transform the Energy Sector

Example of Companies Using Blockchain Technology

• The most known use of blockchain technology is BitCoin: since bitcoin is running for more than 8 years, the community have started to trust it and believe that no errors will occur.
• Another interesting company on the market is BitBond. This German company gives loans to people worldwide and has developed an innovative credit rating systems for investors to trust unknown persons to payback their loans. With only around 2 million Euro per year today, the turnover will probably rise in the coming years!
• BitPesa gives people the chance to exchange their bitCoins into local currency. This is really important as for people without a bank account (most of the population in developing countries) it is so far not possible to buy bitCoins.

Companies Using Blockchain Technology to Develop Decentralized Apps (DApps)

Luis Bezzenberger from Brainbot Technologies, engages in partnerships with enterprises as well as with start-ups which seek to leverage blockchain technology to innovate. His firm creates core building blocks to scale the technology towards broad adoption of public blockchain systems. Although many applications are still something to “dream about” – a few applications have already started to engage in the real world, like payment solutions.

Decentralised Apps (DApp) combine smart contracts stored in a blockchain and a user interface. They offer a decentralised storage place (similar to a cloud) and allow exchanges between users. This happens without operators, in a decentralised way.

• Uport self-sovereign identity: an open source project about creating identities started its Alpha phase in April 2017.
• AKASHA.WORLD: is a social media platform based on blockchain technology (similar to Facebook but without a company behind it); Advanced Knowledge Architecture for Social Human Advocacy.
• GIVETH: The Giveth system enables accountability on chain & off! Every person that touches your donation has an open line of communication where you two can connect. The goal is to build a community around a cause; so non-monetary resources can be shares as well.
• GNOSIS: a crowdsource wisdom platform to speculate on anything with an easy-to-use prediction market.
• Also, traditional banks think about token traditional currencies, like the Santander Bank (€).
• Energy Web Foundation (EWF): Energy Web Foundation (EWF) is a non-profit organization whose mission is to accelerate the commercial deployment of blockchain technology in the energy sector. So far, EWF has secured funding of around 2.5 million USD. EWF is actively soliciting collaboration with other technology providers eager to support the open-source approach of eliminating energy market entry barriers.

Blockchain technology could reinvent the democratic voting process, with a trustworthy system.

Possible Advantages of Blockchain Technology for Developing Countries

Compared to developed countries, developing countries are far more likely to be impacted by blockchain technologies. Some of the advantages are listed below:

• Blockchain technology helps to (re) build trust among the society (even in a reality of weak governmental institutions)
• While many developed countries face the difficulty to integrate blockchain technology into the legacy infrastructure, this is not the case in many developing countries (without an established infrastructure). Therefore, it is much easier to integrate blockchain technology.
• Leap frogging the banking sector: not having a bank account at a traditional, physical bank but having access to mobile financing options
• Public owned and shared infrastructure (not to be influenced by corrupt politicians etc.)
• Collaboration is required: This (e)limits manipulation, corruption and fraud.
• There are many similarities between the distributed nature of blockchain and decentralised energy systems like a mini-grid: prosumers, many producers, many consumers interact and have to be synchronised.
• Money stays within the community: energy producers and consumers do not have to pay a centralised, external company. Money transfer organisations charge fees of 10% or more; blockchain technology can bring those down to 3%. According to the World Bank, worldwide remittances are 700 billion USD in 2016.
• However, reaching the people in remote areas still remains a challenge. In order to overcome the “last mile”, blockchain technology faces the same hurdles as in other markets.
• Another questions is the business model for developing the network/app: How do they recover the development costs for a free-of-charge, open source software? They could build in transaction fees (network effects), because the price of not being part of the network is higher (having no access is associated with higher costs). Another option would be to offer extensions of the network e.g. additional features at a fee while the main part of the network is publically available.
• Since the technology today is too slow and is therefore only piloted in projects with a limited number of smart meters, it is estimated that within the next 2-5 years, blockchain could become mainstream.
• ADB identified 4 ways blockchain technology can disrupt the development cooperation sector: 1. Capacity building and institutional strengthening. 2. Modernizing energy grids. Blockchain can actually help utilities keep up with rising power demand in smaller, lower-value blocks. Improve existing energy industry processes. React faster after desasters (preventing blackouts). 3. Renewable energy mini and microgrids. peer-to-peer transactions; “prosumers”. 4. Green finance and carbon trading systems. Blockchain can be deployed to both schemes, which are crucial to support the implementation of developing member countries’ Nationally Determined Contributions under the 2015 Paris Agreement against climate change.

Experiences: Payment by Blockchain in Development Countries (Indonesia)

In Indonesia, the Frankfurt School is about to launch a project in cooperation with the UNTAR Tarumanagara University. The project is still at an early stage. However, they want to establish an intra-university coin system to have a showcase that demonstrably works! If the students can proof that a blockchain technology based currency works, they might identify the need for implementation throughout Indonesia. [updates coming soon]

For the state with many islands, a central system like a bank with many ATMs is not a suitable money system.

 

Experiences: UN World Food Programme Tested Blockchain Technology

Lack of transparency, corruption, and misuse of funds are among the challenges that international organisation face when providing cash assistance.

Blockchain platforms offer transparency and immutability. The WFP tested this technology in a project called ‘Building Blocks’, in Sindh province, Pakistan, in January 2017 and as well in Jordan. Vulnerable families received food and cash assistance from WFP which was authenticated and recorded on a public blockchain through a smartphone interface. This way, disbursements are accountable and can be matched with the entitlements. This makes the process faster and more accurate.

A full-scale pilot project is planned next involving up to 100,000 persons.

Blockchain Technology and Solar

In August 2017, energy-focused blockchain investment fund Solar DAO yesterday started its two-stage crowdfunding campaign to raise funds for the construction of new solar PV plants. Solar DAO is a closed-end investment fund built on Ethereum blockchain. The company said its solar plant investments will focus on the Israeli, Portuguese, Kazakhstani and Ukrainian markets over the next four years.

Blockchain Technology and Energy Access

Blockchain technology reduces transaction costs. Therefore, also in the energy sector, blockchain technology has the potential to play a significant and potentially game-changing role:

• Read Blockchain Techologies For the Energy Access Sector

Further Information

• Tapscott, Don, and Alex Tapscott. ‘Realizing Potential Blockchain’. World Economic Forum, 2017. http://www3.weforum.org/docs/WEF_Realizing_Potential_Blockchain.pdf.

White paper of the World Economic Forum: Realizing the Potential of Blockchain. A Multistakeholder Approach to the Stewardship of Blockchain and Cryptocurrencies. Blockchain, or distributed ledger technology, could soon give rise to a new era of the Internet even more disruptive and transformative than the current one. Blockchain's ability to generate unprecedented opportunities to create and trade value in society will lead to a generational shift in the Internet's evolution, from an Internet of Information to a new generation Internet of Value. The key to enabling this transition is the formation of a multistakeholder consensus around how the technology functions, its current and potential applications and how to create the regulatory, cultural and organizational conditions for it to succeed.

• Runyon, J. (2017, May 15). How Smart Contracts [Could] Simplify Clean Energy Distribution. Retrieved 10 July 2017, from http://www.renewableenergyworld.com/articles/2017/05/how-smart-contracts-could-simplify-clean-energy-distribution.html

This article argues that blockchain technology “could eliminate a lot of the complexities around managing distributed energy resources” and stresses the fact that blockchain technology “literally put more power in the hands of the people”.

• Mougayar, W. (2016). The Business Blockchain: Promise, Practice, and Application of the Next Internet Technology. John Wiley & Sons. of blockchain-based applications in developing countries&f=false Link
• http://microgridmedia.com/btl-blockchain-energy-transaction-processing-platform-advances-go-production-phase/
• Karanjia, Binaifer, Shankar Lakshman, and Saurajit Goswami. ‘Blockchain Technology in India   | Opportunities and Challenges’. Deloitte Touche Tohmatsu India LLP, 2017. https://www2.deloitte.com/content/dam/Deloitte/in/Documents/strategy/in-strategy-innovation-blockchain-technology-india-opportunities-challenges-noexp.pdf.
• Kim, Kibum, and Taewon Kang. ‘Does Technology Against Corruption Always Lead to Benefit? The Potential Risks and Challenges of the Blockchain Technology’. 2017 OECD Global Anti - Corruption & Integrity Forum, 2017. https://www.oecd.org/cleangovbiz/Integrity-Forum-2017-Kim-Kang-blockchain-technology.pdf.
• Green, Duncan. ‘Blockchain for Development | From Poverty to Power’, 9 May 2017. https://oxfamblogs.org/fp2p/blockchain-for-development-a-handy-bluffers-guide/.
• Jolías, Lucas 2019: Four Lessons Learned from Building Blockchain Applications for Social Impact.Lesson 1: only when it is the simplest solution available; Lesson 2: Forget about blockchain until you really know the problem; Lesson 3: Decentralized is not always better; Lesson 4: Improve your user experience (UX)!