Using a blockchain infrastructure to distribute foreign aid
Today, a common distribution method of aid is via vouchers, which is an imperfect method for several reasons. It can be seen as condescending to not trust a group of people fighting for survival with money. Additionally, vouchers can require costly set up and, in the wrong hands, can also create a black market. As such, there is a trend in the international development movement towards giving cash payments as aid instead of vouchers, with the ICAI indicating cash payments are a “proven method,” of aid payment.
The UN estimates 30% of all aid ends up in the hands of corrupt institutions. In an era where public sentiment is leaning toward greater justification of the use of their tax revenue, this is sub-par. Whilst cash aid payments are effective, it cannot be guaranteed that those who need aid will receive it due to corruption in developing countries where aid is required.
Cash is not a perfect solution, however, and there are concerns around the logistics and infrastructure of its delivery. Underdeveloped banking services plus the fact that many needing aid are refugees seeking asylum has meant that there is no secure storage for the cash itself.
This article examines the blockchain as an alternative solution for delivering foreign aid and addresses the key issues of cash aid delivery: fallibility, transparency and security.
A blockchain is a distributed ledger of all transactions for whatever can be placed onto it. Value can be sent over a blockchain from a mobile wallet application with reduced risk of interception or interference by a third party.
The blockchain is complex and has a distributed nature. In comparison, to hack a bank or website there are few targets, whereas, to hack the currency stored on a blockchain there are many, dynamic targets that are constantly recording transactions, making it far more difficult.
This is hugely beneficial for distributing cash aid as systems cannot easily be mutated by malicious actors. A beneficiary can also be sure whatever money they are receiving over the blockchain is not counterfeit, thus creating trust between buyers and vendors, which is unheard of in many developing economies.
A bespoke blockchain removes the risk of a third party institution tampering with transactions and allows aid to be sent directly to the recipient and even via and automated process, which overcomes the challenge of high rates of corruption in less economically developed countries.
Blockchain transparency is second to none – all transactions are recorded if the recipient has a registered wallet ID. The flow of money to that particular wallet can be monitored, guaranteeing the money reaches the intended recipient. Even if an authorised user was to take control of another person’s wallet that flow of cash would be transparent, leaving a virtual paper trail. The result is a reduced incentive to be corrupt.
Aid placed onto the blockchain becomes less of a target for criminal activity. An individual wanting to access their funds can do so using a personal device and the wallet software can include up to three tiers of security, making it much harder to gain access.
The distributed nature of the blockchain also means that it is not a realistic proposition to steal money as there is a huge amount of data that would need to be simultaneously altered for an attack to be successful.
Finally, what makes the blockchain an ideal solution for distributing aid in lower income countries is that there is no legacy infrastructure to replace. Yet telecommunication infrastructure is surprisingly well developed, allowing people to buy affordable smartphones with reliable and fast mobile internet. For those without access to an internet-enabled device, low price bitcoin ATMs can be used to access small amounts of cash on a regular basis while still maintaining all of the benefits of using the blockchain as a method of value transfer.
To put all of this in context, the refugee crisis in Syria is forcing people to travel vast distances without any access to banking, and in most cases, cash. This group of people would greatly benefit from being able to carry their own personal banking device – improving safety as armed militias are a very real threat. Given the low infrastructural costs, this could be trialled on a small scale, piloted with users who already have smartphones and provide vendors an opportunity to realise the benefits of receiving blockchain based payments. We are currently investigating the possibility of creating a bespoke blockchain and collaborating with others to disrupt the cash aid process. We see a future where blockchain is the de-facto method of transferring aid payments.