Blockchains and social protection: Snake-oil or panacea?

 

Blockchain technology’s first practical application occurred ten years ago and since then it has been almost synonymous with Bitcoin and other cryptocurrencies [1]. Often misunderstood and difficult to grasp due to its technical nature, blockchain is a technology that has gone from multiple theoretical and abstract conceptualisations to actual practical applications within the last couple of years.

Blockchain technology has also started to slowly materialise into the fields of humanitarian aid, development and even social protection [2]. The intricacies behind the exact technological nature of how blockchains work would probably require an entire blog or maybe a series of blogs to fully explain. As such, a simple but direct overview will be provided alongside links to other reliable sources and materials [3] that offer in-depth overviews of the technology and concepts that have led to the development of Distributed Ledger Technology (DLT) and to blockchain itself.   

 

What are blockchains?

Blockchains are a form of DLT. Every blockchain is comprised of several “blocks” that contain information regarding a transaction. Many of these blocks form a blockchain, starting with the first block, also known as the “genesis block”. A Blockchain is comprised of several unique blocks of information, each based upon the previous blocks, aggregated by any new information or transaction that has taken place after the last block was recorded. These blocks can be considered the electronic equivalent of traditional ledgers [4].

The main function of a public blockchain is to keep an unalterable (immutable), decentralised, linear record of any transaction between any given party or parties. There are several advantages to utilising blockchains, such as the lack of a middleman or intermediaries and increased transparency and accountability.

There is no need for a mediary to verify that the information or transaction is authentic, as authentication in blockchains is based on the decentralised verification and monitoring of every single transaction by any number of independent users. As a result of cutting out the middleman entirely, administrative and executive cost can be greatly reduced, which is a significant achievement. While the general idea behind a block remains the same as a ledger (recording of information and data), the changes that blockchain technology is expected to bring about are revolutionary.

 

Challenges with blockchain:

1. Cyber attack

Although blockchains have a number of diverse uses and tend to be relatively secure, they are not immune to exploitation or attacks. There are several ways that blockchains may be compromised, such as Sybil attacks, Direct Denial of Service (DDoS), flood attack, routing attacks, and 51% or Majority Attack [5]. Even so, these sorts of attacks require a significant amount of time and resources to carry out and there is no guarantee that they will be effective in disrupting blockchain related services.

 

2. Participation incentives

Moreover, blockchain systems depend on numerous users being a part of the system to verify, monitor and authenticate transactions via proof of work (POW) [6]. This means that the blockchain system must provide some sort of incentive in order to draw users to participate in the process of verifying and authenticating transactions. At the very least, the incentive should be sufficient enough to either cover or have users overlook the expenses resulting from the electricity consumed in the computing process required to verify and authenticate transactions [7].

 

3. Accessibility

Additionally, while there are multiple uses for blockchain in the public sector, including in social protection, there also exist other methods that might be more accessible in the short term or in emergency contexts, less resource intensive, and more efficient management wise.

 

4. Data protection

Certain types of databases could potentially solve just as many issues as blockchains, at a fraction of the cost and without raising certain legal or ethical considerations such as the confidentiality and privacy of user data and information [8].

 

Blockchain and social protection

Social protection encompasses a diverse set of policies and actions that seek to address a plurality of problems and issues in a number of often unique circumstances or contexts. No single or universal approach to social protection exists that is guaranteed to address all of a society’s basic needs. Moreover, guaranteeing basic social protection still remains a major development challenge in many countries, with 73% of the world’s population living without access to comprehensive social protection [9].

There is very little doubt, that in order to successfully implement social protection policies and actions, a wide range of instruments are required. Blockchain itself is another tool that can be moulded or adapted to different scenarios within the context of social protection.  

 

What problems can blockchains solve within the context of social protection?

1. Remittance service costs

As mentioned earlier, one of the benefits of blockchain, is cutting out the middleman. In the case of remittances, “Banks remain the most expensive channel to send remittances”, with post office services and private money operators being the least expensive money sending/receiving services, but still costing Sub-Sharan Africa 9.72% of all total remittances sent to the region [10]. 

 

2. Cash transfer administration

Moreover, several social protection projects throughout the world are currently utilising blockchain technology to aid vulnerable and at-risk populations and have shown some very encouraging results. One such project is World Food Program’s (WFP) “Building Blocks” project [11]. Building Blocks is a Blockchain cash transfer systems based on the cryptocurrency, Ethereum. It is currently being used in Jordan and was originally piloted in Pakistan. According to the WFP, the Building Blocks project, “aims to reduce payment costs associated with cash transfers, better protect beneficiary data, control financial risks, and set up assistance operations more rapidly in the wake of emergencies”.

The WFP estimates that as of January 2018, more than 100,000 people residing in Jordanian refugee camps have redeemed their WFP-provided assistance through the blockchain-based system. The next phase of the WFP Building Blocks project will see the expansion of the blockchain based cash transfer system to “all of the 500,000 Syrian refugees in Jordan”. Moreover, the WFP has also stated that it has been able to maintain, “A full, in-house record of every transaction that occurs at that retailer, ensuring greater security and privacy for the Syrian refugees”.

 

How feasible is implementing blockchain in the context of social protection?

 

1. Developed country test cases

In countries such as the United Kingdom (UK), Netherlands, and Finland, blockchain systems have either already undergone a testing and implementation phase or inversely, have resulted in uncertainty or scepticism regarding whether blockchain is the most feasible tool to meet the ever-increasing social protection needs faced by these countries.

The Netherlands Central Bank (DNB) has stated that while they find blockchain technology “interesting and promising”, the “solutions tested show that they are not sufficiently efficient, with regard to costs and energy consumption, and they can not handle the large numbers of transactions” [12]. Similarly, in 2016, the UK conducted a trial run on a small scale in relation to blockchain and the welfare and benefits system concluding, “That it was not viable due to limited take up potential and the expenses it would incur” [13].

 

2. China’s THEKEY

Meanwhile in China, “THEKEY, the Ministry of Human Resources and Social Security (MHRSS) of the People’s Republic of China, and the China Social Insurance Association (CSIA) have entered into a Cooperative Agreement on Research into Blockchain Applications for Chinese Social Insurance Scheme, which establishes a new National Laboratory dedicated to exploring Blockchain Technology applied to Social Insurance”.

The THEKEY aims at utilising blockchain based dynamic multidimensional identification (BDMI) to store and manage the information and data of over 1.4 billion Chinese Social Security users. If the THEKEY is successful in its endeavour, it could prove to be one of most important and significant advancement in social protection and welfare within this century [14].

 

3. Developing countries implementation

While these countries already benefit from comprehensive social security systems, advanced technological infrastructure, and the ability to meet vast energy demands, the reality is quite different in the developing world. In places where an efficient and universal social protection system is needed or remains to be developed, there is a lack of adequate resources and infrastructure required to deploy and operate significant blockchain related programs or operations.

Shivani Nayyar of the United Nations Development Programme (UNDP) was veridical when she said, “There is the digital divide: it is the most marginalised, the poor, women, rural populations, and the displaced, who are the least likely to have access to reliable internet connections. It seems unlikely that people who are deprived in terms of human development will be able to seamlessly run software to benefit from the technology or ultimately, participate in the network as service providers” [15].

 

Conclusion

Blockchain technology, isn’t snake oil, but it isn’t a panacea. That being said, any future successful social protection programme or system will have at its very foundation some form of blockchain or DLT. Currently, blockchain technology still remains extremely difficult to efficiently and sustainably implement in the context of social protection.

While the digital divide that Nayyar spoke of remains the current reality, it can be bridged. Opportunities in infrastructure development and even employment can be created via the adoption of new technologies such as blockchains, to benefit vulnerable populations. Finally, at its very essence, blockchain technology endows many with hope; hope that with this technology may come increased accountability, transparency, decentralisation, as well as data security and privacy, improving the delivery of social protection.

 

References:

[1] Marr, B. (2018). A Very Brief History Of Blockchain Technology Everyone Should Read, Forbes, Forbes Magazine. Accessible: www.forbes.com/sites/bernardmarr/2018/02/16/a-very-brief-history-of-blockchain-technology-everyone-should-read/#645b25367bc4 

Gupta, V. (2017).  A Brief History of Blockchain, Harvard Business Review. Accessible: https://hbr.org/2017/02/a-brief-history-of-blockchain

[2] Satara, A. (2017).  What Is Blockchain Used For Besides Bitcoin?, Forbes Magazine. Accessible: https://www.forbes.com/sites/quora/2017/11/17/what-is-blockchain-used-for-besides-bitcoin/#3aedcb1a446e

Casey, M. (2017). Social-good Innovators Bet on Blockchains to Solve Big Problems, VentureBeat. Accessible: https://venturebeat.com/2017/08/05/social-good-innovators-bet-on-blockchains-to-solve-big-problems/

Lehr, D. et al. (2018).  Digital Currencies and Blockchain in the Social Sector (SSIR), Stanford Social Innovation Review. Accessible: https://ssir.org/articles/entry/digital_currencies_and_blockchain_in_the_social_sector1

[3] Learning Resources

 

Videos

3Blue1Brown (2017). Ever Wonder How Bitcoin (and Other Cryptocurrencies) Actually Work?, YouTube. Accessible: https://www.youtube.com/watch?v=bBC-nXj3Ng4&t=312s

Centre for International Governance Innovation (2018). What Is Blockchain?, Centre for International Governance Innovation. Accessible: https://www.cigionline.org/multimedia/what-blockchain

Ethereum Foundation (2017). Blockchain for Humanitarian Assistance, YouTube, Ethereum Foundation. Accessible: https://www.youtube.com/watch?v=y50C2JEZMrQ&feature=youtu.be

 

Reports

White, M. et al. (2017). Will Blockchain Transform the Public Sector?, Deloitte United States. Accessible: https://www2.deloitte.com/insights/us/en/industry/public-sector/understanding-basics-of-blockchain-in-government.html

United Nations Development Programme/UNDP (2018). The Future is Decentralised: Block chains, distributed ledgers & the future of sustainable development, UNDP. Accessible: http://www.undp.org/content/dam/undp/library/innovation/The-Future-is-Decentralised.pdf>

World Bank (2018). Blockchain & Distributed Ledger Technology (DLT), World Bank. Accessible: https://www.worldbank.org/en/topic/financialsector/brief/blockchain-dlt

Government Office for Science (2016). Distributed Ledger Technology: Blackett Review, GOV.UK., Government Office for Science. Accessible: https://www.gov.uk/government/publications/distributed-ledger-technology-blackett-review

[4] BusinessDictionary.com (2018). Definition: Ledger. Accessible: http://www.businessdictionary.com/definition/ledger.html

[5] Risberg, J. (2018). Yes, the Blockchain Can Be Hacked. Here's How. Accessible: https://coincentral.com/blockchain-hacks/

Hertig, A. (2018). Blockchain's Once-Feared 51% Attack Is Now Becoming Regular, CoinDesk. Accessible: https://www.coindesk.com/blockchains-feared-51-attack-now-becoming-regular

[6] Kostarev, G. (2017). Review of Blockchain Consensus Mechanisms – Waves Platform, Waves Platform. Accessible: https://blog.wavesplatform.com/review-of-blockchain-consensus-mechanisms-f575afae38f2

[7] Orcutt, M. (2017). "Blockchains Use Massive Amounts of Energy-but There's a Plan to Fix That.", MIT Technology Review. Accessible: https://www.technologyreview.com/s/609480/bitcoin-uses-massive-amounts-of-energybut-theres-a-plan-to-fix-it

Lee, S. (2018). Bitcoin's Energy Consumption Can Power An Entire Country -- But EOS Is Trying To Fix That, Forbes Magazine. Accessible: https://www.forbes.com/sites/shermanlee/2018/04/19/bitcoins-energy-consumption-can-power-an-entire-country-but-eos-is-trying-to-fix-that/#1e8620c01bc8

[8] Martin, L. (2018). Blockchain or Relational Database? How to Choose the Right Technology for Your Application, TechBeacon. Accessible: https://techbeacon.com/Blockchain-relational-database-which-right-for-your-application

Greenspan, G. (2016). Blockchains vs Centralized Databases, Open Source Blockchain Platform. Accessible: https://www.multichain.com/blog/2016/03/blockchains-vs-centralized-databases/

Levi, S. et al. (2018). The Rise of Blockchains and Regulatory Scrutiny, The Harvard Law School Forum on Corporate Governance and Financial Regulation. Accessible: https://corpgov.law.harvard.edu/2018/03/09/the-rise-of-blockchains-and-regulatory-scrutiny/

[9] UNDP World Centre for Sustainable Development (RIO+ Centre) (2016). Social Protection for Sustainable Development: Dialogues between Africa and Brazil. Accessible: http://www.fao.org/documents/card/en/c/18c9451f-1a39-4989-bf66-a7691537775d/ 

[10] Kazeem, Y. (2016). It Still Costs More to Send Money to Africa than Anywhere Else, Quartz. Accessible: https://qz.com/673302/it-still-costs-more-to-send-money-to-africa-than-anywhere-else/

World Bank (2016). Remittance Prices Worldwide, Project Greenback 2.0 Remittances Champion Cities, World Bank. Accessible: https://remittanceprices.worldbank.org/sites/default/files/rpw_report_march_2016.pdf

[11] World Food Programme/WFP (2017). Building Blocks, WFP Innovation. Accessible: https://innovation.wfp.org/project/building-blocks

Vornic, A. (2017). Blockchain Against Hunger: Harnessing Technology In Support Of Syrian Refugees, UN World Food Programme. Accessible: https://www.wfp.org/news/news-release/blockchain-against-hunger-harnessing-technology-support-syrian-refugees

[12] Nikolova, M. (2018). Dutch C-bank Finds Blockchain Is Unfit for Financial Market Infrastructure, FinanceFeeds. Accessible: https://financefeeds.com/dutch-c-bank-finds-blockchain-unfit-financial-market-infrastructure

[13] Nikolova, M. (2018). UK Sees Use of Blockchain as Nonviable for Welfare and Benefits System, FinanceFeeds. Accessible: https://financefeeds.com/uk-sees-use-blockchain-nonviable-welfare-benefits-system/   

[14] TheKey (2018). THEKEY, a Historical Breakthrough by Being the First Ever to Use the Blockchain Technology To... Medium, Augmenting Humanity. Accessible: https://medium.com/@thekeyvip/thekey-a-historical-breakthrough-by-being-the-first-ever-to-use-the-blockchain-technology-to-45a399440937

[15] Nayyar, S. (2018). Human Development Reports, UNDP. Accessible: http://hdr.undp.org/en/content/blockchain-technology-human-development-not-so-fast