I believe that blockchain technology application has its strongest potential in applications that are beyond cryptocurrencies. If utilized in the rights ways, blockchain can bring about amazing changes in the world. The technological impact will span across multiple industries, across both public and private sectors.
In this post, I want to highlight some of the ways that blockchain technology can be applied in solving some of the problems that are facing foreign aid assistance and international development today.
Why is it important to consider blockchain technology in the foreign aid and trade sector?
There are currently two major issues that face foreign aid and assistance: i) issues around corruption, fraud, or misappropriation of funds; and ii) the inefficiencies within the aid delivery process. Even in cases where assistance is sent to where the donors intended the money to go, it can take weeks for funds to be settled to the right accounts. Within that timeframe, as much as 10% may be lost to a combination of banking fees, poor exchange, rates and currency fluctuations.
Blockchain, or distributed ledger technology, can revolutionize foreign humanitarian assistance by eliminating the two biggest issues that impede the current aid process through providing a level of transparency into the transactions and by speeding up the funds settlement process through blockchain’s distributed ledger characteristic. The characteristic refers to the concept that each user shares the same “ledger” or set of accounts as defined by the software infrastructure.
How will blockchain technology solve the problems that face the pubic digital finance sector?
Foreign Aid and International Development. The benefits that blockchain can bring to foreign aid assistance are multi-faceted. From a transparency standpoint, Blockchain’s strongest strength is the creation of a verified chain of hashes that cannot be in order to prove a certain set of events happened in a specific order. In other words, the irrevocable transactions that are recorded on the blockchain ledger lends transparency and accuracy to any transaction. No amount of aid can go into an account that is not accounted for.
In May 2017, the United Nations World Food Programme (UNWFP) piloted its ethereum-based blockchain, Building Blocks. Utilizing blockchain technology, the WFP says it has transferred $1.4 million in food vouchers to 10,500 Syrian refugees in Jordan. The individuals were given cryptocurrency- based food vouchers to be redeemed in any participating market. Originally scheduled to end at the end of that month, the pilot has now been extended indefinitely. WFP’s website pledges that it “will continue to explore use cases beyond cash-based transfers and potentially expand the use of blockchain technology to areas such as digital identity management and supply chain operations”.
AID:Tech is one of several startups working with blockchain technology, trying to ensure more funds go where they are supposed to go. Partnering with aid groups like the Irish Red Cross, the donors are given digital identities on its blockchain software. Assets in the form of food or money are then assigned and attached with a unique QR code. The individual receiving aid will then be credited with the code in their blockchain accounts to be used at designated stores.
Cross Border Payments & Remittance. International payments have friction in them, with multi-day settled times and a relatively slow bank settlement system. Moving to a blockchain should shorten settlement periods, speed up transactions, and reduce the risk of fraud.
Currently, it is also expensive to send money overseas, which is especially damaging for the immigrants sending small savings home to the developing world. The World Bank says transaction fees average 7.45% globally, and, in many remittance corridors, they’re a lot higher than that. Turning to blockchain and cryptocurrencies not only take less time for money to transfer, it may also bypass traditional banking and transactional fees. For example, Abra is an app that converts the origin currency into bitcoin, transfers it across the digital currency’s blockchain, then settles the amount in a local currency on the other end. Not only does it reduce traditional banking transaction fees, it also mitigates currency fluctuation due to the instantaneous nature of blockchain transactions.
Trade Finance. The major problem in trade finance is ensuring that the goods will be transferred before the payment is made. With a blockchain, all parties are able to see when the goods have shipped, and can release funding promptly and appropriately. This will reduce time to confirm assets, transactions, release payment, and receive confirmations.
In October of 2017, the Hong Kong Monetary Authority (HKMA) announced a new collaboration with the Monetary Authority of Singapore (MAS) to digitize trade finance using distributed ledger technology (DLT) to create the Hong Kong Trade Finance Platform. The aim of the platform is to increase efficiency, transparency, and security in trade finance – while minimizing the possibility of fraudulent activities by automating most processes.
Private companies can also optimize operational procedures for all parties involved in a global supply chain. For example, Walmart is working with IBM and Tsinghua University, in Beijing, to follow the movement of pork in China with a blockchain—this is one example of how food safety may be improved with the application of blockchain technology.
All opinions published on this blog are my own and do not reflect the opinions of any institutions that I am affiliated with in any capacity.
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