Blockchain for Good
Taking stock in 2023
I was giving a lecture earlier this week on the use case of the blockchain technology for social impact. It was also a good moment to reflect on the current wave of developments and what could be done to restore trust in society.
I've always been attracted to blockchain technology, both for its technical ingenuity and the potential for business model innovation. The blockchain technology provides an accountable, secure, and verifiable environment which can combine:
economic incentives
algorithmic commitments
instantaneous payments
That means that you can implement almost any type of business and operating model. The secure and permanent storage of digital information means that data can be stored long-term, with certainty that it remains unaltered. The algorithmically controlled systems mean that whenever something happens, a predetermined action takes place. Just think of a script of “if-then statements”. You can find more information here.
A search on Elicit resulted in the following list of areas for “Blockchain for Good”:
Creating greater transparency and avoiding corruption in land registry information by national and subnational governments
Establishing identities for individuals without identification papers
Distributing aid to refugees in a more transparent and efficient manner
Enhancing Sustainability in Value Chains / Supply Chain Transparency
Disaster Relief
Decentralized Autonomous Organizations (DAOs)
Wildlife Protection
Financial Inclusion with Blockchain
Voting Systems
Education Credentials
Food Safety
Charitable Giving Transparency
Healthcare Records
This list is quite impressive and shows the range of use cases discussed in the academic literature.
Let us now consider how the field has developed over time. A few years ago, most were thinking “How can we put things on the blockchain?”. Swan collected business ideas around 2015 and they were all focused on existing ideas. The ideas were around certificates, financial markets or land titles as shown in the table below.
The problem was that the existing infrastructure performed well enough that there was little incentive to change to new systems.
The second wave was when things became interesting. Entrepreneurs started to take full use of the underlying technology. You could implement approaches based on game theory to build digital courts such as in the case of Kleros. Participants deposit amounts which they lose when they are not part of the majority opinion.
I have always liked the concept of Alice which implemented a milestone-based funding economy for the social economy. Imagine that you are working with homeless persons, and you only get paid whenever someone finds a long-term housing solution.
In practice, it is tricky to implement such schemes. You need to find funding organizations or donors, you need to set up separate accounts and find external validators to verify the activities. Social sector organizations are often a bit reluctant to enter in such outcome-based schemes where they have to cover all costs but the payments are uncertain.
We have also seen cases which tried to revolutionize complete industries. I can remember cases around the wine industry, the automotive industry or the rice industry. Many entrepreneurs thought that network effects are easily achievable and all industry members can be convinced to change their systems.
I have learnt a lot about network effects for start-ups by reading “The Cold Start Problem: How to Start and Scale Network Effects” by Andrew Chen. One of the key insights is that you should start with atomic networks. You start by offering your services in downtown San Francisco and not across North America. You start dating apps for a small group of college students on a single campus to ensure enough “market liquidity”.
Many entrepreneurs initially approached with value propositions like the examples below:
“Everyone in Nepal will use our wallet”
“Everyone will use our system for peer-to-peer exchange”
“All farm-related transactions will be conducted on our platform”
Some concepts faced challenges beyond technology. For instance, a land registry platform in Afghanistan had to contend with a Taliban takeover.
In addition, regulatory requirements made some concepts quite expensive. Let’s assume that you want to introduce a new cryptocurrency to fund transactions in the local community. That might require a team of 5 persons to manage the processes and millions in deposits to guarantee the economic value of the stablecoin.
Some concepts also assumed a widespread diffusion of digital wallets. Especially in the wider social economy, it is unlikely that long-term unemployed persons will have a digital wallet to participate in the crypto economy. Just think of all the instances where keys were lost, and assets could not be restored.
In addition, data flows in the field remain limited. While there are initial concepts building data pipelines between layers, they aren't yet operational.
The new generation in the social innovation field starts with smaller networks and decentralize the protocols over time. Let me just outline two concepts which are rather simple but show the potential of the blockchain technology.
HeHop is offering victims of domestic violence a way to document their injuries. They can upload videos and images which are time-stamped and can be used as legal evidence in courts.
The same mechanism applies to those who document war crimes in countries like Ukraine or Syria.
Another approach is to use the blockchain technology for governance tools. There are many examples but Big Green DAO is an outstanding example. Personally, I am not sure that this is the best of all possible governance structures but it clearly shows the potential for other purposes. Where else are beneficiaries allowed to vote on the next cohort of beneficiaries? How else could you experiment with different voting mechanisms such as ranked choice voting or quadratic voting?
