Unpacking the Disruptive Potential of Blockchain Technology for Human Development

"[M]any perceive blockchain technology as a platform for positive change - one that could disrupt the global economy and address many of the socio-economic and political issues that countries are facing..."

This white paper, supported by the International Development Research Centre (IDRC), explores the potential that blockchains, one of the underlying core technologies supporting Bitcoin, could have in fostering human development in developing countries. After an executive summary and a non-technical overview of the blockchain, the paper illustrates the range of applications in development areas and sectors from a public/private goods perspective. The third section examines the relevance of blockchain technology (BCT) in developing countries. The paper concludes with a series of recommendations for additional research and potential development programming using BCT. The annexes lay out an information and communication technology for development (ICTD) framework and a more technical presentation of the technology.

Author Raúl Zambrano explains that one of the critical BCT innovations is the way records are interlinked. In simple terms, a blockchain is a cryptographic digital ledger that records events sequentially within a peer-to-peer network. Each record, comprised of a block of events or transactions, has a unique identifier linked to the previous one. The unique identifier of the last block is used to compute the identifier for the new block, thus creating a mathematical link between blocks that are now "chained" together. Changing or deleting records in the ledger is practically impossible, as it requires manipulating all records in the chain.

BCT systematically uses cryptographic tools. First, each block unique identifier is a cryptographic hash of the inputs provided - some of which have already been hashed. The block of transactions included in each block is hashed multiple times before it is added to the record. Second, all nodes and users must use public key cryptography to be part of the network and interact with each other. Creating a profile or providing personal information is not required, in contrast to existing social media platforms.

Key attributes of blockchain technology explored in detail in the report include, in brief: privacy; pseudo-anonymity; integrity; distributed trust, governance; transparency; security; sustainability; and open source. Applications of BCT in development include: government services, especially in programmes related to e-government and smart government; land titles, one of the first areas of blockchain technology deployment; identity services, including personal reputation management; freedom of speech; anti-corruption; electoral processes; new forms of governance in terms of both virtual and global governments; and aid and development.

Just like other previous technologies, end users do not need to own or directly use the technology to benefit from its deployment. This is how economically poor and marginalised communities have benefited in the past. Community networks and shared mobile telephone use are a good example here.

BCT issues and limitations are related to: scalability; limited block size; high operating costs; environmental impact; mining centralisation; high bandwidth requirements; usability; complexity; use of sophisticated cryptographic tools; and immutability as a liability. Many of these challenges are being directly addressed by the BCT community, which is characterised by rapid innovation and creativity. BCT is currently a moving target.

Examples and evidence compiled in the paper suggest that BCT deployments for the provision of public goods in developing countries are still in their infancy. (Zambrano indicates that BCT initiatives engaged in smart government programmes and identity services likely have the best chance of success in the medium run.) The paper examines five areas where private goods and services provision is lagging. They are: banking for the unbanked; remittances ("Rebittances"); agriculture; food security; and intellectual property rights. (Per Zambrano, remittances and digital money are the most promising areas here.)

To provide development practitioners and researchers with a non-technical understanding of the technology's potential in supporting and enhancing development programming and democratic governance, Zambrano proposed a four-pillar analytical framework (see Annex I for more details): infrastructure, capacity development, policy and regulation, and institutions and governance. This analysis highlights the fact, among others, that, to harness new technologies, in addition to fiscal resources, developing countries require institutional capacities that can facilitate their deployment. Such capabilities are not limited to knowledge of technology alone. Considering these factors, the preferable approach for developing countries, in Zambrano's estimation, is to deploy BCT to complement or supplement ongoing programmes.

Regarding governance, BCT can raise a variety of questions explored in the paper, such as: Who is in charge, who drafts smart contracts (algorithmic transactions that execute pre-defined contractual agreements), and how can all voices be included? A quick response: No one is in charge as, by default, no need for this exists - and everyone is in charge, as governance happens by consensus only. However, though decentralised and distributed, BCT cannot guarantee that hierarchies and inequality among peers will not take place.

Based on the analysis and findings of this paper, Zambrano presents a series of recommendations; in brief:

With regard to research:

• Undertake a series of selected case studies on ongoing blockchain technology initiatives that are taking place in developing countries.
• Undertake further research and analysis on both blockchains for governance and the governance of blockchains vis-à-vis governments and the provision of public goods. In particular, the links between trust, consensus building, and representation have yet to be explored.
• Link current and future work on blockchain technology to Artificial Intelligence.
• Consider opening new and pioneering research on the governance of algorithms and the impact they can have in society, especially in developing countries. This theme is in turn linked to the notion that technologies are social products.
• Explore innovative approaches and solutions to facilitate blockchain technology access to those at the bottom of the pyramid, focusing on access to and use of cryptographic tools.

With regard to programming:

• Explore the role of ongoing innovation initiatives and existing tech hubs in developing countries to support blockchain technology deployments.
• Consider funding or supporting small blockchain technology pilots or prototypes focused on specific development themes, the Sustainable Development Goals (SDGs), or local priorities in developing countries.
• Support or help create a network of blockchain technology innovators and entice them to support applications that foster public goods provision.

With regard to networking and partnerships:

• Support the creation of a blockchain for blockchain-related projects in developing countries, or consider the creation of a related sustainable knowledge base.
• Join efforts by multi-laterals and overseas development funding agencies on linking blockchain technologies to the implementation of the SDGs.
• Launch or help organise a "blockchain for development" network or a decentralised autonomous organisation with key donor countries and organisations to keep the development perspective atop (and even above) blockchain technology itself.

Click here to read an IDRC summary of this white paper.