Blockchain - Innovation for Development

She is in her 30-ies, borderless, decentralised and the Master-Mind of “Governance 2.0”, the BitNation. Her name is Susanne Tarkowski Tempelhof and she shook the minds of #UNDPCrowd yesterday, as the Sun set down over Bosporus and the room was getting hot, powered by each person emitting 100 Watts worth of heat. 100×70=7kW heat. It is so hot I can’t think.

What the hack is BitNation?

I’ll quote them as that is the zest of their existence: „BitNation does not care where in the world you are from, where you live, or what passport you hold. Everyone has the right to enjoy high-end, competitive governance services.” And that is the point behind a gal who left school when she was fifteen and is self-thought since. She did quite well with self-education as she managed to crack-down and understand all the complexities and the opportunities of new technologies and she came-up with a borderless, decentralised, voluntary platform that is able to provide services in an alternative way. She did it so well that just recently the Estonian government approached her and now they work in partnership to provide public notary services to Estonia E-residency Programme!

The Internet of the 21st century

What technology I am talking about? The blockchain. A new database that will make us to re-write everything. For developers, the blockchain concept represents a paradigm shift in how software engineers will write software applications in the future, and it is one of the key concepts that needs to be well understood. Watching a short video “The Bitcoin and Blockchain Technology Explained” would be a good starting point to try to understand it. The next step of understanding would be reading my colleagues recent blog on Talking in tongues: From crypto currencies to breaking blockchains.

And do not even think you’ll understand it afterwards. You’ll only have more questions but that is fine – we need to start searching for the answers and we need to do it fast! Why?

We need SHIFTs

The same as for software developers, we, development professionals, need a paradigm shift in how we do work, how that work gets financed and how we assist governments to better do their jobs – to provide services in more efficient way to more citizens with less of those excluded from services for whatever reason. The blockchain technology brings the opportunities, besides cryptocurrencies, to do much more in less time, with less costs and through distributed networks. Distributed means more resilient, less controlled but transparent and secure as it is verified in such a way that is impossible to cheat. You can issue birth certificates, travel documents, credit cards, cryptocredit cards, land ownership certificates… by using blockchain technology. It is fast, efficient and cheap(er) then how it is done now.

The key message I was hearing yesterday (and today!) was “We need to change”.

We need to re-think the institutional architecture and to create the right institutional infrastructure that would make this innovative governance and funding models to work. The change needs to be systemic as only in that way we can solve systemic development problems the world is facing. There is no one, single “silver bullet” solution. Solutions are decentralised and borderless, people are part of solutions, technologies such as blockchain can be the backbone of it. But we need to understand it. We need to try it, we need to be able to fail, failing is a part of the process when you need to create a change in the system. It takes 10 years to change a system, said Paul Currion known for have been working in immediate response and relief to disasters and for re-thinking how that relief can be rapid, trackable, with low transaction costs and can give people what they need when they need it.

Do we want to be able to give people what they need, do it fast and efficient? Then we need to urgently set-up an alternative finance research unit and start trying how this works in real time with real people. We need to be THE new kid on the block!

The following piece was first published on the AltFinLab blog and was originally published on November 22, 2015.

From equity-based crowfunding and person-to-person lending, to crypto currencies and mobile money; entirely new players are disrupting the field of financing for development and public policy.

So, what does this alternative finance space look like? Who are the new players and what are they up to?

Crowd-power

According to the World Bank, the crowdfunding market is expected to grow to US $100 billion by 2025.

Recent research shows that – despite living in countries where the cost of doing business is quite high – entrepreneurs are successfully raising money by crowdfunding, and bypassing loads of red tape in the process.

And it’s not just money.

New platforms are springing up focusing on everything from expertise and volunteering hours toremittances for social good. The Danish government is leveraging crowdfunding for supporting startups, while Kenya is the first government in the world to enable crowd investment in an infrastructure bond. Neighborly launched a civic-micro bond project allowing citizens to invest directly in local public projects.

Research shows that if it is able to capture just ten percent of the global remittance market over the next decade, diaspora crowdfunding can grow to $58 billion.

Alternative and digital currencies

In response to the 2008 financial crisis, five friends with no finance background set up Sardex, an alternative currency for Sardinian businesses to continue trading and operating. This year trades of Sardex exceeded 32 million euros, and the model is now being replicated on the Italian mainland. Where traditional financing systems failed small business owners back in 2008, Sardex provided an ability to continue their operations and grow.

What potential might similar types of community currencies hold for rural and impoverished regions where we work?

Blockchain has been identified by the World Economic Forum as one of the six mega-trends likely to impact our increasingly connected world.

Blockchain is the technology behind bitcoin, it allows people to transfer money without a bank and write enforceable contracts without a lawyer.

International banks are setting up blockchain labs to incentivize startups, foundations, and citizens to collaborate on designing a new generation of services. MIT has launched the Digital Currencies Initiative to explore its potential for social impact (as did the University of Nicosia, which is the first accredited university in the world to accept tuition payments in bitcoin).

A non-profit, Stellar, is investing in financial literacy of the poor to tap into digital currencies, while early experiments using blockchain to reduce costs of transferring remittances and enable low-cost, rapid disbursement of funds in humanitarian emergencies are ongoing.

In October, BitNation registered the first refugees entering Europe via blockchain and provided anonymous bitcoin debit cards that can be used at any cash point on the continent. Just this month, another start up, Cubits, launched an instant no-fee crypto donation service for refugees arriving in Germany.

Here is an entirely new set of players in the sandbox traditionally occupied by governments and the development sector, looking at the same puzzles and coming up with new ways of solving them.

Is 21st century development about financing not giving?

A recent New York Times article argues, “financial success and social impact are becoming ever more linked, with the lines blurring between the business and nonprofit sectors.”

By thinking about welfare as an investment as opposed to a cost, we can unlock a new universe of opportunities.

The social impact investment market is projected to grow to $3 trillion in the coming years.

One variation of this is the social impact bond (SIB) wherein a government repays the investor only if agreed-upon outcomes are achieved. The first development impact bond was launched in 2014 to improve educational outcomes among girls in India.

Variations on this principle are taking many forms including a landscape-based investment currently being tested, and a revolutionary forecast-based financing that the Red Cross hopes may unlock necessary investment to increase resilience and reduce risks of upcoming disasters.

None of these methods will be an easy fix for development (as this recent Guardian piece argues) and there are many of those who are examining impact investment with a critical eye; but, it does provide a fascinating, complementary approach to address some of the stubborn issues we’re working on.

So:

What does this mean for development and policy-making?
What do we need to understand and tap into these new methods and financial technologies for social good?
What about financial literacy of the poor and the sick, the elderly and those disconnected from the internet?

WE WILL BE EXPLORING THESE AND MANY OTHER QUESTIONS IN ISTANBUL ON 7-8 DECEMBER. STAY TUNED! **THIS INITIATIVE IS SUPPORTED BY THE UNDP INNOVATION FACILITY AND THE GOVERNMENT OF DENMARK**