What is blockchain, and what does it mean for social impact?
Like big data or machine learning, blockchain is a buzzword that for many (myself included) is heard much more often than it is understood. If you haven’t heard of blockchain, you might know Bitcoin, though the latter may be just as unclear as the former. Despite the understandable confusion surrounding them, Bitcoin and blockchain aren’t too complicated on a basic level, and they’re being used by humanitarian organizations like UNICEF and other tech-focused non-profits to make significant strides in the security and delivery of philanthropy and global aid.
Note: If you want a quick run-down on the social impacts of the blockchain, you can skip here, but I’d argue that these aspects are much more meaningful with a basic knowledge of the technology itself!
Demystifying Blockchain
It’s hard to truly understand blockchain’s potential for social impact without knowing a little bit about how it actually works. Blockchain is the record-keeping technology underneath the Bitcoin network. The goal of blockchain is to record and distribute digital information without allowing this information to be edited. It’s especially useful in financial settings, where investors, clients, and traders need a secure, reliable ledger of transactions that have been made by different parties over time. Each “block” of digital information is stored in a “chain”, or public database, and contains critical details.
Lattes & Matcha
Think about your last purchase at your favorite store: if you wanted to save this transaction for future reference, what kind of information might you want to remember? For a financial transaction like this, the date and time of your purchase, dollar amount you spent, and identities of the parties involved (ie. you, and your favorite store) would all be important. Let’s say I paid $3.50 for an iced latte at Dunn Brother’s cafe in Excelsior, Minnesota at 8:09 on Wednesday, August 26th, 2019: for now, you can think of each “block” in the chain as including this basic information. If, later that afternoon, I needed an extra boost and purchased a matcha tea, the details of that transaction might be added to a new block that is chained to earlier my latte purchase (hence the chain of blocks, or blockchain). If my sister Alexa sees my matcha and decides she wants a black coffee (and I’m feeling altruistic), I might buy her a drink as well. In our simplified blockchain model, we now have three drinks representing three transactions: an iced latte, matcha, and black coffee. Each “block” or drink in our chain is stored linearly and chronologically (in reality, a single block may group together thousands of transactions).
Hashing: Blockchain’s magic ingredient
So far, blockchain might not sound like much more than a glorified list of information. The final basic ingredient — the hash — distinguishes one block from another and gives blockchain its power. In addition to the purchase details of our latte, matcha, and coffee, each separate block contains a “hash” ID or cryptographic code created by special algorithms called hash functions. Cryptographic hash functions can transform the details of my drink purchases (no matter how detailed) into a string of numbers and letters with a fixed length. An ideal hash function is infeasible to invert, meaning that given the hash code for my latte purchase, Alexa wouldn’t be able to reconstruct my purchase details. This feature is important for the security of information stored in the blocks.
We now have a chain of transactions that are secure, but how do we ensure that no one can edit the details of the purchases I made? What’s stopping Dunn Bros cafe from changing my block to say that I ordered fifty lattes, making me both over-budget and over-caffeinated?
Each block contains the details of that transaction and its own hash-code derived from these details (by the hash code). As mentioned, blocks are chained chronologically. Critically, the block also contains the hash code of the previous block. If a store (or cafe!) were to edit any purchase details in my latte block (like the quantity or dollar amount), that would change the hash code (unique ID) for the latte purchase in the latte block. The latte hash code is also stored in the block for my next purchase in the chain (the matcha block), but now we have a problem, because the matcha block still contains the old latte hash code (the one that says I only bought one latte). Dunn Bros could change the latte hashcode in the matcha block so the two match, but doing so will change the matcha block’s hashcode, and now the new matcha hashcode for the matcha block won’t match the corresponding hashcode in the next (black coffee) block– by attempting to cover its tracks, the cafe has only pushed the problem down the line.
In case that got confusing, here’s what it means practically: to forge my one latte transaction to reflect the new (inaccurate) quantity, Dunn Bros would have to change every single block after it on the linear, chronological blockchain. Recalculating all these hashes would require an “enormous, improbable amount of computing power”, which is great news for my bank account and anyone else who wants to preserve the integrity of their financial transactions!
Further resources on blockchain basics:
- Investopedia: Blockchain Explained
- Goodbit: Blockchain 101 (great series of videos & interactive FAQs)
But why does this matter?
Blockchain & Impact
The discussion below was inspired by a recent webinar sponsored by Fintech Advisory Services and featuring the following panelists:
- Ariana Fowler, member of the blockchain team of UNICEF Innovation at the UN headquarters in New York, focusing on strategy and empowering children and youth through tech
- Connie Gallippi, founder and executive director of BitGive, the first Bitcoin 501(c)(3) nonprofit, created with the goal of “transforming the world for better using digital currencies”
- Grace Torrellas, founder of Blockchain for Humanity (B4H), a not-for-profit foundation operating on the premise that innovative technologies are not solely sufficient for transformation, and need to be sustained by innovative business models that are rooted in the social context of disadvantaged but vibrant communities
How is blockchain being used to accelerate impact?
Blockchain can provide key advantages in the transfer of information & funds via digital transactions and contracts:
- Speed: In cross-border transactions during crises such as COVID-19 , the ability to move funds quickly is a key bottleneck in being able to financially support those who need it– blockchain bypasses the traditional system for transferring funds and utilizes the bitcoin network to accelerate the speed of impact
- Transparency: As donors, we’re used to making financial contributions based on our trust of the organization we’re donating to: besides a thank-you message or annual report from the recipient foundation, we may never know exactly how or where our funds are being used. Blockchain provides transparency and accountability to donors by giving them real-time details on how their funds are being used and the impact they’re having. This builds greater engagement and contribution from donors and encourages new donors to enter the space because of increased trust and transparency, accelerating impact!
- Cost: Traditional donations transfers are subject to transaction and service fees, which detract from the initial donation and reduce the potential for monetary impact. For example, individuals in some countries such as South Africa must pay a fee for every action within their bank platform, even to simply view their account balance! Blockchain reduces overhead/intermediary costs and maximizes donations by taking advantage of low to no fees under the Bitcoin network.
- Security: Many non-profit transactions are vulnerable to fraud, especially due to the number of parties that funds must pass through before reaching the end recipient. The cryptographic security of blockchain greatly reduces these risks because only the intended recipients have access to the private key that grants access to the funds.
- Accessibility: Because non-profits generally rely on traditional banking institutions to facilitate the transfer of funds, the most in-need communities are often the hardest to reach. Blockchain can provide benefits to beneficiaries almost anywhere (BitGive currently has 23 non-profit partners in 24 countries, including in Kenya, Ethiopia, and Afghanistan)
Challenges & solutions for blockchain impact
Blockchain and Bitcoin seem to have a bright future in the global non-profit and philanthropic spaces, but implementing these new technologies, especially on a community level, is not without challenge. Access to mobile phones, internet connectivity, literacy levels (financial, digital, and otherwise), end user experience, testing/debugging, and self-sovereignty for local communities creating and using blockchain solutions are all critical considerations, without which blockchain cannot fulfill its potential impact.
“Nearly half the world’s population is still not using the internet and remain disconnected from digital products and information that could dramatically improve their lives”
UN Digital Public Goods Alliance
To tackle these challenges, UNICEF has implemented a few key projects alongside its technology efforts:
- SURGE: a series of hackathons and learning events aimed at helping teens and young people to think about problems in their local communities through the lens of blockchain
- UNICEF Cryptocurrency Fund: as of 2019, UNICEF is now able to “receive, hold and disburse donations of cryptocurrencies ether and bitcoin” to fund open-source tech
- UNICEF Innovation Fund: an accelerator providing funding and support for blockchain-based startups in UNICEF program countries (in the last cycle, they received 500 applications from 68 countries!)
Financial transactions represent just one type of digital information, so the social impacts of blockchain aren’t limited to philanthropy. No matter what cause area you’re interested in, there’s likely an opportunity for blockchain to accelerate impact through transparency, security, speed, or elsewhere!
If there’s a technology you’d like to explore through the lens of social impact, feel free to let me know at erika_bussmann@brown.edu and I’d love to share with our community and write about it!
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