Guest Articles

Wednesday
October 20
2021

Raj Jain

How Blockchain Can Support Social Impact: Three Innovative Use Cases that Highlight its Potential

When it comes to blockchain technology, cryptocurrencies like Bitcoin seem to dominate the headlines and occupy most of the space in public discourse, whereas blockchain itself – cryptocurrencies’ underlying technology – often gets overlooked. But I would contend that what lies ahead for Bitcoin and many cryptocurrency projects (e.g., Litecoin, Dash) is uncertain, while in contrast, the future of many blockchain projects outside the domain of currency (e.g., Theta, Alice) seems compelling.

Many of these projects have optimized the technology to flourish in a variety of different spaces, including the social impact sector. In this article, I will showcase the functionality and value of blockchain in social impact work, highlighting three organizations that are putting the technology to innovative use.

 

Understanding Blockchain Technology

Just as the internet is composed of autonomous computers linked together on different networks, blockchain is a database of information that is distributed across many computers that are linked together. Any inputs (i.e., transactions or other information-based entries) to the database require the consensus (i.e., verification and approval) of the other computers on the network. This provides a permanent audit trail for these inputs, making the database very difficult to tamper with.

The blockchain network is decentralized: This means there is no central governing authority, allowing for a peer-to-peer ecosystem of transactions or other entries that renders third-party mediums (such as conventional banks or other financial institutions) unnecessary. It is immutable, allowing for increased security, as information is encrypted and cannot be changed or altered once the computers on the network have verified and approved the entry. And it is transparent, allowing for increased trust, as all approved information becomes visible to the entire network. Blockchain is built with a range of different cryptographic concepts, which is why its currency-type applications are referred to as “cryptocurrency.”

Blockchain has the potential for universal accessibility if it goes mainstream, as anyone with internet access would be able to use it. Its potential uses are limitless. Right now, companies around the world (like IBM and Google) are researching and incorporating blockchain into their products and services; even governments are experimenting with the technology.

Mainstream investors are already highly focused on blockchain-driven businesses – in fact, 17 of the 20 largest venture funds in the world (based on assets under management) have invested in companies that utilize blockchain technology. Some forward-thinking impact investors have already begun to follow suit.

 

Innovative Use Cases for Blockchain in Social Impact

A 2018 report from the Stanford Center for Social Innovation identified 193 organizations, initiatives and projects that were leveraging blockchain technology specifically for social good. This work could have direct implications in the global impact investing market, as these projects continue to scale and become more investable over time. Beyond the investment opportunities presented by blockchain-driven businesses, the technology can also help facilitate the investment process itself. Below, I will discuss three fascinating blockchain-based initiatives: one that illustrates how the technology can be used to address a common challenge in emerging markets, and two that showcase the innovation that blockchain can bring to impact investing.

ConsenSys Ventures is a venture capital arm of the blockchain technology firm ConsenSys, which aims to help entrepreneurs in the blockchain space scale their businesses. They are operating a project with NITI Aayog, a government-partnered public policy think tank in India, which leverages ConsenSys’ technology to offer a streamlined platform for managing land ownership records. This service might not be needed in the Global West, but in certain areas of India, land ownership records can be tampered with by simply bribing a government official. Because the ConsenSys platform is built on blockchain, land ownership records can be securely stored on a network that is both trustworthy and tamper-proof; this is because the data is incorruptible once entered and verified, meaning that users would not be able to bribe officials into making changes. The record-keeping and transparency features of the blockchain network would allow users to view historic ownership and taxation records, with all records being time-stamped and reliable.

Pan-Impact Korea is an impact investing advisory company that has introduced a social impact bond (SIB) that utilizes blockchain technology. SIBs are typically offered by governments to finance social projects, with payouts being contingent upon the achievement of predefined social outcomes. But unlike traditional bonds which are tradable, SIBs function more like private contracts. This lack of securitization and liquidity renders them unattractive investments, due to the difficulties investors face when trying to purchase or sell the SIBs. Using blockchain, Pan-Impact can more effectively securitize the SIBs (via the creation of blockchain tokens that serve as derivatives) and create a decentralized peer-to-peer ecosystem that allows for a functioning and liquid marketplace for these tokens (bonds). Investors can even trade and settle in traditional currencies; and with the tamper-proof blockchain infrastructure, they can track the performance of each SIB in real-time – and potentially the performance of the underlying impact targets as well. Both financial and impact data related to the SIB could be codified and stored on the network; the bond’s account history, transaction history, ownership records and performance could all become fully transparent and trustworthy.

IXO Foundation is a software development organization that has developed a blockchain system for impact measurement in South Africa. Traditional impact measurement methodologies are problematic because of their obscurity; they don’t have objective criteria or standardized scientific methods for measuring impact. And yet all impact investors endeavor to measure impact with the same clarity that is used to assess financial metrics in traditional markets. IXO tackles this challenge by creating verified impact claims, or “proof of impact” protocols. For example, in a project that uses the IXO system to support child development and school attendance, children are given digital self-sovereign identities connected to a blockchain system (via an app); this allows teachers and students to mutually agree to and approve activities (e.g, day-to-day school attendance), which triggers the achievement of a successful impact event. The app can then securitize these impact events into blockchain tokens, which can serve as verified records of impact data that can then be submitted and redeemed for government subsidies. If this approach is developed and scaled, the value-add for impact investors would be significant: With transparency and reliability integrated into impact measurement frameworks, investors could gain a more nuanced understanding of impact throughout their investment-selection process. For those interested in learning more about tokenized impact measurement and information assets in general, read the following report from IISD.

As governments and other entities begin to adopt these types of solutions, blockchain service providers will be able to increase their consumer base, expand their footprint, build profits and attract additional investment – naturally, consumers will also benefit from the innovative solutions blockchain can provide.

But these initiatives are just a drop in the ocean that is blockchain. At the macro-level, blockchain is being used creatively in projects around the world to build economies for the unbanked and unregistered, incorporate transparency into supply chains, facilitate effective philanthropy, establish tamper-proof records, promote decentralized governance, create peer-to-peer markets, provide self-sovereign identity, and more. Perhaps most importantly, blockchain is playing an ever-increasing role as a foundational technology for the infrastructure behind Web 3.0, the next evolution of the internet; Gemini offers a thorough explanation of this development.

This is an exciting space, one that I anticipate will only become more interesting. In fact, there is now a dedicated coalition established for the advocacy of blockchain as a force for social impact. If you’re involved in an impact-focused organization or project, it’s worth considering how blockchain technology could be leveraged in your work.

 

Raj Jain is a blockchain enthusiast who researches the various intersections that exist between blockchain technology and emerging sectors like social finance.

 

Photo credit: TLC Jonhson.

 


 

 

Categories
Impact Assessment, Investing, Technology
Tags
blockchain, cryptocurrency, data, impact bonds, impact investing, impact measurement, scale