Last week, cryptocurrency startup Ripple made the equivalent of a $29 million donation in XRP, the digital coin that it uses in transactions, fully funding all projects on DonorsChoose.org. As evidenced by this unprecedented charitable donation, Bitcoin and cryptocurrency certainly have a place in the future of social impact, but this is merely the very tip of a much bigger iceberg.
It feels like everyone is talking about bitcoin and blockchain technologies, but most folks have a gossamer thin grasp of what it is. That is certainly true in the social impact sector.
Fortunately Mercy Corps’ Ric Shreves has been studying distributed ledger technology and offered our community a primer on it during a recent webinar.
Here are highlights of his message:
Imagine a technology that could:
- Improve the graduation rates of Nigerian girls by automatically generating cash payments to families when their daughter achieves a 90% attendance rate.
- Enable a musician to automatically donate 50% of royalties from a specific song to their charity of choice.
- Coordinate what resources (financial, medical, etc.) have already been provided to a refugee by a variety of aid organizations that have historically not been able to ‘compare notes’ in this way.
- Help homeowners conserve electricity with a ‘smart’ refrigerator and then automatically donate the money saved to charity.
These are all increasingly possible thanks to the emergence of blockchain technology. While still in the ‘early adopter’ phase, blockchain has huge potential for social impact programs around the globe.
Depending on your sector, your company may already be watching or experimenting with technologies like blockchain and bitcoin, but this is one advance you’re going to need to understand if you plan to be involved in 21stcentury social impact programs.
Let’s first get our vernacular straight: blockchain and bitcoin are merely types of what’s known as distributed ledger technology (DLT).
According to Shreves, “a distributed ledger is a distributed database that maintains a continuously growing list of ordered records. Each participant in the network maintains a copy of the database, and as the database is updated, changes are propagated across the network in near real time. Throughout the process, security is maintained by the use of encryption and digital signatures.”
So instead of one central actor maintaining a copy of a particular ledger (e.g. a bank), there are thousands of copies being continually updated by distributed “nodes”, providing for greater transparency and resilience for the ledger and effectively eliminating the middle man in a peer to peer network.
Shreves sees many potential advantages to this technology for international development including:
New ways to build trust and reduce costs: Enhanced transparency and accountability would boost trust. Moreover, the use of DLT to facilitate financial transactions and contractual arrangements could reduce transaction costs and promote efficiencies.
New ways to give: Digital currencies and the ability to tokenize assets opens up new ways for donors to give.
New ways to address social problems: Digital identity management can reduce disenfranchisement and empower individuals. DLT and digital currencies open up new avenues for protecting wealth and facilitating financial inclusion.
One of the biggest areas of potential for DLT is in direct cash payments from donor to recipient. The World Food Programme estimates that 50% of their programming will be delivered as cash-based transfers by 2020. The organization estimates that the blockchain-based solution will reduce overhead transaction costs from 3.5% to 1% or less, saving millions of dollars.
Being an emerging technology, there are still many obstacles and barriers to entry for all players involved. Shreves has written an excellent report that takes a deeper dive into potential benefits and challenges with DLT as it relates to the social impact sector.
But most important? “We need this discussion to occur at the sector level,” says Shreves. “We need to talk about how we can implement DLT that will allow us to improve efficiency and reduce costs across the sector. While some individual organizations will no doubt continue to develop solutions in isolation, if that approach becomes dominant, the sector runs the risk of missing the bigger opportunity, that is, the ability to share data, reduce the burden of regulatory oversight and audit, and improve our view of beneficiaries and the impact of our work. We need to be working together on this bigger issue and that’s where the bigger opportunity lies.”
There’s certainly more to come as this technology continues to develop and use-cases are successfully executed in the marketplace. Staying up to date on this exciting technology is paramount to the future of social impact programs as donor and consumer expectations continue to move to a more direct and transparent model.