Blockchain Could Be A Force For Good. But First You Have To Understand It

Jan 11, 2017
Originally published on January 17, 2017 2:01 am

It's been used to buy drugs. Guns. Child porn. And to launder money.

But high-profile institutions like the World Bank, UNICEF and USAID think it could be a force for good, helping the poorest of the poor.

It's a technology called blockchain — a global, online ledger that's free for anyone to use and that isn't regulated by any one party.

Maybe you've heard of it. And maybe you don't know exactly what it is.

That's because it's not easy to define.

Indeed, in a list of "ins and outs" for 2017, the Washington Post included "not being able to explain blockchain."

But we'll try to explain it — and also explain the way it could be a boon to humanity.

What's the big deal?

By now, you've probably heard of bitcoin. It's made headlines over the past few years for being the digital currency of choice for legitimate online purchases and money transfer — and also for laundering money and illicit purchases. It's built on an underlying technology called blockchain — which is basically an online database that's considered to be secure, private and generally hackproof.

But blockchain has the potential to do more than send money. It can help people store information securely and permanently on the Web.

For economists and technologists who work in the developing world, this opens up a world of opportunity. What if blockchain could be used as a force for good — a safe place, say, for a poor Kenyan farmer to store the documents that prove he really does own his land?

How does it work, exactly?

Imagine you have a bit of important information that you'd like to store on the Web, like a birth or health care record. You may choose to store it in one of many blockchain networks to keep those data safe.

To do that, you must add your record to something called a "block," a chunk of data on the Web.

But that's just the first step. To be archived — in other words, to become a permanent record — your data must be linked to the "blockchain" in a global network of millions of computers. Think of the blockchain as a 21st century version of the old-fashioned paper ledger that businesses once used to keep track of their transactions.

Once the block is linked to the chain, everyone in the network gets an updated copy. So if one computer gets shut down, that's not a problem. The millions of others in the network have a copy of the blockchain, and your record is safe.

But don't worry. Your data, once on the blockchain, become what is known as "pseudo-anonymous," which means people can see that a transaction was made but won't see any specifics.

Here's what else makes the blockchain so special: It cuts out the middleman.

There are already lots of places where information can be stored online. Your bank keeps track of your financial transactions. Facebook is a compendium of what your friends are up to. The U.S. Patent and Trademark office keeps registration of new contraptions.

In each of these cases — and many, many others — there is someone who owns and manages all that information. And that could present problems.

First of all, that middleman is holding your data and in theory could do whatever he wants with the information — sell it to another party, for example.

Some middlemen aren't willing to serve everybody. Poor people, for example, might not have enough money to open a bank account.

And there's another problem: The middleman could also be hacked.

Once your data are part of the blockchain, it's difficult to change or remove those data. A group of special users in the network, called miners, help keep it honest by verifying the transactions. If that doesn't happen, the blockchain won't work.

Some apps and software built using the technology have had weaknesses. In 2016, more than $50 million was siphoned from a project called the DAO. And in 2014, $480 million was stolen by hackers from a digital currency exchange called Mt. Gox.

Still, experts believe that blockchain technology is more secure than any other system on the Web right now. "Across all these computers, [these networks] are using the highest level of cryptography, infinitely more secure than the computer systems we have at the CIA and the Democratic National Party," says Don Tapscott, author of Blockchain Revolution. He gave a TED Talk on the technology in August.

Why it could be a game changer

The nature of blockchain technology — that it's secure, hard to mess with and open to both the rich and the poor — is precisely why it could be a game changer for people living in low-income countries or fragile states at risk of economic collapse, corruption or conflict, says Rosanna Chan, an economist at the World Bank.

Say you're a small farmer in Haiti. You've dutifully registered your land, which your family depends on for food and income, with the government. The paper copy of your registration was then filed in a storeroom. But the earthquake in 2010 destroyed all the municipal buildings where they were stored. Now you don't have proof that you're a landowner.

Or let's say the record of your registration is a digital file on a government database. It could be tampered with or erased, or maybe the database uses technology that is outdated or unsearchable.

But if you filed your land deed in a blockchain, perhaps you could avert those problems. That's why Chan, who formed the World Bank's Blockchain Working Group in February, calls it a "magic ledger."

On a small scale, some farmers are already storing land deeds on a blockchain. Bitland, a blockchain platform that registers land in Ghana, has filed 500 deeds since January 2016. The platform hopes to move to Botswana, Kenya and Uruguay next.

Blockchain has other potential benefits.

A platform called BitPesa is helping to speed up the flow of cash from businesses in China to their African employees, who then send the money back home to their families. The Kenya-based startup, launched in 2013, uses bitcoin to facilitate low-cost, instant payments online.

The old way of making payments is usually handled by finance companies like Western Union. It could take days and the sender might have to pay high fees. According to the World Bank, sub-Saharan Africa is the most expensive region to send money to, with average remittance costs reaching 12.4 percent in 2012.

There's also a Vienna-based startup called Grid Singularity that's exploring how "pay as you go" solar power in developing countries could be made more secure and efficient, with financial transactions recorded on a blockchain.

And in February, Sony Global Education adapted blockchain to file academic records, showing its promise in the education space — an area the World Bank has been watching.

But there's one problem ...

People in resource-strapped, low-income countries are "in a poor position to adopt the technology," says Brett Scott, author of The Heretic's Guide to Global Finance and a February paper on blockchain for the U.N. Research Institute for Social Development, an independent group within the United Nations.

Right now, if people want to use a blockchain-powered platform, they need a computer or smartphone and an Internet connection. The majority of people in sub-Saharan Africa don't have these things.

The challenge, says Scott, is "how do you make it function on a simple mobile phone?"

Chan from the World Bank and others across the global development community are eager to work that out.

"Right now, it's like we have a hammer. And we're not sure what it looks like or how to use it," she says. "But we get the sense that this hammer is useful."

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