We need to talk about the blockchain, folks. Because it will change everything. And there are so few people that understand what it is and where the opportunities lie that the ones who do have a huge edge.
You want that edge.
Even more so in the do-good industry, where the opportunities are enormous, and where shockingly tech-illiterate incumbents struggle every day to roll out the same old interventions following the same antiquated cycles. I want to share a few of the more obvious opportunities right here as we are looking into some of them and/ or are currently pursuing.
First, a super-quick description of the blockchain (skip this section if you have a basic grasp of this technology):
A blockchain is a public, shared record that cannot be modified retroactively and that everyone trusts to be accurate forever. This record could be a list of transactions (as in the blockchain’s flagship application, bitcoin) or it could be any other information that once recorded cannot be modified anymore. It’s basically a ledger kept honest by mathematics, rather than humans or institutions. It is formed out of “blocks” of information that reference each other (“chain”) with newer blocks containing added information on top of older blocks on which information cannot be modified anymore.
Think about how many institutions are out there – some of them widely loathed – that exist simply as formalized witnesses for some sort of data-point in history: Notaries. Banks. Insurance companies. The National Gazette. Passports. Elections. Bookies. Copyright.
In theory, blockchain applications could drive all of these into irrelevance. And I am personally looking forward to see quite a bit of disruption in these spaces in the near future.
But what of the development industry? What about donors and implementers and – lest we forget – the proverbial beneficiary?
- A valuable currency & payment platform.
I think this is the most obvious application and one that has been written about extensively. There are plenty of exciting startups in this space – bringing bitcoin and other crypto currencies into low-income markets where millions of unbanked people could enjoy the benefit of a virtual currency that they can save, spend and trade. It would be a powerful way to “bank” the unbanked, without the need of an expensive operational expansion of a traditional banking infrastructure. Additionally, it would offer millions of people a way to hedge against bad fiscal / financial policies if they have the misfortune to be living in a place where such policies are rolled out. There’s more, of course: people fleeing conflict or persecution could store whatever values they have in a crypto currency and access it en route as needed and/ or once they are in a safe place. Today, many refugees leave their belongings behind and/ or get robbed or ripped off by criminals and corrupt officials they encounter during their perilous journey.
2. My absolute favourite application in this space: Remittances.
Un-banked, hard-working migrants currently pay astronomical fees to the likes of Western Union when they send money home. No more of that – a crypto currency allows instant, no-fee transactions. This can be set up right now, without the need for any single extra line of code. The only thing needed is an extensive operational presence, which many non-profits have and which a nimble social entreprise could set up quickly using a franchise model, for example
3. A global, secure, distributed registry for identity.
Like a global passport that you can never lose and never expires. All important events – birth, marriage, death, driving license, voting card – can be recorded on a blockchain, forever accessible and indestructible. No-one could have access to this data, unless permitted by the owner who is always in control. There are further opportunities here: Medical records. Credit history. Insurance status. This could help refugee processes in recipient countries speeding up processes and removing doubts about nefarious elements infiltrated among legitimate refugees.
4. (Micro)Contracts. (Micro)Credits.
One of the more exciting developments in the world of blockchain is the integration within blockchain protocols of secure contracts (“smart contracts”). That means that contract deliverables get scripted into the blockchain and payment happens automatically once deliverables are verified. This has a lot of potential in managing small-amount/ high-volume contracts such as micro-credits or other predictable, simple contracts. It removes a critical barrier and allows small-value contracts to go to scale without the need of a margin-eating middle-man to facilitate trust.
These are just a few possible applications and each of them could have a tremendous impact on local economies. But their combined impact is even higher and it unlocks entirely new categories of opportunities related to local entrepreneurship and economic growth:
5. New forms of equity structure and trading
Currently, there is no real equity structure on under-served market segments, never-mind trading. There are many reasons for that – no infrastructure, no regulatory framework, no real incentives to bother with any business structure. Capital doesn’t follow opportunities here. In fact, there is no capital to speak of – hence, no real growth. Sure, it is a bit of a stretch to expect that there is any appetite for any equity structures on markets where the typical business is a mama selling a few bananas or a local store selling rice by the cup and the odd beer.
What if we could structure the equity on these markets, and raise the capital on modern, sophisticated markets? Let’s start with the basics. The mama selling bananas. Could we assume her business has a value? Or the numerous community-based health workers/ micro-distributors supported by so many NGOs/ social enterprises who go from door to door in their communities and make a living out of referring people to services or selling things like nappies or fortified staples. Could we valuate one of these businesses, just like we would any other business? How much would it be worth today? 15 dollars? 100 dollars?
I think we can. And once we do, we can record the valuation on a blockchain. Then we can sell shares and/ or stock options – either directly, or through a token/ Coin Offering. The buyer of these micro-shares could be from the same village or from a big city on the other hemisphere. You could aggregate (i.e. network index) and structure this micro-equity into modern investment instruments that can be traded directly with investors or through legacy brokers. Hell, you could even structure all sorts of derivatives on these instruments, increasing the flow of capital into capital-starved market with a high profit potential.
6. Commodity trading/ futures.
Now let’s imagine one of these businesses is an agri-business. We can record various inputs onto the blockchain as well as crop yield and other outputs. We can structure a token (and smart contracts) and use that to basically sell/ buy futures. A bit like an old fashioned cooperative bank, but without the bank (and without the bank fees);.
With all crop data on the blockchain it should be easy to insure that crop. Or anything else, for that matter. Premiums are registered on the blockchain (linked to a smart contract and maybe fulfilled using a blockchain currency?). This can be done at any frequency – daily, weekly, etc. Once the insured event is registered, payment comes automatically.
8. Impact Investment
The Real Game-Changer with the Blockchain in this industry is related applications in the space of Impact Investment. We are currently dealing with an unfortunate reality: modern markets are saturated and there are diminishing returns for process innovation there. So investors are forced to accept lower and lower returns for their money, which they grudgingly see as a price for an illusion of “safety”. Meanwhile, emerging markets across the global south have the potential to deliver solid, consistent growth/ returns, but are starved of capital. This is mostly because they lack the sort of institutions that investors feel would guarantee their investments and also because investors are not familiar with investment opportunities on these markets. So the main capital that flows towards these markets is donor funding, which mostly doesn’t benefit the markets that dearly need it. In fact, it often undermines the fundamentals there, creating volatility and scaring investors even more, even while it feeds an artificial economy of consultants and middle-men.
Enter the blockchain.
The opportunities here are plenty and we haven’t even started scratching the surface. Here are just two of them:
Development impact bonds on the blockchain. Current development impact bonds are really hard to scale, mostly because of the difficulty to track progress and/ or to verify that milestones have been met (more on that here). Investors don’t feel comfortable with this level of lack of visibility and they don’t feel comfortable with how expensive verification actually is. The blockchain can change all that. Agree on a real-time output indicator (Proof of Impact) and set a smart contract on the block chain that would release a payment when the indicator is registered. Or even better, don’t even call it an impact bond. Simply issue a coin linked to measurable impact. Like so:
Fundraise with Crypto Impact Coins. You could turn traditional impact investment on models in their head, by issuing a blockchain coin to raise money from investors through an initial coin offering (ICO). Link the initial value of the coin to the cost of delivering impact. Investors can trade the coin on any crypto/ asset exchange or they can hold it (or HODL it, as per the crypto meme). Every time a donor funds a specific project, a corresponding amount of coins gets destroyed, which will increase the scarcity of circulating coins, and hence their value. The investor/ donor relationship becomes mutually beneficial and self-enforcing, as investors benefit when donors fund relevant programs (because that reduces total no. of available coins, increasing coin value) and donors benefit from investors purchasing coins, because that leverages private funding (“cost-sharing) to the causes they fund. Everyone wins.
I will stop here. Would love to hear your thoughts on above or any other opportunities you can think of in this space. Obviously, this technology will not solve ALL problems – no technology ever has or ever will – but I am convinced that it will unlock a new era of opportunities that we cannot even conceive right now.
I can’t wait.