Though adoption of blockchain technologies outside the world of cryptocurrencies is still in its infancy, various pilot projects around the world have underlined its robustness, security and efficiency in meeting the challenges of last mile delivery
Quick Take
- Blockchain is virtually impervious to malicious outside attack
- It’s being increasingly seen as an efficient, fraud-resistant, and a transparent way for delivering services in the social sector
- Global pilot studies, like the one conducted by World Food Programme at a refugee camp in Jordan, underscores its ease in delivering humanitarian aid on a largescale
By Team ContentCraft
echnology can play a big role in improving the delivery of services in the social sector. Some of the critical issues in this domain that can addressed through technology are transparency, accountability, auditing, speed, and reporting. In this age of data and information explosion, it’s even more crucial that various stakeholders embrace new technologies that improve efficiencies and reduce the time lag between project planning and implementation. Technology can also play an important role in plugging resources leakages, which is one of the biggest banes in the social sector.
One of the emerging technologies that is increasingly gaining traction in social-sector management is blockchain. Though, blockchain technology has its origins in the dark world of cryptocurrency, the backbone of the alternative global currency system is being widely acknowledged for its potential to deliver services, especially for tackling the problems that hinder last mile delivery and plug leakages.
What is Blockchain?
n simple terms, blockchain is an encrypted shared ledger, which is linked to individual ledgers of other participants by chain links for carrying out transactions through peer-to-peer connections. The rules of the transaction are defined through ‘smart contracts’. Since transactions cannot be changed or carried forward without the permission of other participants in the chain, fudging records becomes virtually impossible.
Each individual participant in the chain is called ‘nodes’, and their individual ledgers are called blocks, which are linked by chains. Hence the name blockchain. Each block is defined by its unique hash code identifier, which is essentially an alphanumeric code, that is the digital fingerprint of that block. Every transaction carries the hash code of the preceding block, while each transaction in the chain is recorded by its unique hash function. This makes it impossible to alter the transaction in the preceding blocks or insert a new block between two blocks. With increase in the number of transactions, the size of the blocks keeps growing.
According to technology experts, blockchain offers several advantages over traditional methods of recording business transactions. Since all the participants (nodes)—depending on their access rights—can monitor any particular transaction in real time through the entire chain, it results in enormous amount resource savings, promotes transparency, and prevents fraud.
Figure 1 explains the flow of transactions using blockchain.
Figure 2 illustrates how the hash code of the preceding block is reflected in the subsequent blocks throughout the chain of transaction, making it impossible to change ledger entries in multiple places. This is the strongest fraud and leakage-prevention system that’s built into the architecture of the blockchains.
Any blockchain has four key components. These are:
- Shared Ledger: This is the master ledger across the entire chain. Each participant has a duplicate copy of the ledger in which the transactions are recorded after fulfilling a set of conditions. Every transaction generates a unique hash function, and each participant has specific levels of permissions that define access to the various transactions throughout the chain.
- Permissions: Since each block in the chain is defined by its unique hash identifier, it’s easy to define permission levels. Defining the permission levels restricts the participants to monitor specific transactions in the entire business chain. Further, regulators and auditors can be given the highest level of permissions, which can enable them to monitor all transactions across the entire chain in real time. This enhances transparency manifold. By defining the permission levels, various data protections regulations can be easily complied with without extraneous interventions.
- Consensus: It’s an agreement between all the participants in chain to transact business in a pre-defined way. Since all the participants have a stake in a particular chain, there is inbuilt dispute-settling mechanism that is defined by algorithms to prevent conflict and resolve human error. Since all the blocks are interlinked, peer-to-peer permissions through digital signatures and certificates validate the fulfilment of the terms of smart contract for any transaction to be completed. This reduces the chances of disputes.
- Smart Contracts: These are a set of conditions and rules that need to be fulfilled for any transaction to conclude. Smart Contracts are automatically executed once the defined set of conditions are met by a participant in the chain.
Essentially, blockchain is an amalgamation of several technologies such as cryptography, distributed database, smart and consensus algorithms, and decentralised processing.
How blockchain can be used in social-sector management
y using blockchain technology, governments, NGOs and corporates can ensure efficient delivery of services to the last-mile recipients. According to a 2019 report in the Forbes magazine, “Blockchain can be a surprisingly good fit for social impact efforts. Enthusiastic protagonists like the Blockchain for Social Impact Coalition believe the technology could form a new infrastructure backbone for the sector because it allows charities to handle grant payments, track expenditures and meet reporting requirements for multiple funding bodies all in one system.”
The report further states that by adopting blockchain technologies, various stakeholders in the social sector can significantly improve efficiency, reduce cost and increase compliance. “One of the main benefits of blockchains is that they do an end-run around fee-charging intermediaries like banks by using the distributed computing power of network members to perform and log transactions. That cuts costs and allows for even more efficiencies, like smart contracts that automatically activate once the network determines a particular transaction has been carried out. It’s not hard to see why this makes blockchain technology attractive to charities and non-profits, where every dollar on overhead is one that can’t be spent on helping people.”
Governments can greatly simplify the process of accessing important information such as birth and death records, property details, filing of income tax returns and enrolment for social welfare schemes, among others, by adopting blockchain technologies. Since each participant is assigned a unique hash value to create a block in which such information can be stored and accessed, it go to a great extent in improving ease of doing business and cutting down the cost of doing business for individuals and the government. According to McKinsey & Company, banks, payment-service providers and insurance companies are among the first out of the blocks to adopt blockchain.
“Over time, blockchain can help agencies digitize existing records and manage them within a secure infrastructure, allowing agencies to make some of these records “smart.” IT departments in government agencies may be able to create rules and algorithms, for instance, that allow data in a blockchain to be automatically shared with third parties once predefined conditions are met. In the longer term, the technology may even allow individuals and organizations to gain direct control over all the information the government keeps about them. This level of transparency could, in turn, make it easier for agencies to achieve buy-in for the creation of networked public services.”– McKinsey & Company.
According to the Humanitarian Advisory Group, blockchain has multiple uses in the humanitarian sector. “In humanitarian response, blockchain has the potential to be used for information management, coordination of aid delivery, management of crowdfunding, tracking supply chain, cash-transfer programming and boosting humanitarian financing. The technology can provide solutions to existing challenges in humanitarian assistance such as transparency and accountability. Blockchain also can allow organisations to gather large quantities of data about vulnerable populations by using the distributed database component. To maintain data privacy of these populations, organisations can use private blockchain to allow only certain networks to gain access to the data,” says one of its reports.
The report further highlights how the World Food Programme piloted a project to deliver aid to 10,000 refugees at a humanitarian camp in Azraq, Jordan in the aftermath of the civil war in Syria. “An example of humanitarian blockchain in action is a pilot project run by the World Food Programme (WFP) called ‘Building Blocks’, a cash transfer program for 10,000 Syrian refugees in Azraq camp, Jordan. They distribute electronic cash using blockchain that can be redeemed at participating markets.
“These markets use the blockchain technology co-developed with the WFP Innovation Accelerator team. The project has been hailed a success by many members of the affected population with them being able to purchase goods using iris scan technology,” says the report. “The refugees’ data was also securely managed by WFP. More than 10,000 Syrian refugees received USD $1,000,000 through 100,000 in transactions. To scale up the project, WFP has chosen Baltic Data Science as a partner to expand the use of blockchain technology to other areas. The Building Blocks project has illustrated the benefit of using advanced cash transfer systems in certain contexts whilst protecting data of affected populations and seeing a 98 percent reduction in transaction fees.”
Several organisations under the UN umbrella are promoting the adoption of blockchain technologies. One UNDP report highlights how an US-based social-sector start-up, BanQu, is building a secure blockchain-based database of the world’s most vulnerable population for delivery of aid. “Through the BanQu app that runs on any mobile phone, an individual can build his or her online profile through facial and voice recognition and start tracking everything from educational qualifications to transaction history. Over time, users build up a financial ID, eventually being able to open bank accounts, own property and access healthcare and other basic services,” says the report.
Given the rapid expansion of the social sector in India, NGOs and CSR arms of corporate houses should adopt blockchain technology for project management, especially in remote areas or in specific fields in which auditing and reporting remain a big challenge. Even the government could roll out a pilot project to test the efficacy of blockchain for India’s sprawling PDS system.
