Is blockchain the right technical solution for our projects?


February 21st, 2018

I recently met with colleagues who were keen to use blockchain for global development. As you may guess, our conversation started with the key question: Is blockchain the right technical solution for us? 

Simply put, blockchain is a distributed database that maintains a shared list of records. These records, called blocks, are linked together as a chain. Each block contains encrypted transaction data known as hash, hash from a previous block and a timestamp. When new data added, all records are simultaneously updated to ensure immutability and almost in real-time.

Blockchain has been named to become next disruptive technology capable of changing the way we trade and interact. The key attributes, including public variability, transparency, privacy and integrity – are what makes blockchain more appealing than centrally managed databases, even despite its downsides, such as high energy consumption, slower processing time, and perhaps, higher cost.

There are two versions of blockchain. A permissionless blockchain, like bitcoin, allows anyone writing and reading the blockchain/database; there’s no central entity managing the membership. In contrast, a permissioned blockchain allows only a limited number of users to have access (write and read) to the database.

Donors, non-profit organisations and tech companies are exploring – designing, testing and researching – blockchain technology for development. BanQu use blockchain to create a digital identity for refugees. The Start Network and Disberse are experimenting with blockchain for transferring grants. UNICEF Innovation will fund blockchain startups. More use cases of blockchain for development are likely to emerge as its popularity increases (or is it hype?).

Do we need blockchain in the first place?

Blockchain is “a machine for building trust” which can provide a high degree of accountability. Using blockchain, in principle, “only makes sense when multiple mutually mistrusting entities want to interact and change the state of a system” (Wüst and Gervais, 2017). And, when (an online) middleman – in blockchain usually called a Trusted Third Party (TTP) – is not available to facilitate the interaction.

The flow chart below describes steps for determining whether blockchain is appropriate for our projects.

Flow chart: Do we need blockchains? (source: Wüst and Gervais, 20172)

Flow chart: Do we need blockchains? (source: Wüst and Gervais, 2017)

As previously discussed, blockchain is a form of a database. Therefore, it is suitable and can add value to the projects which requires a database in the first place. Writers correspond to entities or consensus users with the write access to the database. If there is only one writer, blockchain is not needed. If a TTP is available, but usually offline, it can act as a certificate authority in a permissioned blockchain. If the writers are known (or registered) and mutually trust each other, a centrally managed database with the shared write access is most suitable.

What are other factors to consider?

When implementing a technology intervention, we need to look at enabling environment: factors that can accelerate or hinder a project implementation.

If the answer of the previous exercise is yes, i.e. we need blockchain, we should combine the assessment with the following questions:

  • What are the skills and capacities of a project implementer to initiate and maintain blockchain technology (in the long run)?
  • How blockchain technology challenges – standard and interoperability – will be solved?
  • What and how the government policies and regulations may impact blockchain adoption?
  • What ethical considerations of testing blockchain on vulnerable citizens should be taken into account?
  • What are the potential outputs, outcomes and development impacts – both positive and negative – of blockchain technology? Who will benefit from the blockchain application most?
  • If blockchain technology eliminates or reduces the role of TTP, what are the implications for development actors (organisations, government and private companies)?
  • How to ensure the blockchain technology does not exacerbate the digital divide?

Where to look for more information?

In the UK, the newly established Charities Working Group on Distributed Ledger Technology meets once a month to identify practical steps for blockchain application in the sector. The upcoming Bond Annual Conference 2018 and MERL Tech London 2018 will have sessions on the potential blockchain impact on development.

In addition, reports from GSMA, Open Data Institute and Institute Development Studies provide some guidance for a non-technical audience who seek to understand blockchain in the policy context.

Blockchain is a new and complex technology. Its application provides both opportunities and challenges. Some organisations may seize the momentum by developing a proof of the concept. Others may prefer to wait until the technology has matured. Regardless the decision, we need to avoid the hype and look carefully at blockchain suitability for our work.

 

Reference 

Wüst, K. and Gervais, A., 2017. Do you need a Blockchain?. IACR Cryptology ePrint Archive, 2017, p.375

Featured image credit: Descryptive.com, CC BY 2.0

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