SEATTLE — 2017 may one day be remembered as the year blockchain went mainstream. Bitcoin, the standard-bearer and common touchstone for blockchain technology, muscled its way onto front pages this year by virtue of its unignorable growth in value. As more people learn about Bitcoin, they are also becoming more aware of other wide-ranging applications for blockchain, Bitcoin’s underlying technology. Many of these new applications are enhancing development efforts worldwide, demonstrating how blockchain can help the poor access economic opportunities that were previously out of reach.
Blockchain’s power and utility come from its ability to provide secure, remote and verifiable records of transactions. Essentially nothing more than an open ledger stored across a network of computers, what makes blockchain so revolutionary is that this ledger is duplicated in identical copies across numerous locations, all accessible at the same time to any member of the network. This is possible because of internet connections allowing the identical records to be stored simultaneously on thousands of computers all over the world.
Blockchain is by nature a distributed internet technology, and relies on modern encryption methods as well as another key feature – that entries into the chain are permanent and cannot be modified once they are added. The latter characteristic gives blockchain resilience against deception in transactions. This feature can also reduce the ability of people with more information in the marketplace to take advantage of others with less access to current information. These abilities allow blockchain to level the playing field in situations where validity and verification have traditionally been either insurmountable or extraordinarily expensive obstacles to commerce.
One longstanding and well-supported line of theory in development economics holds that there is a relatively small global formal economy, where contracts and property are well protected, and transactions are verified by a regime of powerful intermediaries like governments and large international banks. This stands in opposition to an immense informal economy, where face-to-face transactions and property rights based on tradition, personal trust and even immediate force are what determine the outcomes. By providing remote verification of records and transactions, blockchain can help the poor gain access to the formal economy and unleash vast amounts of undervalued economic potential worldwide.
Efforts to realize this potential have begun to take shape over the past couple of years. Insurance, for example, is one luxury of the formal economy that is widely absent in less wealthy communities around the world. Insurance providers and clients can sharply reduce transaction and verification costs for claims by using blockchain to validate losses and give assurance that claims are paid correctly. Mexico’s Consuelo microinsurance program began in 2016. It uses blockchain technology, and is becoming increasingly popular with migrant workers all over North America.
Blockchain technology is not always necessarily about direct financial matters. Record-keeping, validation and transparency are also vital to other parts of the formal economy. Land records are notoriously inconsistent and murky in less developed areas. Blockchain-backed systems are so ideal for keeping records of real estate and buildings that even highly developed nations are investigating its use for their own land records. Allowing for unambiguous titles to land and other assets can open vast economic opportunities for previously disadvantaged people. The ability to mortgage or otherwise leverage assets as collateral is essential to the expansion of business opportunities and can accelerate entrepreneurship. Blockchain can help the poor harness previously undervalued assets in these ways, which can accelerate growth in developing nations.
So-called “smart contracts” are another example of remote validation and the expansion of formal legal and economic regimes to anyone with access to an internet connection. Formal systems devised centuries ago for securing trade contracts still relied on banks for communication and to relay funds over long distances. However, blockchain ledgers are visible and accessible from any internet connection worldwide and can allow access to this same type of security and validation without the formerly necessary intermediaries. Thus, blockchain can help the poor afford previously unavailable services, increasing access to trade for millions.
The current surge of interest in blockchain technology is unlikely to be a fluke. With dozens of immediate applications ready for use, and the continued success of its initial platforms, blockchain stands to be one of the defining technologies of the 21st century. Given its potential to connect people to the global economy and bring low-cost financial services to people worldwide, blockchain applications can be a significant contributor to the United Nations’ goal to eliminate poverty worldwide by the year 2030.
– Paul Robertson