2017 was the year in which
Bitcoin became mainstream, and my grandmother and delivery man started talking
about it. (Not literally – my grandmother turns her TV off at the wall because
she’s afraid of the remote control – it’s an English idiom). As a teacher/NGO
worker I’m not an expert on cryptocurrency but I watch the Blockchain TED talks
and have done my share of guessing who Satoshi Nakamoto might be.
Those of you who know more might
be able to help me on an idea I have that could be applied to the non-profit
sector, to see if it is in the pipeline already or has serious pitfalls. I know that people in the industry are experimenting with how Ethereum and Bitcoin could be used in humanitarian funding, but I'm not convinced they are the best currencies for it.
There are now literally thousands
of cryptocurrencies, each with different attributes. Nearly all are based in
some way on the concept of the blockchain ledger. Many have gained market value
through selling points such as fast transactions times, anonymity and being
under the radar of regulation. Coins
have gained their own value against the dollar and as such have become investment
opportunities – for better or worse.
Due to the ledger system everyone
using the system would have access to the entire history of that currency if it
wasn’t for encryption - but for every coin I have found so far the system has ingenious
ways of encrypting this information so that it is hidden and unhackable. This makes
sense –for a large crypto currency it would not be beneficial for everyone on
the ledger to be able to see the details of every transaction ever made using
that currency. We should sometimes be free to make payments without other
people knowing. What if we want to give an anonymous donation, tip someone, or buy
cream for athlete’s foot?
But is there a currency that can
make sections or chains of the ledger completely open and transparent? Let’s
call the potential coin altcoin, since
there is probably an altcoin that does this, and give a few examples of how
this could be beneficial.
·
A small savings group in a community (SACCO) convert
their fiat currency into altcoin and all transactions are done on an open
ledger, including loans and repayments. Accounting is no longer necessary as
every transaction is visible to anyone who wants to look.
·
An agency like Xavier Project wants to raise
funds to build a classroom. We launch an appeal requesting altcoin from our
donors. The donors donate altcoin into our altcoin wallet and the transactions
go onto the ledger. We procure contractors who all demonstrate that they use
altcoin in their transactions. We pay the contractors to build the classroom in
altcoin and they pay their staff and buy supplies using altcoin. The original
donors are able to see every transaction, and really see how much Xavier
Project and the contractor are keeping as their cut.
·
Imagine the benefit of this where there are
multiple layers of donors, contractors and subcontractors. The cement supplier in
the example above gets his funds from the contractor, who gets her funds from
Xavier Project, who get their funds from UNHCR, who get their funds from the US
Government, who get their funds from US taxpayers. Donors would be able to see
where their money is going, and as of now they would be able to see how much
gets absorbed (wasted?) by intermediary agencies.
·
Donors could then be better informed as to where
they are giving their money and the function of some intermediaries would be
questioned. In the short term agencies and contractors offering this level of
transparency would gain more support and grow rather than lose significance. In
the longer term their role in transferring material value could fade. (XP would
love this by the way – we could evolve to disbursing only intellectual value
rather than material value, and let the material value flow directly from donor
to beneficiary.)
·
Use of cryptocurrency in this value chain could
reduce transaction costs to negligible amounts, which would be particularly
significant with international transactions – up to 7% of the original donation
amount could be saved.
·
The open ledger system could also cut huge
expenses for the agencies as they would need a far reduced finance team.
Programme team members would no longer have to worry about getting receipts for
every single payment, a job which is even more laborious than it sounds with
all the accompanying paperwork that must go with it. Our full-time team spend at
least 35% of their time on work surrounding transactions in some way. I would
estimate that if we used an open ledger system across the organisation it could
cut this down to 10% thus saving 25% of man-hours.
The channels and extent of
openness would have to be made clear. The ideal may be to have “giving chains”
hosted by an agency which is open to everyone on that giving chain. For
example, if UNHCR wants to achieve outcomes of education for refugees, they set
up an open giving chain on the ledger whereby everyone who gives or receives on
that ledger can see the full ledger. Xavier Project could also host multiple
giving chains that can be seen by everyone on that chain. The degree of
openness could be a pre-requisite for contracting agencies or suppliers, so
they will know how much they will be expected to share before they are
selected, as will everyone else on that giving chain – so a level of anonymity
or privacy at any stage can be an option as long as it is clear in advance.
One thing most actors on this
value chain would fear, from donor, to institutional agency, to NGO to
contractor, is the volatility of most crypto currencies at the moment. I don’t
see this changing at least in the next decade. Currently coins can lose or gain 50% of their
value in day. Therefore the best altcoin for this concept would be one which is
pegged to the US Dollar. There are several
examples of this such as Ziftr, CoinUSD and Nubit, but it seems the most
successful one so far has been Tether. Tether has managed to maintain 1:1 USD
value pretty much since its launch in 2015.
A pegged cryptocurrency would
mean that if a donor buys said altcoin to donate to the chain of giving, it
will not lose or gain value before it finally gets to the cement provider or
labourer a few months later.
So what we need is a cryptocurrency
that is pegged to the dollar and that has a ledger that can be transparent to
varying degrees. Does it exist?
