Thursday, 18 January 2018

A Transparent Cryptocurrency for Development / Humanitarian Funding?

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?