Can Bitcoin Make a Difference in the Global Aid Sector?

cash aid

Cash and gifts-in-kind are the two main types of relief when it comes to assisting those who have suffered in the face of natural disasters, but bitcoin is becoming an ever more popular option.

In the aftermath of the 2004 Indian Ocean tsunami, over $14bn was pledged by the international community for the relief and recovery of the 14 countries affected by the natural disaster – one of the deadliest recorded in history.

Paul Currion, an independent consultant for humanitarian organisations, told CoinDesk this “huge outpour of public support” meant a lot of organisations had more funding than they could easily process and distribute.

Cash donations can be favoured over in-kind donations, with the latter having been criticised in the past for making it more difficult to match the needs of the recipients, and in doing so, disempowering them.

According to Currion, who is currently working with the Start Network to explore the potential of blockchain technology, one of the biggest downfalls in aid in the past has been using a “blueprint response” for every disaster. He said:

“That’s obviously done for reasons of ease – you don’t have to re-invent the wheel every time there’s a new disaster … on the other hand, what that means is our options are limited and that, in turn, has limited the options of the people who have been affected by the disaster.”

USAID’s Office for Foreign Disaster Assistance, Food For Peace and Global Development Lab echoed Currion’s assertions that cash can be more beneficial than gifts-in-kind, noting that, under the appropriate circumstances, cash-based interventions can stimulate local economies.

Currently, aid cash is either distributed directly, transferred into a bank account or into a mobile money system such as Kenya’s M-Pesa or through the use of vouchers, which can be reimbursed at local merchants.

Bitcoin’s chance

With aid groups looking to deliver funds in the cheapest and most efficient manner, it is not surprising some incumbents are searching for alternatives, seeking to leverage existing and new technologies to improve the way in which aid is distributed.

As blockchain technology continues to be lauded by banks and with bitcoin’s potential to serve the unbanked being continuously highlighted by enthusiasts, the question that remains is how – or whether – both can be applied in the global aid sector.

“I think the idea of using cryptocurrencies as a kind of managed response – as a halfway between vouchers and cash – has got a lot of potential,” said Currion.

Currion recognises that, with new technologies come new challenges, but he believes cryptocurrencies can provide a way of “distributing cash more safely, more quickly and more cheaply and in a way that’s much more easy to manage”.

If you can reach agreements with local merchants, he added, you are actually able to protect vulnerable communities from market volatility by using cryptocurrencies instead of fiat cash.

However, he understands the importance of there being multiple aid channels and methods, so he sees cryptocurrency aid operating alongside fiat aid, not instead of it.

Blockchain’s transparency

According to Currion, there’s also potential for blockchain technology to be used in the sector: “The second approach is using the underlying blockchain technology for various kinds of tracking. That could be registering and tracking displaced communities of refugees, but most importantly it could be tracking funding.”

He added:

“One of the things I think has strong potential in the sector is using blockchain technology to track assets as they move through the system. In particular, with funding, this could offer a much better way, a much more detailed overview of where the money is going, how it’s being spent – and that obviously contributes to accountability, to transparency and to the effectiveness of the aid overall.”

Reflecting on some of the issues facing aid organisations, Currion noted how difficult it was to account for the destination of funds. “It’s not because anyone is trying to obscure it, it’s just because the system is really complicated.”

Houses on Pulo Aceh were destroyed by the 2004 tsunami. Earthquake-proof houses have been built in their place using aid money.
Houses on Pulo Aceh were destroyed by the 2004 tsunami. Earthquake-proof houses have been built in their place using aid money.

A new agency

Anne Kim, senior business operations lead at IDEO, an award-winning global design and innovation consultancy, told CoinDesk both bitcoin and its underlying distributed ledger could help the sector in “multiple compelling ways”.

She said:

“First it gives people and organisations a new kind of agency. The most exciting area is offering a huge leap for the unbanked. There is the question of bitcoin being more widely accepted, but assuming we can get there, bitcoin is the MVP [most valuable player] of the bank account.”

The blockchain, she added, offers new levels of transparency. “International development has had its share of corruption. The blockchain enables new kinds of capabilities, like smart contracts, that could tie funds to agreed-upon activities to ensure that all partiers are accountable.”

Another idea, Kim said, was smart escrow, whereby a donor sends funds to a particular project. “Through this digital escrow system, funds could be released on specific milestones reached.”

During her presentation at an event hosted by Microsoft’s Civic Innovation team, Kim touched on the possibility of piggy backing on users’ every day behaviour. She said this idea was borne out of an exploration at IDEO Futures Bits + Blocks Lab that looked into different ways of connecting average citizens with humanitarian causes.

“Donations as they stand now are often provoked by crises or making end-of-year donations in times of taxes,” Kim said, adding:

“In addition, donors are increasingly looking at donations as investments. Charity is a broken model. In an age where people are demanding more and more transparency – where their food comes from, where their clothing is made – they also want to know how their money creates impact.”

Donors, she added, also want to feel more proximity to recipients. “On top of all this, people want giving to be easy. With the blockchain, there are whole new possibilities for designing for these user needs.”

Kim told CoinDesk that a team in the Bits + Blocks Lab has created an early prototype which piggybacked on a very common everyday habit: opening the fridge.

“When I open my fridge to get a snack, could there be a way that triggers an automated micro transaction to give to a food-related cause?”

Although Kim said additional work was needed, she noted this was a way to start moving towards the right direction, thinking about the entire donation process differently and better connecting donors to the actual end goals of development and aid.

Room for improvement

For Currion, it’s about building a portfolio of different options when it comes to financing and distribution.

“Aid organisations need to have a range of tools at their disposal and to choose the best type of response for a particular situation. I think we stand a better chance of meeting the needs of people more effectively.”

Currion acknowledged that the current humanitarian system is outdated, but any potential changes need to be assessed with both caution and flexibility.

“The test for new technologies like mobile money, e-vouchers and digital currencies that offer innovative solutions is whether they can be safer and more cost-efficient for both the beneficiary and the host institution,” said the digital finance team at USAID’s US Global Development Lab.

Currion agrees, stating that when having technology-driven discussions, it is important to not feed the hype machine, rather, the key is to ensure the requirements of those in need are still being met.

“It is very exciting to talk about this stuff, I get excited by it, you have to always remember that at the other end of this there are people who may have lost absolutely everything and hype doesn’t help them. We have to make sure that our ideas are grounded.”

This topic will be discussed further at Consensus 2015 in New York on 10th September. A full agenda can be found here.

Cash image via Shutterstock, Pulo Aceh image via Red Cross.

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