Blockchain for Good: How Can Blockchain Help the Most Marginalised Individuals and Communities
The COVID-19 pandemic has exposed many inequalities within our society. For example, in 2020, the billionaire class saw a $3.9 trillion increase in their collective wealth whereas the global working class saw their total earnings fall $3.7 trillion. Blockchain technology has the potential to create more opportunities for the most marginalised communities worldwide. When people think of blockchain, most immediately think of cryptocurrencies, non-fungible tokens (NFTs) in the form of digital art and PFPs, or the Metaverse. While these are all exciting new prospects in the business world, the potential of blockchain to create equity within our society's existing institutions is often overlooked.
Digital Identification
According to one World Bank survey, approximately 20 percent of the world's most impoverished are also the most likely to lack a form of government identification (ID). Whether you are a refugee fleeing war or an individual born in a rural part of the world, lack of ID is a massive barrier for attaining prosperity, and this impacts approximately 1.1 billion people worldwide. Lack of ID can make it challenging to access the formal financial sector (for example, setting up a bank account), secure land ownership, and access healthcare, education, employment, and many other necessities of human life. The inability to access such services often leaves people vulnerable to exploitation, and poverty. Blockchain presents an intriguing solution to this crucial problem. Leveraging blockchain technology, an individual's personal information and ID can be permanently stored on the immutable distributed ledger. Unlike traditional paper-based IDs, IDs stored on the blockchain are easily traceable, auditable, and immutable ensuring transparency and authenticity. This also creates a quick and easy verification process that does not rely on centralised institutions, a matter of importance in countries where institutions either do not exist or are not reliable. As such, digital IDs living on the blockchain have the potential to create a more equitable society as the most marginalised individuals will no longer live as “invisible beings.”
Micro Financing
According to the World Bank, there are an estimated 7,000 microfinance institutions worldwide serving 16 million people living in low-income countries, especially in South Asia. Microfinancing is a multitrillion dollar industry that has helped to create opportunity for innovation, entrepreneurship, and sustainable income generation across the world. While microfinancing has helped democratise access to capital, it has also created unnecessary burdens on borrowers, including high-interest rates, lack of knowledge about the financial product they are purchasing, and the growing distrust towards lenders and large financial institutions. Moreover, microfinancing often entails lengthy Know-Your-Client (KYC) processes, slow transaction speeds, and high transaction fees. The cronyism and favouritism within the traditional banking system has historically resulted in instability and inequity, thus generating scepticism among borrowers and lenders alike.
Blockchain technology can be used to help mitigate these challenges and improve the efficiency of micro financing, especially in low-income countries. The emergence of Decentralised Finance (DeFi) would allow people to have permissionless access to financial services by removing the need for centralised lenders. Indeed, blockchain’s decentralised nature creates an opportunity for creditors and debtors to operate through a peer-to-peer relationship, which would ultimately reduce transaction costs and increase transaction speeds. In the context of low-income countries, individuals trying to obtain funding can benefit from DeFi protocols. Those that may not qualify for traditional loans or do not trust creditors in their geographic region can gain access to a wider, permissionless pool of capital. For example, Goldfinch.Finance, a DeFi credit protocol, allows investors to lend to businesses around the world, based on a “trust through consensus” principle.
Land Titles: Another dimension where blockchain can add value is in the establishment of land titles which can lead to tenure security. Tenure security is achieved when one’s claim to land or property is secure, because it is defendable against all other claimants. By digitising a physical asset with a Non-Fungible Token (NFT), it allows for a convenient and secure transfer of the capital asset on the blockchain. NFTs can be backed by both physical and digital assets which can then be exchanged on the blockchain, similar to how stocks can be traded on the stock market.
Particularly in developing nations, unaffordability and weak property rights lead to tenure insecurity. By increasing transparency through traceability, people have access to evidence that can help to defend the claim to their assets. Thus, blockchain reduces the need for folks to utilise the informal sector or corrupt methods to gain and secure capital assets. For example, in Rwanda, 87% of rural transactions remain informal because the cost of registering sales is unaffordable. Furthermore, land allocation, real estate and property development is the largest category of organised crime in Africa.
The exchange of an NFT will always be recorded on the blockchain, preventing the potential loss of evidence to one’s rights to the property. Hence, tokenizing land titles and recording them on the blockchain could ultimately reduce disputes over land ownership due to the presence of defendable claims. Blockchain also facilitates digital signatures, personalised verifications, and digital contracts to mitigate the risk of false registries, increasing trust between actors.
In the context of land titles, blockchain’s immutability is the key contributing mechanism in ensuring that assets registered on the blockchain are secure, thus preventing bad actors from tampering with the record once it is recorded on chain. This nexus relationship between NFTs and blockchain will prevent crime and establish property rights for folks on the ground by encouraging the implementation of blockchain-based land registries.
Blockchain has the capacity to increase the overall welfare of marginalised communities by providing them access to secure on-chain digital identities, microloans, and land titles. Going forward, the challenges will involve navigating the regulatory policies in place to protect and manage the transactions within the blockchain on both the national and international scale.