Can crypto and blockchain reprogram humanitarian aid?

When Rahilla Zafar served as an aid worker in Afghanistan and Pakistan, she saw firsthand how humanitarian assistance could be misused or squandered. “In Afghanistan, so much of USAID money went to build hospitals, clinics, and other structures,” Zafar recalled in a phone interview with Devex. “But it wound up being contracted and subcontracted out, and everyone was skimming off the top. The actual amount that went to build the buildings was so much less.” For Zafar, one solution is greater transparency on what transactions are made and where aid dollars are diverted. Part of that solution, in her opinion, is the blockchain, a distributed ledger database with a time-stamped list of records. Blockchains often undergird cryptocurrencies, serving as the forum to create, distribute, trade, and store coins or tokens such as Bitcoin. “To see aid activity on the chain? That is the future we need to be living in,” said Zafar, who is now producing a documentary about non-fungible tokens, known as NFTs. “We need that accountability in donor aid.” But in the wake of the collapse of the cryptocurrency exchange FTX last fall, and subsequent revelations about the fraudulent activities of its founder Sam Bankman-Fried, crypto has come under greater scrutiny from American pundits and lawmakers. The U.S. House Financial Services Committee has held hearings and created a Subcommittee on Digital Assets, while the Departments of Justice and Treasury have brought legal action against certain exchanges. Yet, the approximately $1.7 trillion crypto industry continues to endure and evolve. Last month’s earthquake that affected Turkey and parts of Syria reinforced, for some, the pivotal role that the crypto industry can play in humanitarian aid and disaster relief. “In times of crises, seconds matter,” said Mona Hamdy in a recent Zoom interview. Hamdy is the chief strategy officer at Sino Global Capital, which invests in digital assets and decentralized finance applications in emerging markets. “When you are in an area with inadequate banking infrastructure and corruption, how do you move and receive funds quickly? One way that’s become immediately evident has been Bitcoin.” “In natural disasters and times of war, we need to ensure the most vulnerable have the swiftest access to resources as possible.” --— Mona Hamdy, chief strategy officer, Sino Global Capital Hamdy noted as one example that in northern Syria after the recent earthquake, President Bashar al-Assad withheld aid from what he referred to as “rebel cities.” Combined with international sanctions, the move left some Syrian civilians unable to receive any support during a time of extreme crisis. Cryptocurrencies such as Bitcoin became a mechanism to quickly move money into affected regions and pay for essential goods and services. Syria’s neighbor, Lebanon, experienced a similar phenomenon after the massive port explosion in August 2020. Lebanon’s economy has been in shambles for many years. The currency has, at times, lost more than 95% of its value and there has been triple-digit inflation. With the banking system unreliable, digital currencies have become a “lifeline for survival,” according to one CNBC report. In the wake of the port explosion, cryptocurrencies allowed nonprofits to send Bitcoin to Lebanese citizens, who could convert it into cash or use it to pay for supplies and assistance, according to Hamdy. Private platforms have also emerged to allow donors to support humanitarian organizations responding to crises. The Giving Block, for example, founded in 2018, allows crypto holders to donate money to relief organizations and charities around the world. It recently established an emergency response fund for donors to support relief efforts in Syria and Turkey. Governments could also benefit from cryptocurrencies, Hamdy and Zafar said. Stablecoins, for example — digital currencies tied to a more stable asset like the U.S. dollar — could provide quick and inexpensive transfer and access to funds in the wake of disasters that would have less volatility than Bitcoin or Ethereum. Governments, too, might introduce their own digital currencies that could expedite the delivery of aid and improve transparency. In 2021, the U.S. Federal Reserve announced it was exploring the potential benefits and risks of a central bank digital currencies, or CBDCs. Not all observers are convinced. In fall 2022, professor Hilary Allen of American University’s Washington College of Law published an article on the International Monetary Fund’s website arguing that cryptocurrencies will not be able to deliver on their claimed benefits, and instead pose grave risks. Among the risks cited by Allen include volatility, fraud, complexity and the amount of leverage in the system. In 2021, a World Economic Forum report on digital currencies concluded that stablecoins did not significantly improve access to financial institutions for those unbanked or underbanked. It noted, however, that “the blockchain, cryptocurrency and stablecoin ecosystems are continuously evolving, and certain capacities may develop in the future that present more benefits.” One benefit Zafar stresses is transparency, citing another example of how the blockchain could improve humanitarian aid in areas of high corruption, particularly in the fields of microloans and microfinancing. “One of the problems in Pakistan was that there were so many international organizations involved,” Zafar said, including microfinance banks, microfinance institutions, rural support programs, and government-backed institutions. “A person would come to one agency, take a loan and default — then go to another agency, take out another loan, and default. They did it on purpose, because they realized each agency was its own individual hub. If each individual had a single crypto wallet address on a common blockchain, organizations providing microloans could recognize that a person may be a bad actor.” For the most vulnerable, receiving humanitarian aid fast is the paramount concern. Quick access to money and resources after a disaster can mean the difference between life and death. “Why do people who live in places where they can’t be banked use crypto payments?” Hamdy asked rhetorically. “They’re not using it to support illicit activities; they are using it to buy groceries and pay bills and survive. In natural disasters and times of war, we need to ensure the most vulnerable have the swiftest access to resources as possible.”