Opinion: In developing economies, blockchain's benefits and risks depend on the application

Blockchain, the enabler of Bitcoin, is being explored from every angle to see how it might be applied beyond “fintech,” including possible applications in developing economies.

Blockchain is an internet-based distributed ledger technology that enables multiple cooperating but non-trusting parties to have a single source of truth, without the need for a centralized or third-party arbiter of that truth. Because each successive block or record in the chain contains data from previous blocks it can be virtually immutable, trustworthy and transparent.

The way that blockchain can help in closing the global, digital divide, is by enabling applications or services that require security not previously available on the internet.

Blockchain currently receives a degree of hype concerning its potential uses, and many plausible applications remain to be tested in the real world. Successful proofs of concept require that blockchain’s characteristics are well matched to a specific challenge it is aiming to meet.

Great potential

That said, blockchain may well support a range of services in developing economies. Properly applied, it can assist entrepreneurs, farmers, educators, environmental protection and aid workers. All it needs is a network of people needing a distributed ledger for mutual benefit. A few speculative examples follow here, with thoughts on the opportunities and the risks.

One opportunity is blockchain’s potential role in generating revenue. A perennial problem with coastal fishing is that successful catches might converge on the same market, saturating it and devaluing every catch. Mobile phones have helped here in an ad hoc manner. To move beyond such ad hoc arrangements, matching supply to demand with a large number of parties quickly becomes a mathematically complicated problem. Applying a blockchain to that requirement has obvious benefits, using the distributed information and a little computing power. The risk is that the records so created are immutable and must be thought through initially, or participants may saddle themselves with an unworkable system. However, as a blockchain application can be managed by its participants, without a third-party commercial organization, it could gain local buy-in.

Blockchain for supply chains also holds great promise. In the case of pharmaceuticals, the benefits are global and not confined to developing countries. A distributed ledger of pharmaceutical goods can be used to gather information from transducers attached to the goods to ensure they have been appropriately handled — for instance, that the goods have been kept within temperature parameters or that they haven’t been dropped. The risk for this use of blockchain is that it still doesn’t prevent fraud or theft, though it could reflect where in the distribution process a package went missing. While it may be possible for a single company to build this sort of infrastructure, for a broader industry solution this is difficult to do in a centralized way. A blockchain set up to receive reports that track these factors would greatly aid supply chain management.

A third opportunity might be the use of blockchain for tracking the life cycle of appliances to ensure socially and environmentally responsible decommissioning or disposal. Again, this could apply to both developed and developing countries; both face this challenge, although developed countries often dump their disposal problems on developing countries. Today even when legislation requires a company to be responsible for the final safe disposal of large appliances — from whitegoods to cars — keeping track when a product’s life could be one or more decades with multiple owners and multiple geographies is difficult. Blockchain registers of such goods would ensure responsibility could be tracked indefinitely. The risk is that once standards and procedures are established, a precedent has been set that is extremely difficult to modify. However, it still could establish a record of responsibility for the proper disposal of the appliance or its environmentally hazardous components.

Caveats and risks

As in any early technology development path, there’s a learning curve and a substantial amount of experimentation. Only some efforts will bear fruit. Business models are important and cannot always be vetted ahead of time. It’s important not to promise a dollar or more back for every dollar invested. In my view, blockchain applications in developing economies are in their infancy.

Nevertheless, it is critical that developing countries experiment with this emerging technology so that they can form a view and have their interests represented in the standards that will emerge in the coming years. Once these standards and products are established, they will create a precedent for decades, one that is extremely difficult to modify.

Blockchain technology is being explored for its potential benefit in recording, for instance, land ownership or water rights. That is a huge opportunity for countries where such records are not routinely kept or easily manipulated. The risk is that a parallel effort must be made to ensure that such records are recognized by laws and courts as evidence of ownership. One could create a useful, distributed ledger of property ownership, but if that evidence doesn't stand up in a court of law, then it will be for naught.

Again, matching blockchain’s characteristic qualities to the application at hand requires careful thought so it can achieve the potential value in a specific application.

The tougher the geographic and jurisdictional problem that a blockchain solution addresses, the more value it will provide. Those involved in international development or implementing the United Nation’s Sustainable Development Goals, along with those undertaking general capacity building activities in developing countries, should familiarize themselves with blockchain’s characteristics and match that to aspects of their work where value creation is possible.

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