In the scramble to harness new technologies to propel innovation around the world, artificial intelligence, robotics, machine learning, and blockchain technologies are being explored and deployed in a wide variety of contexts globally.
Although blockchain is one of the most hyped of these new technologies, it is also perhaps the least understood. Blockchain is the distributed ledger — a database that is shared across multiple sites or institutions to furnish a secure and transparent record of events occurring during the provision of a service or contract — that supports cryptocurrencies (digital assets designed to work as mediums of exchange).
Blockchain is now underpinning applications such as land registries and identity services, but as its popularity grows, its relevance in addressing socio-economic gaps and supporting development targets like the globally-recognized UN Sustainable Development Goals is critical to unpack. Moreover, for countries in the global South that want to be more than just end users or consumers, the complex infrastructure requirements and operating costs of blockchain could prove challenging. For the purposes of real development, we need to not only understand how blockchain is workable, but also who is able to harness it to foster social inclusion and promote democratic governance.
This white paper explores the potential of blockchain technology to support human development. It provides a non-technical overview, illustrates a range of applications, and offers a series of conclusions and recommendations for additional research and potential development programming.
What is blockchain technology?
The blockchain is a decentralized ledger that sequentially records transactions or interactions among users within a distributed network. In layperson terms, blockchains can be defined as a public spreadsheet that sequentially records transactions among users operating within a decentralized peer-to-peer network. Each new “block” has a unique identifier that is mathematically linked to the identifier of the previous block, creating a chain of blocks. Once validated by the network, blocks are added to the ledger. This makes it virtually impossible to alter or falsify blocks in the chain, resulting in a high degree of data security and integrity.
Blockchains also offer a higher degree of privacy because users must use public key cryptographic tools to access the ledger and operate within the network. Users create public keys that are publicly available but reveal little about the exact identity of the individual using it. Users also do not need to provide personal information in order to interact with others, and data in the blockchain is encrypted.
Blockchains can be public and open to all (as is the case with Bitcoin and Ethereum), or private, as is the case with Hyperledger for example. However, the technology has limitations related to scalability and operational requirements such as skills, computing power, and energy resources needed to run it effectively.
How are blockchains used?
Blockchain technology can be used in the public and private sectors where transactions, interactions, and events involving the provision of goods and services occur. Distributed ledger technology is not used to store data or provide the actual service, but rather furnishes a secure, transparent, and immutable record of events occurring during the provision of a service or contract.
Blockchains can be used to support e-government initiatives that provide public goods to citizens and stakeholders, in particular services that demand personal interaction and require individual identification such as health services and the handling and management of public documents. Other applications could support voting, government transparency, and the secure transfer of aid funds.
Because of formidable economic, political, and infrastructure challenges, deployments of blockchain technology in developing countries are as yet limited in scope, or are operational at only a small scale. Yet tech hubs and entrepreneurs — active in developing countries for many years — are helping to accelerate experimentation. For instance, there are emerging applications to support banking for individuals and companies who historically have not had access to ordinary financial services. There are also agricultural applications for smallholder farmers that enhance community-supported agriculture, support product and supply chain tracking, payment facilitation, and price tracking to ensure fair compensation.
What does blockchain technology mean for human development?
Blockchain technology has the potential to support and enhance development programming and democratic governance, but the sophistication and complex infrastructure requirements, such as highly developed skills, operating costs, and energy consumption, could continue to prove challenging if countries intend to be active players and not just consumers.
Broader blockchain initiatives linked to smart government seem to be best positioned to make blockchain technology a key catalyst in delivering public goods, but an expansion of local tech capacity and financial resources will be necessary to spur the development of homegrown blockchain applications. Appropriate policy and regulatory capacity is also needed to foster the implementation of these applications, and public institutions will need to develop the capacity to manage and integrate blockchains into their service models. Governments need to understand these complex challenges in order to ensure sound governance, close development gaps, foster social inclusion, and promote democratic governance.
For detailed analysis and research and programmatic recommendations, see the IDRC white paper Blockchain: Unpacking the disruptive potential of blockchain technology for human development (PDF, 2.3MB).
Reproduced with permission from International Development Research Centre (IDRC), Canada.