By Ashish Rajendra Sai
Authors: Nir Kshetri
Affiliation: The University of North Carolina, Greensboro, USA
Article Category: Use Case
Why this article? We have all heard the bold claims that Blockchain is going to revolutionize the global economy. We have also heard all the arguments opposing the impacts of Blockchain, claiming that the technology has failed to leave a lasting effect. One often less discussed avenue of the impact of Blockchain is social change via technology.
Financial systems based on Blockchain do not require users to go through bureaucratic means to participate in the economy. In theory, Blockchain can empower the poor by fighting financial exclusion.
In this weeks research review, we look at the potential that Blockchain has in assisting the fight against poverty.
Background: The article draws a parallel between the optimism of social change of Blockchain and cloud computing. Blockchain has been identified as crucial enabler technology that may help the unbanked participate in financial systems. A world bank report stated that in some countries, over 95% of adults are unbanked. This article aims to identify the possible role of Blockchain in helping the unbanked population.
Identified issues with the present financial system:
The research identifies the political, social, and economic effects of Blockchain. It is argued that the existing mechanism of banking fails to serve the poor due to functional design. Two mains issues identified by the article are the lack of transparency and difficulty onboarding new customers.
Lack of transparency has resulted in a number of large scale fraud activities, including the Qingdao fraud scandal in China the article primarily focuses on. Due to the magnitude of the Qingdao fraud, the Chinese banking industry increased the interest rate. This growth in interest rate may hurt the poor population of China. The article also reports similar cases in India where the lack of trace-ability of money flow has resulted in discriminatory policies.
One key barrier to enter the financial system is the requirement of identification proof for authentication. The United Nations reports that almost 20% of the world population does not have a proper national identity card. This proportion is significantly higher in impoverished population areas in Africa and Asia. Due to the lack of essential government identification, a large population is excluded from banking altogether.
How can Blockchain help solve these issues?:
The above points have excluded a considerable proportion of people from financial systems. The article argues that Blockchain may be an appropriate tool to assist with reducing financial exclusion.
Blockchain offers a public database of transactions which inherently warrants transparency. This transparency can act as a barrier to frauds that exploit the internals of modern-day banking.
The article also reports that Blockchain has already shown considerable potential to remove the identification barrier to entry to banking. The article reviews the work of a blockchain startup in Africa, helping people get verifiable identities using biometrics over the phone.
The article concludes that Blockchain is likely to assist in the fight against poverty.
Implications for the greater blockchain community:
This article provides fascinating insight into the possibility of social good through Blockchain. The research in the application of Blockchain in the identification of social-good use cases in its initial state.
We ask the blockchain community if companies investigating blockchain technology should also try and identify more such use-cases?
Check in each Wednesday for digestible insights surrounding the most influential research publications in the crypto/blockchain domain.