The case for crypto industry (3/3) | Social impact & value

After addressing volatility and bitcoin’s energy consumption in the first two parts of this series, this final instalment explores crypto’s social impact. The decentralised nature of blockchain technology means it removes intermediaries from transactions, which broadens access to traditional financial services for over a billion people. However, blockchain’s positive contribution expands beyond finance, so this article also examines use cases in the private and public sectors. 

Decentralisation for Societal Benefit 

Given the key role played by decentralisation in the use cases discussed in this article, here’s a brief recap of how it works and some of its benefits.   

A blockchain is a decentralised network, meaning the data it stores is spread across different nodes such as computers. Participants use a consensus mechanism like proof of work or proof of stake to agree on the state of the network. 

One of the most important features is the distribution of control rather than concentrating it in the hands of a central authority. As a result, apps built on blockchain technology are: 

• Permissionless- Crypto can operate everywhere, even in the most hostile environments where human rights are curtailed. Nobody can be excluded based on gender, race, sexual orientation, religion or any other aspect of identity that an authoritarian regime may try to use against an individual.  

• Censorship resistant- Unlike traditional finance, which is ultimately controlled by central banks, no parties can seize funds stored in a crypto wallet or dilute savings by pursuing inflationary policies such as quantitative easing. 

• Private- Users don’t need to share personal data to sign up for a wallet, which protects privacy when participating in the network and denies hackers access to sensitive information.  

Empowering Financial Inclusion and Economic Freedom

Research by the World Bank shows that 1.4 billion people around the globe don’t have access to financial services. These people- commonly referred to as ‘unbanked’- are mostly female and poor, uneducated and live in rural areas. 

Crypto and blockchain technology have the potential to provide the unbanked with a way to maintain and grow their wealth. Blockchain’s decentralised design means they don’t have to go through traditional intermediaries to open a bank account. They simply need a smartphone and internet access. 

Crypto transactions are also much cheaper than fiat transactions, especially when transferring money overseas. According to the World Bank, the average remittance fee is 6.2% of the amount sent, whereas transferring crypto costs as little as a penny. 

But payments is just one use case. Digital wallets which store crypto provide a gateway to a range of other decentralised finance (DeFi) services such as borrowing (even for those with a limited or no credit history), insurance and investing. DeFi has pioneered several new investment products which allow users to earn rewards including staking (participating in a protocol’s consensus mechanism) and yield farming (providing liquidity for decentralised exchanges).  

Essentially, crypto (particularly bitcoin) offers users freedom wherever they’re based in the world. It’s no coincidence that Satoshi Nakamoto, the pseudonymous founder, designed and launched bitcoin so soon after the 2008 financial crisis, when traditional institutions failed so many.  

Blockchain Use Cases in the Private Sector 

Blockchain technology has a range of applications in the private sector, but here are two addressing societal challenges.  

Sovrin

Sovrin creates self-sovereign identities (SSI) which put users in control of their data. Users can add credentials such as a driver’s license to a digital wallet and then choose who to share it with, allowing them to prove their age without disclosing their name or even their date of birth. SSIs also prevent apps from tracking user activity and monetising it, while they’re more secure as companies no longer store customer data on centralised servers which cybercriminals can easily hack. 

Provenance 

Provenance helps customers understand the environmental and social impact of the products they buy, for example whether packaging is recyclable. Brands and retailers submit information about their products, through the company’s framework of Proof Points or by asking suppliers to provide certified statements. After verifying the information, Provenance adds it to the blockchain and shares it with customers, so they can make more informed purchase decisions. Incidentally, Provenance also leverages blockchain technology’s transparency and immutability (nobody can alter the records stored on it). 

Blockchain Use Cases in the Public Sector 

Blockchain has a broad range of applications in the public sector too. Take healthcare, for instance. Medical records are highly sensitive, but government bodies store them in centralised databases. In May 2021, cybercriminals targeted Ireland’s Health Service Executive (HSE), the country’s publicly funded healthcare system, and stole the personal data of more than 100,000 patients, costing the HSE around €100 million. If those records had been stored on a decentralised network, the hackers would have found it much harder to access to them. 

In terms of central banking, tokenisation can increase the volume of transactions involved in settling payments between a country’s commercial banks, a process known as real-time gross settlement. And the growing popularity of crypto has encouraged central banks to explore issuing central bank digital currencies (potentially on blockchain technology), an electronic form of fiat currency which consumers and retailers can use.  

Blockchain can also support the future of urban development. Smart cities leverage digital solutions, including the Internet of Things and cloud computing, to streamline the delivery of services like transport and utilities (not to mention innovative new services) and ensure the optimal use of resources. Blockchain provides the interoperable infrastructure required for these technologies to work in harmony, such as issuing digital identities which citizens can use to access public transport or vote in elections. 

Conclusion 

Crypto has the potential to make a significant social impact. One of the most prominent use cases is financial inclusion which takes advantage of blockchain technology’s decentralised design to provide access to banking services without going through traditional intermediaries. Known as decentralised finance (DeFi), these services include payments, borrowing, insurance and investment products. 

Blockchain technology has applications outside finance too. In the private sector it gives people control over their identity and data and brings transparency and traceability to supply chains. Use cases in the public sector include protecting patient medical records, streamlining processes for central banks and providing interoperable infrastructure for smart cities.