BEEP BEEP. BEEP BEEP.
On May 1, 2017, across the Azraq refugee camp in Jordan, 1,500 mobile phones signaled an incoming message, and the United Nations’ trial for aid distribution on the Ethereum blockchain hit the real world.
That day, the back-end system of the Building Blocks project was primed for its first live test, with software engineers in Munich ready to coordinate with staff from the World Food Programme (WFP) in Jordan to bring it online. To gently ramp up capacity, WFP representatives were told to message a focus group of 50 refugees, who would arrive at the camp supermarket an hour in advance to test the new blockchain cash delivery system before it was made available to a larger group. But somewhere along the line the instructions went awry: Instead of 50 people, 1,500 refugees received the initial message and, intrigued by a new occurrence amid the routine life of the camp, quickly packed the supermarket.
For refugees receiving direct aid, nothing felt that different: They still collected food staples from the shelves, arrived at the checkout, and identified themselves with an iris scan via an innovative biometric system the WFP deployed in 2016. But behind the scenes, something new was happening. Instead of authorizing payments through Jordan Ahli Bank as before, the cash registers linked shoppers’ information to wallets stored on a private Ethereum blockchain operated by the WFP, updating balances and settling cash transfers with minimal fees.
Despite the unexpectedly large test group, the system held up, just as it had in Pakistan months earlier. And it would continue to hold up as the trial expanded to its current capacity: more than 100,000 individual refugees, with a stated goal of reaching the half-million Syrian refugees in Jordan by the end of 2018.
It was a resounding success, with an implementation time of only six months from concept to execution. If it continues to work, it could save the U.N. around 99% of the money it spends on transfer fees worldwide, and bring a new level of transparency to global aid disbursement.
Saving Dollars, Saving Lives
In 2010, the population of Syria was 21 million, almost double what it had been 25 years earlier. At the time, few could have anticipated that that year would mark the crest of the wave. In the Arab Spring of 2011, as pro-democracy protests broke out across the country, hundreds of thousands of citizens took to the streets to demand the resignation of the authoritarian president Bashar al-Assad. The government responded with military force; fighting quickly escalated, and within the space of a year the country had descended into a deadly civil war.
Although exact figures are hard to come by, the U.N. estimates that more than 5.4 million people have fled Syria since 2011. More than 3.5 million of these people are currently in Turkey, almost one million in Lebanon, and 668,000 in Jordan (as of July 2018), in addition to millions who fled their homes but remain in the country. Given the enormous scale of the displacement, the office of the U.N. High Commissioner for Refugees (UNHCR) says it’s the “the world’s largest refugee crisis” and has been soliciting funds to coordinate the massive relief effort.
The U.N. has called for more than $9 billion in urgent funding for food, medical care, housing, and education for Syria’s refugees, both in and out of the country. But it’s likely to receive only about half of that from donor governments. In the face of such a deficit, cost effectiveness of aid delivery is vital: each dollar saved can mean the difference between life and death.
The primary challenges of aid distribution are logistical. Take a moment to consider the steps necessary for a donation made by a U.S. citizen, in dollars, to be converted into a crate of medical supplies from Europe, coordinated from Geneva, in the back of a convoy of Lebanese trucks driving into Syria, through military checkpoints and active war zones on the way.
Evaluating the best return on investment is a perennial problem. International development officials constantly debate the most effective and empowering way to deliver aid, without a clear consensus: Are international agencies the only ones capable of responding to international crises? Or are they bloated, bureaucratic and inefficient? Should we provide aid to cover only the most basic and high-priority needs, or shift funding to education and recreational opportunities? What about direct financial aid that allows refugees to set their own budgets?
Stung by criticism over their effectiveness, aid organizations increasingly have to justify their existence. Writing in the Guardian, Heba Aly, managing editor of the IRIN humanitarian news network, described the modern aid industry as “a mammoth machinery losing track of what it is for,” citing feedback from refugees in the Middle East who perceived aid programs as largely failing to take their needs and opinions into account.
A lot of aid gets lost in the machinery. Speaking in 2012, then-U.N. Secretary General Ban Ki-moon said that fully 30 percent of aid money had been lost to corruption in the previous year, a dishearteningly large amount considering the intended recipients are among some of the world’s most vulnerable. Innovations that could prevent corruption have the potential to save not just money, but also thousands of lives. There were 66 million refugees in the world last year.
Many in the development business advocate moving away from in-kind aid (like food donations) to direct cash transfers. This, they say, limits opportunities for intermediaries to skim off parts of the pie, and allows governments to rely on modern financial tools—including blockchain systems—to deliver payments efficiently and securely.
The WFP’s Innovation Accelerator wants to take the best ideas that the private sector has to offer—like very cheap payments orchestrated via a blockchain—and apply them to development goals. It offers to incubate humanitarian projects with funding (up to $100,000), mentoring, and support infrastructure needed to prepare them for a working field trial.
"If you're really pursuing disruptive and transformative innovations, then it's impossible that 100 percent of them will be successful."
Bernhard Kowatsch, whose previous career was in private equity, joined the WFP in 2010 and is now head of the accelerator. As well as Building Blocks, it’s also backed a Zambian farmers’ market app, hydroponic food growing systems in Peru, and a series of experiments in the use of AI, drones, and satellite imagery to improve disaster response.
The accelerator has taken another familiar page from the startup book: a high tolerance for failure. For obvious reasons, the “move fast and break things” approach cherished by Silicon Valley is not suitable for situations involving the delivery of critical aid. But a lack of innovation also has a strong negative impact, albeit in a way that is more difficult to quantify. Kowatsch’s challenge was to create an environment where startups had permission to experiment.
“If you’re really pursuing disruptive and transformative innovations, then it’s impossible that 100 percent of them will be successful,” he says.
Houman Haddad, the accelerator’s finance officer, was the first to take an interest in blockchain at the group. On his initiative, it put out a call for proposals for a project that would use blockchain technology to combat hunger in some way.
One of the responses was a proposal from a Munich-based blockchain development company called Datarella that was more used to working with industrial like clients like Intel, Siemens, and Daimler. After reading the tender proposal, CEO Joerg Blumtritt realized the company’s skills could be applied to an accounting system for aid projects. Daterella started with a short-duration trial with just 100 aid recipients in the Sindh province of Pakistan. Entitlements to food and cash assistance were tracked via a smartphone app and the public Ethereum blockchain, allowing U.N. workers in the field to match disbursements with corresponding recipients.
With the trial judged to be a success, Daterella began scaling the initial project for a greater number of user accounts and a higher transaction volume. In Azraq, it also considered how to incorporate a third-party biometric identity system already used in the camp’s markets.
“You could feel that the people we were working with on the U.N. side were not so experienced in software project management; they were not IT guys,” Blumtritt tells BREAKER. “The downside of that is that we would face some unexpected difficulties in communication. But the good thing was that people on the U.N. side were totally open [to experimenting], and very pragmatic about getting a good result.”
In 2016, WFP’s cash disbursements totaled $880 million dollars, making up a quarter of all aid it issued. For the most part, it transmitted these funds through a network of local and international payment processors, all of which take a cut in the form of transfer fees. As the level of cash transfers as a proportion of overall aid increases, so does the incentive to find efficiencies by streamlining the process. Blockchain technology has the potential to reduce transfer points (for example, between corresponding banks on either side of a border) and foster trust-less collaboration.
“Blockchain takes out the ego in the conversation about whose system is being used. It’s not about whether it’s WFP’s system, the government’s system, or someone else’s. It’s just a blockchain.”
To set up a shared resource pool between separate, sometimes competing organizations, has traditionally been a difficult coordination problem. Besides the burden of additional communication, joint agency work requires greater expenditure on tracking, and the creation of new legal agreements or even legal entities to process and allocate the funds. But today, much of that third-party tracking and delivery system can be replaced by distributed ledger technology, and at a fraction of the cost of any inter-agency clearing house.
“Blockchain takes out the ego in the conversation about whose system is being used,” says Kowatsch. “It’s not about whether it’s WFP’s system, the government’s system, or someone else’s. It’s just a blockchain.”
Transparent and immutable records reduce the need for external auditing, too. Instead of sending third-party auditors to Jordan, governments or funding agencies can start monitoring their own nodes and be sure they’re receiving the same information as the program operatives, accessible through a standardized API.
“When we have multiple U.N. agencies or other NGOs and we can all use the same system,” says Kowatsch, “that’s where the real power comes in.”
The existing checkout system in the markets of the Azraq camp makes use of IrisGuard, a technology developed by a Jordanian company. By using a successful iris identification to authorize payments from wallets in the private Ethereum blockchain, the WFP was able to keep an in-house record of every transaction made, without needing to share individual refugees’ information with third parties like banks or mobile phone providers.
Critics Weigh In
According to U.N. figures, 106,000 refugees have received food assistance through the Building Blocks system in Jordan, with approximately $19 million of transactions processed as of July 2018. In the process, it has decreased the amount paid in transaction fees from $300,000 to only $3000. Those savings can all be passed on refugees in the form of direct payments. With greater efficiencies sure to come in each new iteration, Building Blocks could easily become a model for all U.N. cash assistance in future, says Kowatsch.
Some in the crypto community have attacked the use of a private Ethereum blockchain in Azraq, arguing it’s no more innovative than a traditional computer network.
“Basically what [WFP] is doing is using Ethereum as a database, because it has one user: them,” says David Gerard, author of Attack Of The 50 Foot Blockchain. The blockchain has four separate nodes and they’re distributed, but the whole system is still “centrally controlled,” he argues.
Gerard says the financial benefits of the project come from the improvements in supply chain management, rather than blockchain. But the WFP plans to add more entities to the system, allowing different actors in the chain to run their own nodes and gain their own visibility over the system.
Meanwhile, the WFP’s Innovation Accelerator has emerged as an important force in promoting new ideas for humanitarian aid, showing that the best aspects of the often brash and glitzy startup culture can be joined with a drive for social good.
“As an accelerator, we’re constantly looking for not just the best ideas, but the brightest people,” Kowatsch says, suggesting anyone with a disruptive idea to reduce hunger should get in touch through the website.
Main photo courtesy of ©UNHCR/David Azia