How cryptocurrencies can help alleviate poverty

Earlier this year, we published our first blog post in our series on why open blockchain networks are good for the world. This month, we explore how open blockchain networks — and the digital tokens that flow within them — are helping to improve the delivery and efficiency of foreign aid.

Foreign aid is broken because so little lands in the hands of those who need it

In 2017, OECD countries dispersed more than $144 billion of foreign aid. These funds are spread across varied sectors, with education, health, and social and economic infrastructure projects receiving the highest percentage of dispersals. Much of the donated money goes towards basic staples, such as livestock, clean drinking water, textbooks and other school materials, and nutritional supplements. It has become common to hear of families in rich countries that give a goat or cow to a poor African family at Christmas, in lieu of getting a more traditional gift for one’s own family members. However, there are now several studies underway that examine whether it would be more effective to simply send cash directly to poor families and individuals, rather than rely on intermediaries to choose what kind of aid would best suit those in need.

Notwithstanding the main critique of foreign aid programs — that those on the receiving end are more aware of their needs than far away diplomats and ostensible do-gooders — the international apparatus of international aid is often derided as, at best, inefficient, and at worst, corrupt. For instance, it is estimated that much of the nearly $120 billion in aid the US has given to Afghanistan since 2001 has been wasted, lost, or simply siphoned off by the Afghan ruling class.

And much of the larger country-led aid programs (such as USAID) are inextricably tied to national political goals, rather than a pure assessment of a country’s needs. Case in point: the five poorest countries in the world, measured by per capita GDP are Democratic Republic of Congo, Mozambique, Uganda, Tajikistan and Haiti. Given their needs, based on a universally-accepted measurement of prosperity, you might expect them to receive a comparable percentage of international aid. Yet, to take the figures from the UK’s foreign aid as an example, the top five recipient countries are Pakistan, Syria, Ethiopia, Nigeria and Afghanistan. While those countries are no doubt in need of some foreign assistance in some capacity, it is hard to draw non-political reasons for their placement on this list.

Open blockchain networks can reduce the middlemen

Taking the power from international middlemen and putting the buying power directly into the hands of in-need individuals has the potential to overhaul an increasingly ineffective and inefficient international aid system. And if direct cash transfers come to be understood as the best mode of dispersing aid, the next logical step in smoothing distribution could be through direct cryptocurrency deposits.

There are of course caveats to the crypto-focused approach; for instance, not every country is as welcoming to cryptocurrencies and because of that uneven embrace more on-the-ground infrastructure would be needed to ensure that coins are going to the right individuals. Systems would need to be implemented, where they perhaps do not exist now, to allow recipients to cash out their coins for needed services.

One such initiative is GiveCrypto, a program that allows individuals to donate crypto directly to people living in poverty. By circumventing middlemen and charity groups, GiveCrypto’s program allows for quick dispersal of funds, providing a near-immediate impact for those in need. Particularly in countries like Zimbabwe, and more recently Venezuela, where hyperinflation is rampant, sending crypto untethers the recipient from a crumbling national banking infrastructure. Crypto adoption has increased as Venezuela’s troubles have grown, creating an opening for a new type of foreign aid, based on peer-to-peer giving rather than being directed at a national level in support of national, political goals.

As more research is done on the efficacy of direct cash transfers, the potential for peer-to-peer, crypto-based systems is likely to grow. In a mature system, patrons will be able to send crypto anywhere in the world, knowing that their money will deposit directly into the secure electronic wallet of a person in need, free of any government oversight, corrupt local bureaucrats, or well-meaning but misguided philanthropists. Direct charity has a bright future and crypto can and should be a meaningful player in this global shift.