The social promises of Blockchain

23 September, 2019

Innovation always has a deep impact on society, new processes or technologies can completely transform existing systems and ways of working. But how can we ensure that innovation has a positive impact on today’s society? How can we make sure we achieve the revolutionary promises offered by emerging technologies? How do we identify real opportunities from hype?

At Nesta Italia, we decided to focus on two technologies that carry great potential: blockchain and artificial intelligence.

Our approach was exploratory, we did not take a precise position on the matter, but decided to study technologies and the benefits they can bring while remaining aware of the great risks that exist.

The popularity of the Blockchain started with cryptocurrencies, digital and decentralized currencies. Through these currencies, it is possible to exchange money around the world over the internet, but the blockchain is more than just the basis for new currencies. It is a technology that allows the creation of a large distributed database for the management of transactions that can be shared between multiple nodes on a network. The database is structured in blocks (containing multiple transactions) that are connected to each other in a network so that each transaction started on the network must be validated by the network itself in the “analysis” of every single block.

Blockchain and others Distributed Ledger Technologies (DLT) (blockchain is part of a wider family of technologies called DLT) allow geographically distant parties, or those who have no existing mutual trust, to exchange any kind of digital data on a peer-to-peer platform without the need for trusted third parties or intermediaries. The data could, for example, represent money, insurance policies, contracts, land titles, medical records, birth and marriage certificates, purchase and sale of goods and services, or any other type of transaction or asset that can be translated into digital form.

The benefits of the blockchain

The blockchain should not be considered new technology, but rather a unique combination of other existing technologies such as peer-to-peer networks, cryptographic techniques, consent protocols, and distributed data storage.

The blockchain solves three types of problems:

  • Who’s Who? Blockchains can be used to certify identity through the use of digital signatures. Each user is assigned a set of two digital codes: a “private key” (similar to an account number) and a “public key” (similar to a password) that allows them to easily demonstrate their identity and issue transactions authorized.
  • Who owns what? Blockchains can be used to verify ownership through a technology called “cryptographic hashing”. A cryptographic hash is a piece of data that has been executed through a mathematical function and transformed into a shorter piece of data. In a blockchain, each block contains a hash representation of the data in the previous block
  • What is true? Blockchains can be used to solve the verification problem by making it possible for a group of people to publicly verify that a transaction is true, without the need for a trusted intermediary. In blockchain terminology, this is called “distributed consent”.

The blockchain is still often publicly associated with Bitcoin and concerns about money laundering, tax evasion, fraud or other criminal activities. Beyond the controversies over the potential negative uses of Bitcoin, and other cryptocurrencies, blockchain technology could bring enormous social benefits.

A technology that increases efficiency, reduces costs and promotes transparency can in fact have significant implications for the sectors dedicated to leading social impact. The potential to transform systems and entire infrastructures can allow solutions that previously were not thought to be possible.

Blockchain for Social good initiatives

According to a study by the Center for Social Innovation of the Stanford Graduate School of Business, which analyzed 193 organizations that use the blockchain, “Blockchain for Social Good” initiatives are still only just emerging, but are growing.

25% of the analyzed initiatives are concentrated in the healthcare sector, such as Modum.io that keeps track of the temperature conditions of medicine during transport, 13% deal with financial inclusion, such as the startup Aid:tech that has lowered the cost of transactions of remittances between Germany and Serbia, 12% operate in the energy / environmental sector, such as Grid Singularity which is starting a transition towards a new system of distributed energy utilities where energy can be found and distributed in a decentralized way and more efficient.

Overall, 61% of the cataloged initiatives are for profit. The sectors with the most profit-making initiatives are those with the greatest commercial opportunity: energy (94%), health (87%) and financial inclusion (78%). Conversely, the sectors driven by non-profit activities or public funding are those traditionally rooted in non-profit or government activity: philanthropy and donations (76%), democracy & governance (33%).

Governments are also working to test this technology: the Estonian government was one of the first early technology adopters (2008), exploiting technology to improve government services (99% of government services are digital and usable by the platform e-Estonia). These services exploit the distributed ledgers to increase security, efficiency and accessibility (more information here).

Nesta Italia projects

To better understand the potential impacts of this technology, Nesta Italia has undertaken two initiatives:

Blockchain for Social Good Event: on December 15th, 2017 we organized together with the City of Turin and the University of Turin, the first major Italian meeting between internationally and nationally renowned experts focused on exploring the social impact of blockchain technologies. More than 200 participants were present and we involved 20 partners for the realization of the project. During the event, the DG Connect of the European Commission launched the “Blockchains for Social Good Prize“, a € 5 million prize for technological solutions that can demonstrate that they bring an impact to society.

Blockchain for Social Good Learning Academy: a one day academy organized together with DSI, European commission and De-CODE, where we brought together social innovators from all over Europe to discuss how this technology can be used to address the social challenges in Europe and what are the tools to implement the various solutions Blockchain for social good.

Next steps

Blockchain is not just a new technology, it is a new mentality. For Nesta Italia these are the main priorities for the implementation of “blockchain for social good” initiatives:

  • Legal and regulatory framework: The first priority is the resolution of the tensions between GDPR and blockchain. The legal, tax and accounting status of the tokens must also be clarified, along with the rules relating to the exchange of crypto assets and legal money.
  • Focus on research and experimentation: technology is still at an early stage. In-depth studies and practical experiments are needed to test the real benefits they can bring.
  • Public-private partnerships: The pursuit of cutting-edge projects that bring real benefits to users and demonstrate the addition of technology, will have the dual effect of creating an internal market for innovative entrepreneurs and encouraging investors to finance more local projects.