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Technology has shaped the way society operates. From the age of bartering, coinage, and fiat currency to create a market of exchange, now we thrive on blockchain and DeFi technologies. Decentralized finance (DeFi) is short for decentralized finance, a term for a variety of financial applications in cryptocurrency or blockchain geared toward disrupting financial intermediaries.
Through this disruptive ability, blockchain technology solves social injustice from three aspects: decentralization, efficient interoperability, and financial freedom for all.
There were many issues before blockchain technology was utilized for social impact.
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Centralized platforms act as gatekeepers that dictate who, what, when, where, and how vital social infrastructure is used. For instance, many of us take for granted our ability to open a bank account, obtain a credit card or get a mortgage. But the fact is that approximately 2 billion people in the world are unbanked or underbanked.
People that are in countries or situations where they are unable to create a bank account cannot store their wealth, or transfer or receive money through secure means. For those that may have bank accounts in areas with social unrest, the bank could go bankrupt taking along all of the customers’ savings, the bank can censor or block transactions arbitrarily, or all of the bank’s savings seized by an authoritative organization.
Central platforms also have administrative costs which have been a point of contention with charities; in some cases, overhead is higher than what is passed along to recipients.
With traditional banking channels, sending money internationally can be a complex, multistep process. The OECD reports that an estimated 20–25% of funds are lost to corruption globally at the state level. Millions of dollars that could have been used for good are lost unintentionally, wasted, used inefficiently, and misallocated.
Data from the World Bank reports that remittances currently draw fees of 6.5% on average globally. These rates considerably eat into the earnings of those who want to send funds home to their loved ones.
Not only are remittances a large barrier for underprivileged groups but also many nations have a system only allowing a selected few to invest in life-changing opportunities. In the United States, only accredited investors may trade securities that are not registered with financial authorities.
But with the advent of blockchain technology, social impact initiatives are experiencing great innovations.
Blockchain technology offers an incredible opportunity for people without access to banks. By creating a cryptocurrency wallet, decentralized platforms allow people to transfer capital anywhere in the world, 24/7.
As a feature of blockchain technology, the consensus from all members of a blockchain network is required to validate each transaction, and all validated transactions are permanently recorded on the blockchain. This means that all of the funds donated to social impact organizations and how they are spent can be tracked transparently. Donations can also include clauses stipulating that money is only transferred if certain conditions are met, and can be tied to fundraising goals or even performance.
Alice, a social funding and impact management platform, makes each relief project’s performance publicly available, allowing donors to find and contribute to effective social projects.
Blockchain technology creates a distributed, shared system of record among network members that eliminates the need for different ledgers; making the system efficient. Cross-border transactions through blockchain technology allow relief organizations to make an impact quickly instead of being held up for processing.
This interoperability, the ability of different systems, devices, applications, or products to connect and communicate in a coordinated way, makes many services efficient. Peer-to-peer transactions, such as local bitcoin exchanges have reduced fees. Fees are lowered for credit cards when the transactions are on a crypto ledger.
Strike is one of the many companies using blockchain technology to build a solution that allows users to transfer money instantly and without remittance fees. Strike leverages Bitcoin’s open payment network allowing users to send and receive money anywhere, instantly, with no added fees.
Beyond digital currency, accessing transnational, immutable forms of identification via blockchain can assist in the screening and verification of volunteers. Nuggets has created a self-sovereign digital identity & payment platform that serves as a reusable, interoperable ID, with a merit-based reputation. Through solutions such as Nuggets, relief organizations can access verified work history records or other documentation instantly, thereby reducing delays in verification and vastly improving the efficiency of international emergency relief programs.
One of DeFi’s greatest benefits to the population is reducing barriers to entry. This could mean reducing barriers to accessing financial services, reducing barriers to entry for developers entering innovative workplaces, or even reducing expensive barriers by offering lower transaction costs to people.
There are many decentralized exchanges currently operating today. DeFi exchanges use smart contracts that are permission-less and open-source. Anyone with an internet connection can connect to a global economy and access products, services, and resources that were previously unavailable to them.
Just to name a few examples, thanks to blockchain technology, people without credit can receive loans from platforms like Aave and those without insurance can be insured through Nexus Mutual. Blockchain technology is truly allowing more and more people to access vital financial infrastructures.
Social Impact has been revolutionized with blockchain technology. Anyone can take ownership of their wealth, be a part of an efficient interoperable market, and gain greater access to financial services.
There is a myriad of companies that are building products with blockchain technology to solve the many issues we face today. I am hoping that more relief organizations look into how blockchain technology’s capabilities of changing the world and adopt the necessary services to ensure that as many people can be helped by their initiative. Developers and entrepreneurs need to understand the boundless potential that blockchain technologies hold and the immeasurable ways in which they can be utilized to bring the world more value.
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