I like it when disparate things work well together. Like fish farming and hydroponic vegetable growing for instance (aka aquaponics). I see some increasing levels of synergy between virtual currencies, open data schemes and international development.

Virtual Currencies

For those that do not know, virtual currencies or cryptocurrencies are an ecosystem of transmitting value similar in nature to traditional or fiat currencies (dollars, yen, yuan, pounds, euros, etc.) except with added levels of convience and security which you do not get when you want to transmit value by giving someone a piece of paper.

The community which uses virtual currencies is small but growing at a substantial rate, so we are far from adoption. However, one of the exciting aspects of virtual currencies for application in developing countries is the ability of anyone with any feature or smart phone to instantly conduct international transactions.

People who follow Somalia|Somaliland will well remember that last summer there was a huge kerfuffle because Barclays indicated that it was going to revoke Dahabshiil's accounts. Dahabshiil, for those who are not Somalia watchers, is the largest money transfer and financial services provider in the Somali region. Its business model outside of Somalia is very similar in nature to Western Union's traditional money transfer system (you bring your neighborhood agent cash and they transmit it to whomever you determine). Inside of Somalia Dahabshiil acts more along the lines of a traditional bank. Most people keep their money in a Dahabshiil account rather than in cash. So the kerfuffle with Barclays would mean that people in Europe|America|Canada|Australia, wherever would have to change how they were sending money to Somalia.

For some this was a huge problem because they may live in a place where other options are not available. Although, since Western Union does have agents in Somalia I always felt that much of the kerfuffle was overblown. I was pleased to see the activist community successfully push for a Barclays to change their position, but the bottom line is Dahabshiil has an outdated business model and has been very conservative in pivoting from that position which opens up an innovation space for other, more nimble companies.

Enter virtual currencies. With Bitcoin, a diaspora can easily purchase Bitcoin in their home country in their home currency from either an SMS transaction or an online bank transfer. Once the diaspora has Bitcoin they can then easily transfer the Bitcoin to anyone in the world as long as the recipient has a Bitcoin wallet (which can be set up nearly instantly with a system like 37 Coins offers). Boom. Remittance system blockage overcome.

What is really exciting me, though, for a development perspective is the next level of innovation that is happening with virtual currencies which will allow the building of smart contracts.

The idea of smart contracts, or virtual automatic contracts, is that you can build arbitrary, neutral triggers which will then be able to transmit value from one place to another when the triggers happen.

Open Data as a Neutral Indicator of “Things Happening”

What is further exciting is that open data movements are beginning to succeed in at least getting some amount of neutral data widely available. This is beginning to be a wave with European governments showing real leadership in this space (in particular, the UK government is doing great work here).

Open data with proper APIs will be able to provide smart contracts with the link between the “real world” and the virtual world which the contracts can see. So let's take a system like crop insurance. Within the year, a coder|lawyer could easily build a smart contract which would pay out based upon an inverse relationship to the rainfall (or other neutral, accessible data metric) in a given location.

Social Bonds as Smart Contracts

One of the ideas which the Center for Global Development and others are working on is the idea of a Develpment Impact Bond. Here is a good overview by Owen Barder, and here is another from Social Finance. The basic idea for Development Impact Bonds is that you build a bond structure which any company, organization, government, or individual can invest in and that will pay out upon certain, pre-determined metrics being hit.

Social Finance is in the midst of working on a pilot for this in the UK where they have asked the Ministry of Justice to commoditize how much recidivism is worth to the UK economy. So when people go back into jail that costs society and if you can put a price on that cost then you can aggregate and float that price with some level of discount to any group that says they can reduce recidivism. After that, the organization who is the recipient of the bond can then determine the best way to achieve the outcome stated by the terms of the bond. Of course there will be some implementation limits built into the bond contract but for the most part those will be increasingly fewer over time. The advantage which the bond holder will get is that it will have an asset which it can leverage in interesting ways, and use fundraise in interesting ways (as it could be used as collateral).

This is an idea which is intellectually appealing to me, but in practice would require a lot of human oversight. Enter smart contracts. Smart contracts could oversee the entire process automatically with no human interaction if they were properly built. This would be powerful tool for accelerating outcome based development mechanisms.

Smart Contracts as Cash on Delivery Mechanisms

Another interesting and important idea which the CGD has been interested in for years is the cash on delivery. COD has a lot of relevance to impact bonds but on a more decentralized basis. Here's what CGD says about COD:

Cash on Delivery is a new approach to foreign aid that focuses on results, encourages innovation, and strengthens government accountability to citizens rather than donors. Under COD Aid, donors would pay for measurable and verifiable progress on specific outcomes, such as $100 dollars for every child above baseline expectations who completes primary school and takes a test.

But here's the interesting way which smart contracts could do this. With COD you have a neutral outcome based metric (kids butts in school chairs). This metric can be aggregated with an open data push and a proper API. Then you have a payout schedule which could be per day, per week, per month, per quarter, per year, whatever. The payouts are structured based upon meeting the criteria determined in the metric. Again, smart contracts could be built which would manage this with minimal human interactivity (as long as you could get the data that is).

The interesting thing which you can do with smart contracts is that it would be trivial to have payouts to a million recipients or one recipient (once you add the addresses of the recipients – as is currently being piloted in many ways with mobile money). So you could structure the COD mechanism so that A portion of the money will be paid to the central government; B portion to the regional government; C portion to the local school itself; and D portion to each parent of the students.

Incentives matter and behavioral economists are continuing to find new and interesting ways to structure incentive models for positive societal change. With some minimal investment into using virtual currencies and smart contracts alongside open data initiatives we will soon reach a point where to test different incentive models will require a simple change of a few lines of code, some time, and some analysis of the outcomes in R (all of this done from anywhere in the world) to determine the viability of the incentive structure to address the problem one is trying to address. Compare that to the way in which an implementing agency today would have to pivot in order to test, pilot, or scale a hypothesis.

We in the development world should know that speed and nimbleness are just as important for development workers as they are for businesses and smart contracts + open data would dramatically increase the speed at which certain things could be addressed.

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