Mr Müller – how can a blockchain digitise our NGO?

Monday morning, 8 am. You are enjoying a coffee at the start of your day of working from home. As usual, the first appointment of the week is the management meeting. When it’s your turn to deliver an update, the CEO of a national aid organisation turns to you with an assignment: Blockchain, blockchain – there’s something in that. Our market participants have been engaging with this thing for some time already. Müller, this week find out what blockchain’s all about! Specifically, its opportunities, risks, benefits and costs as usual.

Well, for Mr or Ms Müller it’s time to quickly move away from fuzzwords and buzzwords. That means we would be best served by taking a step back in our thinking and understanding the technology properly from the ground up. The following central questions come to mind:

What is blockchain and how does it work?

Essentially, blockchain technology is a protocol for sharing information and filing information within a blockchain data structure (data blocks). The name “block” + “chain” is derived from the fact that all the information is stored within blocks and those blocks are chained. Examples include information that refers to original usage data (images, videos, documents), or the original usage data itself, such as financial transactions. Cryptographic methods are used to guarantee that individual blocks and the way they are chained are unalterable. Specifically, this is achieved by the creation of a number puzzle that miners (digital prospectors) try to solve with their computers. This puzzle is correspondingly difficult and needs many computer operations (that Proof of Work = Computing Output is regarded as a benchmark of data integrity). In contrast to this approach is Proof of Stake, which requires very little computing output but rather a sophisticated algorithm to create data integrity with a value proposition. When a miner finds the solution for a puzzle, they receive a reward and a new block is added to the chain. This basic functionality abstractly describes blockchain technology at protocol level. The best-known use case is the Bitcoin blockchain payment system along with the cryptocurrency called bitcoin.

What opportunities does blockchain technology currently offer for companies?

A specific and the best-known example is currency systems which, for example, facilitate payment transactions that are controlled on a decentralised basis. Here it’s important to understand the difference between cryptocurrencies and the currencies we are generally familiar with – also referred to as FIAT currencies – such as EUR, USD and CHF. Another area of application would be digital identity, the properties of which can be stored – and also reviewed and confirmed – in such a way that they cannot be modified, using blockchain technology. Last but not least, let us take a look at an example from the field of charitable organisations, which would be relevant for you in Mr/Ms Müller’s shoes. Swiss platform AIDONIC.io relies on blockchain-based fundraising that also digitises the distribution of relief supplies. This digital platform uses a blockchain protocol to convert real-cash donations and entitlements to goods into digital images that can be efficiently and transparently portrayed. There is a wide range of other areas of application, but one in particular should be highlighted: The blockchain-based ecosystem of the financial world that has been known by the technical jargon “DeFi” (decentralised finance) since June 2020.

Blockchain-based ecosystem of the financial world = DeFi

The most important parts of this ecosystem are listed and clarified in the following table.

It can quickly be seen that the described DeFi blockchain ecosystem has moved some distance away from pure blockchain technology. After all, the last five years have seen many developments in connection with blockchain technology, and various protocols have become established. There are also other types of ecosystem that pursue different goals from DeFi:

• Gitcoin (a platform that brings together software developers for open-source projects and supporters/investors; gitcoin.co)
• Regen Network (a platform for orchestrating activities related to climate change; www.regen.network)
• Etherisc (a platform for enabling digital insurance products and the value creation process of an insurance institute via a blockchain system; etherisc.com)

What are the current opportunities and risks of blockchain?

The opportunities and risks of blockchain technology can be summarised as the following core aspects. Opportunities

• Simplified accessibility to blockchain ecosystems using mobile devices: The digital world is interconnecting at rapid speed and access to digital services on mobile devices is unstoppable. As this happens, blockchain’s technological aspect moves into the background and the real benefits and added value come to the fore.
• Data integrity and traceability: The increased data integrity that blockchain technology offers means that it can function as an unalterable and generally valid data storage space and/or data register. The traceability of information sharing also provides transparency to meet legal requirements.
• Increased trust in a system managed on a decentralised basis: The decentralisation of blockchain enables ecosystem participants to be independent from one another through the creation of clear rules and guidelines for how the ecosystem is operated and developed. These rules and guidelines can be mapped as digital governance using blockchain technology (keyword: DAO = decentralised autonomous organisation).

Risks

• The trajectory of national and international legislation may be in conflict with technological progress in blockchain technology. Years could pass before corresponding adjustments to existing laws or the adoption of new blockchain/DLT laws come into effect. Furthermore, adhering to special compliance regulations that apply in various sectors is complex.
• The right to erasure enshrined in data protection rules contradicts the technological basis of a blockchain protocol – namely its immutability.
• Smart Contracts as classic “applications” within a blockchain can contain errors (bugs) that astute hackers could exploit, for example to undertake illegal value transactions or manipulate ownership structures. However, the underlying blockchain protocols and data structures are mostly secure and can either only be manipulated with an extreme level of effort, or cannot be manipulated at all.

Summary: Overall, as Mr or Ms Müller you have been able to gain insight into the subject of blockchain and specific use cases. For example, the scope of the financial world’s blockchain ecosystem (DeFi) impressively illustrates how quickly applications and services on blockchain technology are gaining a foothold. In the NGO environment AIDONIC, with its blockchain-based platform, is making a targeted push in terms of digitisation in the aid organisation and charitable sector. Ultimately, as Mr or Ms Müller you derive the following measures and recommendations for the next management meeting of your NGO company:

• Focusing on the donor side by means of simplified fundraising. The blockchain system underlying this must be evaluated to determine how a simplification of this type can be specifically designed and which blockchain mechanisms are useful.
• You suggest the organisation starts by outlining a proprietary token/coin ecosystem. This also includes developing corresponding business cases using transactions with value (donations, real goods) and designing remuneration and fee models. Could using blockchain technology be the key to advancing the digitisation of your trading environment not just one step forward but several steps at once?

Blockchain-based ecosystems will be a key topic for many years to come, and not only for financial businesses and NGOs. The actual term “blockchain” will most likely fade into the background, however. Think back to when the internet started; yet today, few people still talk about ethernet, TCP or IP protocols in connection with online banking, mobile apps, E-/M-commerce and our modern digital lifestyle. Blockchain technology could develop along similar lines, simply being “built-in” to modern digital services and paving the path to the future as a fundamental enabler technology.

Author Dietmar Hafner, Senior Consultant at Alcedo & Più AG. With more than 15 years of experience in information technology, he has been able to contribute his added value to projects and products in various sectors. He has a broad consultant profile, spanning fields from software development and architecture to the subjects of blockchain, mining, DLT, cryptocurrencies and DeFi.