How Tokenization Ensures Development Aid Reaches Those Who Need It

The conversation about blockchain adoption has evolved over time. It started off as a question of whether cryptocurrencies would replace the need for national currencies and central banks. More recently, the topic has focused on enterprise use cases for blockchain, in areas such as supply chain and trade finance. However, it’s now starting to become clear that blockchain technology also has use cases in humanitarian efforts.

One example of blockchain application is in the area of digital identity. In developed countries, we tend to take passports and identity documents for granted. However, in many poorer countries, individuals don’t have any identity documentation. For a refugee arriving in a new country, not being able to prove who they are is a huge disadvantage and leads to delays in accessing vital services.

In a previous article, we discussed how blockchain is revolutionizing the process of crowd financing and outlined various applications for raising capital in a business context. However, it’s also possible that charitable organizations or even individuals could apply the same principles to fundraising for developing countries. Similarly, asset-backed tokens can be used to procure supplies.

Let’s take the fictional example of a charity based in the US which wants to build hospitals for treating AIDS sufferers in Malawi and explain at concept level how blockchain platform can be used to avoid certain problems.

The charity organization assigns a local project manager who searches for local contractors and defines project milestones.

After the amount of money has been defined (plus some extra to cover uncertainties), the organization puts all the rules and milestones into a smart contract. The project has 3 key components:

1) Donated money into $Token

2) Cost of labour and building material issued in Service Token by contractor

3) A smart contract which contains logic and rules to trigger a release of money at each milestone

The local project manager has no access to Dollar Token, which is important to prevent fraud.

Based on the agreed cost of service and materials, the contractor uses the blockchain platform to issue service tokens. Each token is backed by a set amount of construction materials and manpower.

So each party has its wallet and tokens will be release and exchanged when conditions are met:

The charity has a local representative who will confirm when the work has been satisfactorily completed at each milestone. Once the local representative confirms completion, the requisite tokens are automatically released by the smart contract, ensuring that the contractor gets paid for their work and no money is exchanged through the hands of a local project manager.

The token exchange in each stage of the milestone can be illustrated as the flow below:

Taking this further, the charity could even continue to use the same secure fundraising system for running the day to day operations in the hospital and they can make sure that the donation money goes to the people who performed the service and not got lost in the process due to fraud activities. For the donors, they have the transparency to see where their donation goes to. This fictional example explained at a high level of how blockchain can be used to address certain problems in the development aid area. There are still a lot of work to be done in order to implement this process. However, blockchain application is at the beginning of its phase, we can expect more improvement in the near future.

Using blockchain in this way means that nobody can siphon off any funds, and the incentive system ensures it is extremely difficult for anyone to use the tokens for anything other than the intended purpose. This system also means development projects can use local workers and resources in a more dependable way, which has the added benefit of helping the local economy compared to shipping in people and equipment from abroad.

While the use of tokenized assets in business and finance is set to bring about substantial economic benefits in terms of efficiencies and wealth creation, this case study illustrates that it offers even broader advantages to society as a whole. Using asset-backed tokens in managing development aid has the potential to circumvent corruption, ensuring resources are allocated in the way they were initially intended — to those in need.

As a prominent blockchain infrastructure provider, CoreLedger is making blockchain technology simple for businesses to use. With CoreLedger’s offerings, clients can readily tokenize their offerings with fast-to-implement resources that will allow them to modernize their services. Thanks to our in-house developed software solutions and experienced blockchain specialists, CoreLedger is ready to help you make your next move with blockchain technology.

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