Blockchain technology refers to a database framework that is characterized by transparency, the decentralization of data, and simplicity. Initially developed to support the implementation of the Bitcoin virtual currency, it quickly evolved to be used in other areas such as smart contracts, supply chain management, and international development. As with many other technologies, blockchain has a number of benefits and limitations which will be discussed in this article.
What is blockchain technology?
Blockchain technology refers to the decentralized series of fixed records of data spread across multiple computers owned by different entities that operate within an interlinked, peer-to-peer network. It was initially developed to support the implementation of Bitcoin, which is a peer-to-peer version of electronic currency capable of making direct payments without the involvement of financial institutions, but later evolved to be used for smart contracts, supply chain management, and digital identity. Smart contracts are types of programs stored on a blockchain framework that run predetermined algorithms once all the conditions agreed by the parties involved have been met. This, in turn, helps to speed up processes and automate workflows.
How does blockchain work?
A blockchain is a type of database made up of multiple nodes within which all the information is stored in blocks that are chained together. When one node initiates or receives a transaction from another node it will send a notification about this operation to all the other entities within the network. The transaction will be ultimately registered by a third node, also called a miner, which verifies and secures the operation. Because many such transactions take place at the same time, blockchain technology uses the cryptographic signature to connect each new block to the previous blocks in the database.
Blockchain for international development
Several international organizations, such as the World Bank and the United Nations Conference on Trade and Development, are considering using blockchain technology in the development sector to increase efficiency, accountability, and transparency. Furthermore, such technological innovations can assist actors involved in international development to distribute and trace aid funding by applying the principles of decentralized finance which is run by smart contracts. Here are a few more examples of how blockchain applications can be utilized in international development:
- Blockchain against poverty: people living in poverty often lack official identity documentation which restricts their access to public services and aid. Blockchain technologies can be used to develop digital identities that can facilitate access to the necessary public services
- Blockchain against corruption: the technology can be used to store governmental databases (e.g., land registries) and reduce the possibility of fraud, manipulation, or misuse by people in authority
- Blockchain against human trafficking: the United Nations Office for Project Services (UNOPS) has joined up with several other organizations to develop digital identities for undocumented children and minors using blockchain technology that can make any trafficking attempts more traceable and preventable.
Pros and Cons of using Blockchain
Frontier technologies, including blockchain, are seen as revolutionary tools having great potential to solve the most serious socio-economic challenges at the global level. Nevertheless, none of these technologies are an ‘all-problem panacea’ and come with specific limitations thus there are pros and cons to using blockchain technology:
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