July 11, 2016
Since its appearance, blockchain technology hasn’t left headlines with an increasing number of use cases and applications. It seems nearly every global financial institution nowadays is involved in blockchain-related initiatives one way or another.
As the LTP team has been reviewing the blockchain ecosystem for quite a while now, we have seen interesting if not outright promising solutions for authentication, blockchain-as-a-service, open-source blockchain, application development, mobile wallets, compliance and trading and investment and beyond.
Although blockchain technology is believed to bring a significant cost and security relief in the financial services industry, it is also a substantial force in fostering financial inclusion for citizens in poverty, as the UK government suggests in the report on distributed ledger technology published earlier this year.
The government claims to be paying out ~£166 billion of taxpayer’s money in welfare support every year, out of which a large number goes to un- or underbanked citizens that face barriers to financial inclusion due to credit checks, access to traditional financial products, and the costs of unauthorized transactions.
Blockchain technology is believed to be a potential remedy to the problem and power cheap and supportive means of getting these claimants into the benefits system.
Digital identities could be confirmed through distributed ledgers running on securely-encoded devices – or even through software on a mobile device – which would allow end-users to receive benefits directly, at reduced transaction costs to banks or local authorities.
As a result, the citizens in poverty will become fully included in the financial system through a secure distribution point that is more reliable than a bank account, the government suggests. Moreover, the solution can be built with a purpose of integration with external systems in order to diminish the fraud and error possibilities in the delivery of benefits for the financially excluded given that blockchain-powered digital identities will be tamper-proof.
By creating a digital identity built on blockchain technology, citizens lacking appropriate access to the financial system would gain a higher independence and better chances for welfare.
Through the innovative application of such technologies, it would be possible – with agreement from the benefit claimant in question – to set rules at both the recipient and merchant ends of welfare transactions. This may present the opportunity for ministers to consider options for achieving better policy outcomes from the distribution of welfare support by agreeing or setting rules around the use of benefits.
Although we haven’t heard of a govern-scale rollout of such initiatives, there are certainly successful companies allowing to create a blockchain-powered digital identity. Among those are such players as Credits.vision, OneName, ShoCard, BitNation and others. Blockchain technology is believed to have a tremendous impact across industries and the number of companies providing a platform to create and securely manage digital identity will certainly be growing.
Although we have been looking at the application of distributed ledger in the matter of financial inclusion, the idea of blockchain-powered digital identity carries a broader range of benefits. A particular group in need for such benefits are migrants.
Some estimations suggest that there are more than 232 million undocumented migrants internationally and the number continues to rise. Since many of those people do not have a formal identification document at the new place of residence, they are often victimized and hold a disadvantageous position in the financial system and beyond. The problem is especially relevant for women and children. Moreover, sources report that over 800,000 men, women, and children are bought and sold across international borders every year and are exploited into forced labor. In the global scale, the number is believed to be reaching 21 million.
At the end, the idea of tamper-proof digital identity will find a broad range of industries it will be used in since it bears important benefits. It will aid not only people provided with a secure digital identity but also the governments and businesses across industries.