Blockchains for sustainable development

Event report

The session on ‘Blockchains for Sustainable Development’ was opened by Mr James Zhan (Director of Investment and Enterprise, UNCTAD), who explained that UNCTAD is looking for solutions in e-governance, e-regulations and other fields to secure payments of businesses through distributed ledger technologies (DLTs).

He noted that blockchain’s best-known application in 2009, cryptocurrency, has made an entry in many different spheres around the world, providing investment opportunities and giving developing countries the possibility to trace money transfers. Nonetheless, he raised concerns about the risks of countries being left behind through a deepening of the digital divide.

Panel 1:

The first panel was opened by Mr Jem Bendell (Professor of Sustainability Leadership and Founder of the Institute for Leadership and Sustainability (IFLAS), University of Cumbria) who noted that there is a great amount of investments going into startups and other businesses in the crypto-space, and that there is often very divided media coverage regarding the technology. Some media outlets view it as a panacea, while others see it as a technology which causes more harm than good. He pointed out that blockchain is much more than a simple database, and that it is not the technology itself which will provide benefits for humanity, but the way that it is used.

He further stated that today, blockchain applies to much more than just cryptocurrencies. Its application ranges from supporting governmental communication systems to automated payments. He highlighted Kenya’s example where blockchain technology facilitates grass root collaboration, allowing communities to trade among themselves.

As a response to critics classifying cryptocurrencies as threats to the financial system and the environment, Bendell said that a fundamental overhaul of the financial system was long overdue. Regarding the energy efficiency of DLTs, he asked whether blockchain could be designed in a way that is more energy efficient, and that would favour a better distribution of wealth. He pointed out that any technology is about our intention, and that it could be shaped to help and serve our needs for sustainable development.

Mr Louis De Bruin (Blockchain Leader Europe, IBM Digital Operations) spoke about IBM’s contribution to the Linux Foundation, in making the Hyperledger project more sustainable.

In De Bruin’s view, blockchain is a business engineering tool that can enhance efficiency exponentially, as it contributes to making processes in all sectors more efficient, helping reduce waste and support sustainability. He spoke about IBM’s FoodTrust initiative, in which companies are working together to develop a blockchain that shows the carbon footprint of food, where it comes from, etc.

Other blockchain applications help trace the origins of diamonds and other valuable minerals, in order to avoid the illicit trade of blood diamonds and other illegal trading activities.

Ms Vanessa Grellet (Executive Director, Consensys Social Impact) noted that Consensys started its social impact coalition with companies and NGOs working with blockchain. Therein, securing and controlling value chains were one of the identified fields where blockchain could be put to good use. Another field was regarding the environment, as blockchain technology is used to help reduce the carbon footprint of products by reducing mismanagement and waste, and creating new markets. Additionally, blockchain is also used to foster financial inclusion.

The speaker pointed out that new focus areas have surfaced, such as defending human rights and human rights activists, supporting democratic processes, and many other fields.

Consensys is working on bringing more transparency into the charity sector and governmental funding. However, Grellet also warned that proposed solutions cannot be experiments, and outcomes must be foreseeable and measurable. For this reason, she urged practitioners to work with people on the ground who know the situation and dynamics in order to find adaptive solutions, to avoid doing more harm than good.

Mr Sander De Jong (Managing Directort, FairFood International) explained that the goal of his organisation is to help make food without harming the environment. He mentioned that up to 80% of our food comes from small farmers but that consumers are usually unaware of this fact, as well as the origins and conditions of food. For this reason, FairFood International saw an opportunity in blockchain technology which gives farmers agency, access to markets, consumers, and finance. Additionally, it allows people to verify the supply chain of their food

He used Colombian coffee as an example and said that traditionally, consumers only knew that the coffee came from Colombia because it was written on the package. With the implementation of blockchain, the farmers can verify this information themselves, and let consumers know that the coffee was actually produced equitably on their farms.

Further questions asked by the moderator Ms Galia Benartzi (Co-Founder, Bancor), were concerned with how blockchain could impact people and areas of the world with no Internet connection. De Bruin explained that a lot of the technology used to track value chains and products worldwide are operated with crypto-anchors, devices that are installed and set up in places without connectivity, sending information to the blockchain as soon as they reach a connected environment.

Regarding blockchain applications in the context of fighting climate change, Grellet said that DLTs offer opportunities for carbon credit offsets, and that they can be implemented to reduce waste in production lines, and to reduce energy consumption in smart houses. De Bruin added that blockchain technology does not necessarily have to be energy intensive, and future developments will decrease the amount of energy required to operate DLTs.

Panel 2:

The second panel was introduced by a keynote speech from Mr Changpeng ‘CZ’ Zhao (CEO, Binance), who stated that blockchain’s major contribution is transparency: ‘With better transparency we can achieve 100 times more results’. According to Zhao, transparency is fundamental and will contribute to all 17 SDGs.

He noted that in the charity sector, up to 80% of donations do not reach beneficiaries, pointing to a lack of tangibility, achievement, and purpose of the funds that are donated. To solve this issue, he advocated for the implementation of blockchain, which he described as an immutable and transparent public record with the potential to track transactions from the source to the final destination.

However, he recognised that blockchain is not easy to use, which is why his company created a website to help users navigate and track their donations. In the case of a fundraiser after a flood disaster in West Japan, Binance was able to raise USD$410 000 in cryptocurrency donations, in addition to an initial USD$1 million donation. These amounts were published and can be verified by the donors through Binance’s website.

He also noted that blockchain depends on how we use it, saying that the tool itself is neither good nor bad. Industry leaders thus need to prove how it can be used for good.

Mr Chris Fabian (Co-Founder, UNICEF Innovation Fund) showcased the example of the lack of connectivity in Mauritania by showing a map of how many schools were disconnected in that specific area. He explained that these types of visualisations might help service providers reorient the areas to prioritise for infrastructure development and show vulnerabilities. The people, especially children in those areas, are vulnerable because they might not benefit from the same advantages as their peers in connected regions.

According to Fabian, there is a potential to utilise blockchain technology as a global public good that pools demand, and holds companies accountable to fair pricing, similar to what the public-private vaccine alliance, GAVI does for pharmaceuticals.

Ms Galia Benartzi (Co-Founder, Bancor) spoke about the way we perceive money, saying that money has the power of unlocking energy or power, but it went through different evolutions. It went from a gold standard to fiat currency, and is now becoming increasingly digital, wherein money can be produced by people.

She mentioned that societies without money are at a standstill, and resort to barter which is why Bancor builds liquid community currencies. Bancor aims to automate the activity of trade by matching buyers and sellers through liquid community currencies. These currencies can be:

• Continuously liquid (can always find a buyer for your currency)

• Stable and safe (no crashes because information is open and public)

• Efficient and affordable (do not charge fees, allows any token creator to access)

Benartzi spoke about a case in Kenya where user-generated money had only very limited use because it could not be traded for other currencies. However, with Bancor’s help, they now can exchange their tokens.

Ms Marta Piekarska (Director of Ecosystem, Hyperledger) mentioned the paradox of blockchain being a technology developed by wealthy societies of the ‘first-world’, which is trying to find applications for sustainable development. She noted that inventions such as smart fridges, increasingly small microchips and other technologies might be useless for developing countries. However, blockchain allows creating direct connections between producers and buyers, and therefore has the potential to truly bridge the gaps.

She identified the certainty of verification and the traceability of the origin of products; the possibility to make direct transactions; and making sure producers are treated equitably, as some of blockchain’s positive effects. She further said that where people usually require certain levels of trust before entering transactions, blockchain does not rely on that initial mutual trust, as it provides a system that is transparent. In the case of fair trade products, blockchain can also help reduce overall prices given that higher prices do not only stem from sustainable farming practices, but mostly from middlemen that certify commodities’ origins and conditions. Piekarska explained that Hyperledger is an open-source technology which everyone can use to build their own company and provide for themselves.

The moderator, Mr Günther Dobrauz (Partner & Leader at PwC Legal Switzerland), asked about the biggest challenge the speakers faced with regards to DLTs, to which Benartzi highlighted the inability to have informed conversations about the technology. Piekarska identified the rush to implement blockchain as an opportunity, but also as a big challenge, especially given the immutable and permanent nature of information stored in blockchains. It is therefore critical to anticipate what will happen to the data and what kind of information is stored.

Panel 3:

Ms Eva Kaili (Member of the European Parliament, Chair Science & Technology Options Assessment Body of the EU gave the keynote address for the third panel. She spoke about the EU’s Blockchains for Social Good prize which will award €5 million to the five most promising projects for innovation leveraging DLT solutions. She further mentioned that the EU has already spent €340 million for several pilot projects to help countries work together on DLT projects and announced that this sum will be doubled soon.

According to Kaili, blockchain technology can be used in a variety of sectors. It can help decrease international transaction fees considerably or be used in the health sector. Such is already the case with the My Health, My Data alliance working with different countries to share anonymised health data for research, to help find new solutions for infections and improving treatments.

As another example, she pointed to the price volatility in the trade sector, and the need of keeping up with rapid developments and changes in the sector. For this reason, the EU has created the EU Blockchain Observatory and Forum.

She further announced the EU’s efforts to overcome crowdfunding issues. Whereas the previous regulations foresaw a cap of €1 million for money raised within one country, new regulations will allow people to fundraise projects with donations from all EU member states for sums up to €8 million.

Considering the EU General Data Protection Regulation (GDPR), Kaili explained that the regulation was a principle-based legislation. Given this, it is not conceived as a regulation hampering innovation, ‘It is principle based and thus stops where innovation principles begin.’

Mr Günther Dobrauz (Partner & Leader at PwC Legal Switzerland) said that blockchain is still at an early stage and that there is no dominant design or a widely accepted standard which would enable the technology to fully take off. Bitcoin is only one possible use of DLTs, but there are many others, and it will take more experiences to fully unwrap the technology’s potential.

On key issues and the potential danger for the conventional finance system, Dobrauz stated that the younger generations are much more aware and concerned about sustainability. Furthermore, they were brought up in the aftermath of the most recent financial crash of 2007, which is why they put more trust in programmes rather than conventional banking systems. He identified blockchain technology as a possible solution to rebuild trust in these systems due to its inherent transparency.

Mr Hans Docter (Director for Sustainable Economic Development at the Ministry of Foreign Affairs of the Netherlands) pointed out that innovative ideas are usually sparked by things that are dear to the developer and that have promising returns of investment.

He spoke about trust and the lack thereof in different environments, but warned that while blockchain can provide solutions, it is not a solution in itself because mistrust can easily be transferred ito the new technology.

Docter introduced the Dutch Blockchain Coalition which brings different actors together in a joint venture between industry, government, and knowledge institutions to contribute to the coalition’s agenda.

Additionally, Docter mentioned generally being in favour of regulations, but warned against the hampering of innovation. He admitted that EU regulations still need improvements, and cautioned against over-regulating technologies at early stages. In his view, policymakers need to intervene and rectify certain developments at a later stage.

Mr Marius Jurgilas (Member of the Board of the Bank of Lithuania) said that blockchain has the biggest potential in environments where obtaining trust for transactions or processes is difficult.

He outlined the Bank of Lithuania’s rationale for regulating blockchain, which is about market failure concerns and potential systemic risks, as well as the catalysation of innovations.

In that context, Jurgilas mentioned initial coin offerings (ICOs) as an opportunity for nascent capital markets. However, consumers are often defrauded during these operations, raising the question of how policymakers can prevent these situations. So far, policymakers inform about the risks and opportunities of ICOs but their engagement is limited.

Another regulatory approach of the Lithuanian bank is the implementation of a technological sandbox. It functions both as a test lab for regulators, and as a catalyst for developers and it is currently supported by IBM and Deloitte. The advantage of this communal approach is that it provides governments with the opportunity to test regulations, while taking away the private sector’s fears of damaging regulations. Additionally, the Lithuanian approach provides the central bank with the possibility to do ‘in vitro’ tests with a central bank digital currency (CBDC) and to lead by example.

Mr Abdalla Kablan (Director of the Malta Stock Exchange) spoke about his prior engagement in helping the Maltese government to draft its blockchain and innovation policies. He emphasised the policies’ holistic approach, and how they tackled regulatory issues from a technological development point of view.

The panellist noted that Malta has already noticed an increased influx of talents and projects to the island thanks to the adopted approach. Kablan also pointed out that an essential element of the framework’s success comes from the legal certainty and opportunities that it provides to investors and companies.

He also announced that the Malta Stock Exchange is currently working on ways to tokenise assets.

The moderator, Mr Jem Bendell (Professor of Sustainability Leadership and Founder of the Institute for Leadership and Sustainability (IFLAS), University of Cumbria), asked about the key elements needed for the successful implementation of DLTs. Kaili answered by pointing to the need of establishing more observatories reporting ondevelopments in new currencies, in order to give consumers the assurance that specific types of tokens actually have value. With regards to policymakers, Kaili stressed the importance of the ability to act fast, to be innovation-friendly, and business and technology neutral. She also mentioned the necessity of having common regulations on DLT developments at least across Europe, eventually extending to a global framework.

Kablan said that stimulating economic growth through innovation is very important, but that these developments need to be observed from a macro level as well, in order to intervene in time if needed.

Jurgilas noted that if regulators do not keep up with technology’s fast-paced developments, they will lose relevance.

Docter mentioned that Switzerland’s banking sector benefited from a similarly open approach for regulations as the path taken by Malta regarding innovative technologies, and the fact that legal stability has the potential to attract investments. He also cautioned against the risk of policymakers’ inaction regarding DLTs, due to the risk of missing out on investments.