Bitcoin could change the game for foreign aid

Updated 1546 GMT (2346 HKT) May 23, 2019

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Alex Gladstein is the chief strategy officer at the Human Rights Foundation and a guest lecturer at Singularity University. He owns a small amount of bitcoin. LocalBitcoins is participating at HRF's upcoming Oslo Freedom Forum conference. The opinions expressed in this commentary are his own.

Perspectives alex gladstein

Today's humanitarian aid model is fundamentally broken. Whether you're a foundation making a donation to a nonprofit abroad, a government distributing aid to another government, or an individual sending emergency funds to family members across borders, your money only gets to where it needs to go after passing through intermediaries. Even in the simplest payment scenario, there's your bank; a coordination network; and the aid recipient's bank. But often, there are even more middlemen, with money moving along complex chains of third parties.

Such a system has obvious flaws. One is that each intermediary between you and the person or organization you are trying to help can delay, surveil, censor or steal your funds. In 2012, the UN's then-secretary general Ban Ki-moon said that "corruption prevented 30% of all development assistance from reaching its final destination."
Corruption aside, aid is at risk of getting eaten up along the way by overhead and administrative costs. In a research study done by Oxfam, only 7% of $28 million in US aid meant for Ghana provably made it into that country between 2013 and 2015 due to a lack of available data. Even if all goes well, it can take several days, weeks or even months for the recipient to finally receive the aid. And in a world where 1.7 billion people don't have a bank account, many can't even ultimately claim your donation.
The way aid moves today is corruptible, inefficient and slow. Research from organizations like the World Bank and the charity organization GiveDirectly suggests that distributing aid via direct cash transfers can be extremely effective. But how can we truly innovate in this area if there are so many intermediaries, even for small payments? Here's where Bitcoin changes the equation.
With Bitcoin, you can send money directly to anyone in the world in a matter of minutes. As your funds move to the recipient, it's not possible for third parties to censor or steal, as payment processing is done through a global competition, not by a centralized institution. To receive Bitcoin, you just need a smartphone with Bitcoin wallet software. According to the latest Pew data, 45% of citizens in emerging economies already own a smartphone today. While that means a large number of people in the world's poorest countries don't have the internet in their pocket yet, the fact that nearly half do is significant and this number will only continue to rise in the coming years. To receive Bitcoin, they don't need a passport or an ID or a bank account, and they don't have to ask permission from a government or a company to accept the funds. It is a true peer-to-peer transaction, done over a global, neutral payment rail. Of course, what isn't guaranteed is that the recipient can turn Bitcoin into local currency so they can buy the food, medicine or help that they need. That's a major challenge, but it's changing in a big way.