Cryptocurrency: a revolution in international cooperation?

Virtual money or cryptocurrency, still little known and not yet regulated, offers new opportunities in terms of managing international humanitarian assistance with transparency, security and immediacy.

But what exactly is it? Cryptocurrencies are encrypted digital currencies based on technology called blockchain. “Blockchain is a ledger of digital events distributed between many different parties [users]. To simplify, it’s like a book – it is in fact called a ledger, like those used in accounting – in which every foreseeable digital transaction – a purchase-sale, an exchange, an accident within the context of an insurer-insured relationship – is recorded in such a way that no one, neither a person nor an entity, controls the ledger,” explains journalist Covadonga Fernández, co-founder of the Blockchain Observatory and a correspondent for CryptoNoticias in Spain.

The simplest and most common way of obtaining cryptocurrency is through digital exchanges. Some directly exchange dollars or euros for cryptocurrencies whilst others only accept purchases and sales between cryptocurrencies; the most popular, such as Bitcoin or Ether, are generally used in exchange for other less common ones. The best-known exchanges include Coinbase.com, Bittrex.com, Kraken.com and Bitstamp.net.

The value of the most common cryptocurrencies varies according to their market price. On 3 January 2018, for example, the value of one Bitcoin rose to US$15, 588.40, one Ethereum to US$844.53, one Bitcoin Cash to US$2675.45, one Litecoin to US$252.33 and one Dash to US$1152.65.

Global public awareness of this digital money’s existence has gradually spread and its potential uses have captured the attention of international organisations.

“Blockchain is global and knows no physical boundaries, therefore it will become more attractive for cooperation and progress across the globe. This is already starting to happen,” explains William Mougayar, an investor with over 35 years’ experience in the technology sector and author of the book The Business Blockchain: Promise, Practice and Application of the Next Internet Technology.

The advantages include the micro-donations facilitated by blockchain at a very low cost. “Money can be donated in very small amounts – even cents – and reach its destination almost in its entirety. It is being used in a range of sectors, such as the creative and entertainment industries, in the form of micropayments – small amounts paid for products such as articles or songs,” says Fernández.

It is particularly valuable in the field of international cooperation, as a record of each transaction or event is generated, providing real traceability for each operation, from who issued the money to the final beneficiary of the aid, which is very useful when the utmost transparency is required.

There is no common or standardised legal framework at international level. In Iceland, for instance, exchange trading with Bitcoins is prohibited under the Icelandic Foreign Exchange Act. Regulation without prohibition is currently being sought on the continent. The European Commission is hoping to modify the Fourth Anti Money Laundering Directive, adopted in May 2015, to include cryptocurrencies.

“Virtual currencies are developing quickly and are an example of digital innovation. At the same time, however, there is a risk that virtual currencies could be used by terrorist organisations to circumvent the traditional financial system and conceal financial transactions, as these can be carried out in an anonymous manner,” explains a fact-sheet drawn up by the European Commission.

Ethereum and the United Nations, breaking new ground

The most popular cryptocurrency is Bitcoin. The United Nations, however, has chosen to use the Ethereum platform for its World Food Programme.

“The Ethereum platform is an open source project with thousands of contributors from around the world, in addition to a dedicated team of core developers that are close to the Ethereum Foundation. They have been working on the security and scalability aspects longer than any other large-scale blockchain project,” says Mougayar.

Another key to its success is the fact that Ethereum has been highly transparent, publishing regular progress reports. “Ethereum has a dual purpose: it is a technological platform that supports the creation of decentralised applications across several industries, but it also carries a philosophical message behind it: the decentralisation era has begun. And decentralisation yields another form of lowering of international barriers,” says the expert.

The United Nations announced its relationship with the Ethereum blockchain as part of its effort to assist Syrian refugees in Jordan, during the Token Summit in New York in May 2017. But how exactly does this World Food Programme initiative work?

“Cryptographic vouchers are sent to businesses located in the vicinity of the refugee camps, with a value equal to the price of food items in the local currency. The recipients can redeem the vouchers against basic commodities once their identity has been checked by means of retina scanning,” explains the co-founder of the Blockchain Observatory.

The speed of the transfer operations and the transmission of funds make cryptocurrencies a very interesting option when dealing with international emergencies or crises. “Funds can be delivered to an area as part of an aid programme within a matter of hours, from the moment they are collected to the moment they reach the managers at the destination,” explains Fernández.

Although cryptocurrencies are associated with the world of finance, speculation and illicit activities, many NGOs, such as Techo, Save The Children or The Water Project have decided to use them, based on the speed of the transactions and the transparency of donations accepted in cryptocurrencies to fund their projects.

“Cryptocurrency crowdfunding for humanitarian projects is spreading fast among organisations ranging from the popular Red Cross to institutions located in developing countries,” says Fernández. The American Red Cross, for example, is promoting the option of making donations in cryptocurrency to the various projects headed by the organisation, thanks to an alliance with the Bitpay platform for Bitcoin payments.

“There are very active NGOs that accept donations in cryptocurrencies – mainly Bitcoin – such as the Sonríe y Crece educational projects in the Dominican Republic; PANPERÚ, one of Peru’s largest NGOs, which only accepts national currency for donations made within the country, or the Canadian organisation Ghana Medical Help, which accepts donations in the cryptocurrency Dogecoin, as well as Bitcoin,” adds Fernández.

Only time will tell whether cryptocurrencies will develop into a more efficient and transparent alternative for coordinating international aid.

This article has been translated from Spanish.