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Blockchain-Based Charity Is No Replacement For Welfare




Amid Americans’ growing mistrust in government, some see the potential for blockchain-based peer-to-peer and crowd-funded charity to replace government welfare. Have we learned nothing from the well-publicized onslaught of data privacy breaches and the growing economic divide?

For those who distrust the government's ability to make ethical and efficient economic decisions on their behalf, blockchain technology offers a lot of promise. It's no surprise that blockchain is particularly appealing to the Libertarian crowd; who needs taxes and government when technology allows individuals to fund causes they care about without middlemen?

These days, trust seems to be in short supply. According to an Atlantic article earlier this year, "only a third of Americans now trust their government 'to do what is right.'" It is also true that individualism is baked deeply into the soul of this country, and with it, the idea that pulling oneself up by one's bootstraps is the moral imperative of the poor.

It follows that there would be a high level of distrust of the welfare state.

The National Review recently published an article written by Phil Haunschild and Janae Wilkerson of the Idaho Freedom Foundation, a libertarian think tank, suggesting a blockchain solution to welfare. In it, the authors offer blockchain as the answer to our distrust; citizens could donate peer to peer (P2P) and articulate the conditions of their donations through EDCCs (aka smart contracts), guaranteeing that their money is spent exactly as intended. Such a system could build relationships between donors and recipients, create greater efficiency, and generally "promote better outcomes for all." In short, there would be no more need for a bureaucratic government to dole out tax dollars through welfare programs.

It sounds great, and there is a lot of promise to what the article suggests: Anyone who has witnessed the fundraising power of P2P and crowdfunding campaigns on Facebook knows there are plenty of people eager to lend financial support to causes and people they love. These campaigns answer a thousand previously unaddressed needs, revealing gaps in the government's ability to safeguard its citizens just as much as they reveal the generosity of Americans, despite our reticence to pay taxes.

Regardless of your politics, there are undoubtedly things that the government funds that you do not support, and other things you reckon the government could be spending money more wisely on. What better way to rectify the system than to allow individuals to vote with their dollars?

The Privacy Question

But I think we need to slow down. We have bore witness to the wreckage of our personal privacy wrought by Cambridge Analytica, the advertising revenue model on social media platforms, and the United States government's surveillance activities. These examples have shown us that technology has a great capacity to betray our intentions, as well as exploit our desire to express our identities and connect with others.

Of course, blockchains are fundamentally different from existing social media platforms. Part of the appeal is that some users believe transactions are always anonymous. However, Bitcoin does not offer anonymity. Though some blockchain platforms attempt to create more anonymity, blockchains promise security and transparency because they are immutable, publicly verifiable ledgers, which presents an obvious challenge to the goal of complete privacy. Even if developers effectively make transaction data, including participating entities, anonymous, this would be counterproductive to the goals of relationship-building and accountability.

What Haunschild and Wilkerson propose would require those in need of financial assistance to give up a great deal of privacy. The authors suggest that this is part of the appeal: They call it "establishing a personal connection between donors and recipients" and say that it will increase accountability. It could also increase the likelihood of some individuals making donations or increase the amount they feel comfortable giving.

On the flip side, if the data remains public, it could dissuade donors and recipients from using the system. Not everyone who gives money wants it to be known, especially if that person or entity wants to give to a political or otherwise controversial cause.

The tradeoffs need to be carefully considered. The "move fast and break things" model dominating the tech industry has led to enough disastrous consequences already. Our failure to thoroughly consider potential outcomes and side effects related to technology has led to the proliferation of so-called fake news, increasingly polarized politics, and an increased ability for the government (or anyone else) to monitor and track individuals; not to mention the ways in which technologies like social media shape our day-to-day interactions, relationships, and behavior.

Institutional Trust and Accountability

When the government provides aid, the welfare recipient does forfeit some privacy; they must provide proof of employment status, data on wealth, and other personal information. This is an exchange that we, as a society, have decided is fair and necessary to help ensure that tax dollars are well spent.

However, in the case of government welfare, the individual is required to trust the institution, not an individual donor. It is true that Americans have a growing distrust for the government, but there is some level of institutional credibility and accountability: The government is scrutinized via investigative journalistic coverage, subject to elections, and contains a web of watchdog groups and checks and balances. An individual donor lacks these eyes holding them accountable for treating the recipient's information with respect, and if an individual requires aid, they are less likely to have access to legal representation.

Peer-to-Peer Fundraising Requires Social Capital

Additionally, and perhaps more importantly, a standalone P2P welfare (blockchain-based or otherwise) system is untenable because it requires the person in need to have a social network capable of providing financial assistance, as well as the technological know-how to solicit it.

The problem with this is that, put simply, a class hierarchy exists in America and social mobility is on the decline. Income and wealth largely dictate the lifestyles people live and their social networks. People build relationships through common jobs, interests, workplaces, neighborhoods, et cetera, and all of those things are influenced by wealth and income. It follows that most wealthy individuals know more wealthy individuals than the average poor person, and vice versa.

This means that a person in need often lacks the network to solicit for cash, which is why they require government welfare in the first place. In order for a poor person who lacks a wealthy social network to effectively fundraise, they would need to be competent in marketing, communication, and technology. That seems like a lot to ask.

Crowdfunding as an Alternative

There is another, similarly popular fundraising approach that relies less on social capital: crowdfunding. Under this model, nonprofits create fundraising campaigns and then market those campaigns through their web pages, social media, and/or in-person events. The impetus is on the nonprofit rather than the individual. This allows for bigger campaigns to meet the needs of more people, either by distributing the proceeds or by using them to build systems to aid those in need.

Blockchain-based crowdfunding platforms already exist and offer many of the same benefits as P2P charity, but without the reliance on individuals' tech know-how or social networks. They do a great job of allowing individuals to contribute to causes they care about that are otherwise overlooked by – or beyond the scope of – government. EDCCs could still be used to allow donor control of fund allocation, and the transparency of a blockchain allows the public to monitor nonprofits' transactions.

An Integrated Approach

Blockchain-based crowdfunding is gaining traction. However, government welfare is far-reaching in a way that seems infeasible for nonprofits. Because the United States is a representative democracy with a sizable tax base, and because it collects regular census data, the government can identify need, generate revenue, and offer its services much more broadly than any nonprofit could hope to. Basic welfare systems like SNAP, social security, Medicare, and Medicaid require consistent funding and an incredibly wide scope, which would likely be impossible if they were not tax-funded. A substantial chunk of Americans oppose those systems in the first place and would not fund them if given the option.

Of course, funding for welfare systems is already under threat for this very reason, but at least for now, those systems serve an essential role in maintaining America's economic well-being.

The transparency that EDCCs and blockchain technology engender could allow Americans to create a more just and equitable financial safety net than has ever been possible. It creates an opportunity for individuals to vote with their dollars to support causes that matter, and to best represent the will and address the needs of the whole population. The potential for blockchain-based fundraising can hardly be overstated. However, the answer is not to eliminate government welfare, but to supplement the gaps with blockchain-enhanced P2P and crowdfunded giving. 

Alison Berreman

Alison has a master’s in English from the University of Wyoming. She lives with her pooch in Reno. Her favorite things to do include binge listening to podcasts, getting her chuckles via dog memes, and spending as much time outside as possible.

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