Bitcoin Q&A: Distributed ledgers, identity, and microlending


“What are your thoughts on the Kiva Protocol,
a distributed ledger partnership between… between Sierra Leone,
the United Nations, and Kiva.org?” “I have been a lender to the microfinance
charity Kiva.org for many years.” Hey, so have I! I have been a lender on Kiva for almost ten years. “This year, Kiva is partnering with the government
of Sierra Leone and the United Nations to provide… to provide a nationwide digital identification system, designed to help the country’s seven million
citizens access financial services they need.” “The Kiva protocol is based on Hyperledger’s, intending
to solve problems with identity and credit history… for 80% of Sierra Leone’s citizens who are unbanked.” “While I have no doubt about the good intentions of
Kiva, I am concerned about the choice of technology.” “Would you clarify the [virtues and vices] of
distributed ledger technology in such a situation?” “What are the chances this project will make a positive
contribution to the financial future of Sierra Leone?” This distributed ledger technology is centralized.
The very process of [enforcing] identification… in places like Sierra Leone is itself centralized. Whether they use a centralized blockchain or not,
it will not make a difference if [it requires identity], when the source of the identity documents is
something that you can’t control by consensus. It [will be] an input into the system by an external party.
The government of Sierra Leone, in this particular case, is acting as an identity oracle. Providing identity documentation for citizens is
a centralized function that is prone to corruption, vulnerabilities, and lack of access,
the problems of all identity systems. Whether they put that identity information in a database,
Hyperledger, or a blockchain, won’t make a difference. It doesn’t change the truth of that information,
nor does it change the availability and access. If that ledger is run by a single government agency,
whatever [inputs they make will be what comes out]. If a lie goes in, a lie comes out.
You can’t create truth with a blockchain. You can only preserve truth, or enforce things
that are subject to the consensus rules. Of course, human identity isn’t managed by a
decentralized consensus. What is the benefit of this? Arguably, if you were to build a database
[for this], an interesting question would be… How open are the application programming interfaces? Is access to that database given to a variety of
government agencies and private organizations? [Who can] access the identity information contained
in it? If you are using Hyperledger, [hopefully]… you at least have an open API that can be used for
cryptographic validation on the integrity of records, [revision history] of changes to those records,
and other things that a distributed ledger can do. Is it slightly better than a database?
It is marginally better than a database… Would it be better to put it on an open, borderless,
decentralized, censorship-resistant blockchain? Marginally better again, but it would
become significantly less efficient. We have a trade-off between the efficiency of
using Microsoft SQL Server or an Oracle database… on one side, and an open public blockchain
like Bitcoin or Ethereum on the other side, to install this identity information. Here is the bigger problem though. If you give
API access within public or private partnerships, how do you protect the privacy of the
people whose identities are on this blockchain? Open access to these databases would
effectively expose everyone in this system… to everyone who has access to this system. It becomes a surveillance database. Is this a good trade-off to have in a country where 80%
of people don’t have identity documentation, banking, or credit information, and do not have access to loans? The primary reason I invested in Kiva was the
opportunity to lend to people who don’t have… identity documents. Through a network of relatively decentralized
non-governmental organizations and charities, they help people to document and present their needs, and then use a number of techniques to help them… repay their loans, including building communities,
group lending, consortiums, and cooperatives. This provably [reduces] default rates. If you have a group
of people applying for a loan together in a community, they are far more likely to repay their loan, because they
can support each other and act as a check-and-balance, in order to make sure the loan is repaid,
so that the credit rating of the group will improve. None of that [needs to] involve documentation,
When I invest in ten Kenyan women building… an agricultural or sewing cooperative, I have
no idea who they are, and I don’t need to know. It doesn’t matter to me whether they are
documented or have a good credit rating [elsewhere]. It is the power of the [crowd] that makes it [work].
I don’t understand. This doesn’t help the Kiva model, [so this partnership] is rather surprising. what it does is it moves the Kiva model more to traditional banking where the importance of It [is a move] towards a traditional banking
[environment], where identity is over-emphasized. I would like to move to a world where lending is based
on the power of [the crowd] and decentralization, where default risk is spread across many lenders
and borrowers, so the need for identity is removed. This opens banking to more people. We don’t
solve poverty by creating more identity [systems]. In my opinion, we solve poverty by making
the demand for identity less prevalent. [We should be] opening more doors to the availability
of credit, commercial opportunities, and liquidity… to people who don’t have valid government identities. We will see. I am very skeptical about this. I don’t think the problem here is the fact that
they are using Hyperledger versus whatever else. It is the centralized origin of identity [documents]. The [risk of] default in third-world and developing
countries that have credit problems is not identity. [At least], I don’t that is the case, but who knows? Maybe this is a good project that will do
research and we can learn something.

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