Social Innovation and the Blockchain
By: Marc Lijour
Tags: Governance, Environment, Social Impact, Esg, Blockchain

Social Innovation was the topic of my talk at the University of Toronto last November (2018). I promised the organizers that I would write a thought paper following up with my presentation. I will take this chance to leave some additional insights which didn’t fit into the precious time allocated on stage. Comments are appreciated. Let me start by sharing a little bit about my bias to make it clear where I’m coming from.

A social innovation bias

No stranger to the idea of working for the common good, I spent the first 20 years of my career as a public servant engaged in open innovation and volunteering abundantly for the not-for-profit sector. I was organizing Summer Camps and teaching kids before I could get a driver’s license. I made the jump to the private sector only recently, joining Cisco’s Industry Transformation Team in 2013, to accelerate the adoption of technology and innovation in the Education sector. Eventually, I started to spend more time working in other industries, especially in the Financial Services, the Government Services, and the Natural Resources sector last year. It’s during my tenure at ConsenSys that I gave this talk on Social Impact. ConsenSys is arguably the largest company in the world focusing on Blockchain, as a venture production studio that has incubated more than 50 startups since its inception in 2014.

As a mathematician and computer scientist by training, I’ve always been interested in the theoretical aspects of distributed computing and digital cash. I remember following quite closely the news on Slashdot, especially the Mt. Gox saga from humble beginnings to its walk of shame. I failed to get excited by the monetary angle and the technology was embryonic at best. Although I started following the Bitcoin phenomenon early on, I only started to delve professionally into Blockchain in 2016 after I got carte blanche from my team at Savoir-faire Linux (who have been following Ethereum and developing an identity application on it). I eventually jumped in entirely in the latter part of 2017 after the launch of ColliderX, a not-for-profit created to incentivize Open Source R&D in emerging technologies, particularly in Blockchain. As a twenty-year veteran in Open Source, it was a refreshing journey.

Lots of interest started to rise in 2017 about Blockchain and I felt that Canada should strategically invest on its people and its industry, considering Toronto was the birthplace of Ethereum and several other technologies. Together with the two Blockchain associations of Canada, as well as the Information and Communications Technology Council (ICTC), and the Blockchain Research Institute we raised $50 million in pledges that year for a proposition to rally industry, community, and government in a joint effort to strengthen Canada’s leadership in Blockchain technologies. Although this group, unfortunately, lost cohesion and eventually disbanded, I had a chance to witness the level of engagement of many of the players in the Canadian ecosystem. Eventually, we will come together as one voice at some point. We have to.

But what is social innovation?

On the Stanford Graduate School of Business’ website, we can read that

“Social innovation is the process of developing and deploying effective solutions to challenging and often systemic social and environmental issues in support of social progress.

To put it simply, Social Innovation is something we do to improve social and environmental outcomes. Let’s first start by asking “who” is the subject really exercising Social Innovation. For example, democratically elected governments, and the public service (the apolitical administration) can arguably not -and should not- drive social innovation. In democracies, the people are making those directional choices by electing the representatives they trust more to write legislation and to implement the vision of the people for the country. It would be wrong for a government (and public servants) to take a departure from their election platform to implement new ideas, as much as it would be to pretend they know best what’s good for us all, the people.

It is not to say that public servants should not contribute to social innovation, in fact, they often do. Social innovation is a process that spans the boundaries of any single sector and organization. It happens when all stakeholders collaborate to co-create a better system, and when they empower all actors to implement it. What the public sector can do -and should do- is creating the conditions for this innovation process to unfold.

For example, during my work at the province of Ontario (2006–2013), we experimented with human-centered design and with design thinking. We encouraged these practices across ministries, as well as the creation of a centre of expertise (inspired by the MindLab: the world’s first public sector innovation lab created in Danemark, sadly closed since then). We were so lucky to have Christian Bason visit MaRS where he inspired the Toronto social innovation community. Since my home-base ministry (Education) is especially data-oriented and evidence-driven, as any good academic would be, we were very fond of the Logic Model approach to plan and monitor system changes, and the use of SMART goals as one of the ways to foster continuous improvement and better governance of the school boards, which are accountable to the ministry.

Beyond the favourable OECD and McKinsey reports, I remember the strong leadership and the culture of knowledge-sharing that eventually led to Ontario leading the world in system change. We were receiving more than a hundred foreign delegations every year, all wanting to hear how we were doing it. Interestingly, we didn’t change the system to centralize power, and we didn’t make all the decisions at the ministry, but we made our partners (the school boards) stronger while empowering the main actors (the teachers) to play their role as efficiently as possible, by giving them the support they need. I believe that giving a voice and proper support to all the actors was the key to tearing down long-standing systemic barriers to social innovation. The Student Voice was the brightest and most precise compass directing us to improve schools. Students as young as early teens had no taboo addressing the most sensitive issues such as student suicide, equity, and well-being. Eventually, all the actors in the education system did was to act in concert to improve student success and well-being.

Secondly, we should note that social innovation is focusing on both the social and the environmental. In my experience, the Youth are the most vocal and the most truly committed about the environment. Sadly, older generations have been at best very lenient with environmental practices or lack thereof, but voices have started to rise to noticeable levels. For several decades, many business leaders have argued that the aim of corporations should not exclusively be the pursuit of profit for their shareholders. The idea of a triple bottom line emerged, emphasizing that firms have also a duty to care about the people and regions they do business with (and eventually hiring), and they should care enough about the environment to maintain livable conditions for their customers and for their employees alike. Standards such as the GRI standards emerged to provide guidance to business leaders.

On the contrary, followers of Milton Friedman have argued that the only legitimate social responsibility a firm may have is to use its resources effectively and exclusively to the aim of increasing its profits, for it is its only purpose and raison d’être. They believe the invisible hand of the free market will make sure that all is taken care of. There is no reason, according to them, to deviate a corporation from its true purpose.

Nevertheless, social innovation leaders have made significant progress in recent years, by focusing on the concept of sustainability, which derives from three principles: Environmental, Social, and Corporate Governance (ESG). Investment firms such as BlackRock evidenced that sustainable investment funds have better performance than traditional ones. In end, it seems that economic interests and social & environmental interests converge after all.

My team and I are spending quite a bit of our time in the ESG space these days, developing technology for a promising startup. The Sustainability.Exchange is one of the 9 winners of the Green FinTech Challenge working with the UK regulator (the FCA). We’re leveraging the Gnosis prediction market technology to create real-time and forward-looking ESG ratings data for investors. Prediction markets have appeared to be very good predictors of “where the puck is going to be”, while traditional analytics is looking through the “rear-view mirror” with historical data. Better data will lead to better investments, which will accelerate the trends towards ESG investments across the globe. We’re greasing the wheels of investment with better data and analytics.

In conclusion, Social Innovation is a complex process because it involves several individuals and organizations with seldom conflicting priorities working together. Leveraging data, scientific rigour, and modern approaches to innovation will accelerate the pace of change. At the end of the day, people are driving social innovation: communities (groups and associations), business and community leaders, and the rest of us: investors, consumers, educators, innovators…

Who is responsible for social innovation?

Going back to the definition, we should ask who is responsible for “social progress”? We all are. That is certainly the principal reason why social innovation is so slow and tedious. It needs the participation of the many, and the simultaneous approval of the many. Contrary to democracies, which have a way to make decisions with a simple majority rule, social innovation projects often require all stakeholders to be on board (so they can make the required changes in their respective areas or silos). In these conditions, a single veto can often derail or stop the process altogether. Meanwhile, a group could oppose a decision for good reasons or short-sighted reasons, individuals can seldom block a process for ill-advised personal reasons, even when it could benefit the group they represent.

The major problem I have observed in my public sector and not-for-profit career is precisely this centralization of decisions in time and space. Everybody needs to agree on the same thing at the same time. If that sounds hard that’s because it is. In the public sector, getting more than 5 decision-makers in the room at the same time was already a serious challenge. It becomes exponentially more difficult as more stakeholders are involved, and as the issue becomes polarizing. In these conditions, only the simplest and smallest step can ever be made forward.

What if we could democratize progress by pushing decision-making to the edge (ultimately to the people)?

Enters Blockchain, a technical solution that shines for i) managing and implementing decision-making through automated consensus, ii) creating incentive structures that can nudge participants into behaving constructively, and iii) creating trust and transparency by securing access, enabling mechanisms of proof, and making records tamper-resistant.

I won’t dive here into the details of what is Blockchain and why its properties work almost magically the way they do to create a layer of trust in business and social activities alike. Authors such as Paul Vigna and Michael Casey are doing a far better job than I ever could in their recent book “The Truth Machine: The Blockchain and the Future of Everything.” The readers will also find in the book a good summary of the main episodes of the Bitcoin and Blockchain saga, where they will learn about the main characters and the historical references that are key to understand today’s Blockchain community.

Suffice it to say that the ethos of this community is against the establishment, the “too big to fail” corporations, and the oppression of the common folks who have become the “product” rather than the true beneficiaries of the digital world. This community believes in equal rights, in collaboration, in transparency, and in equity. It’s no surprise that social innovation has been one of the first areas of intense progress in this space. I expect this mindset of empowering every single human being will eventually become the modus operandi on this planet. Blockchain technology, much like the Internet in its time, will provide the rails for our collective intelligence to realize great wonders while compensating and treating everyone fairly.

Social Innovation in the Blockchain space

In the following section, let’s look at a few examples of practical applications of Blockchain in social innovation.

Wealth and Financial Services

The first application of Blockchain, before the term was even coined, is Bitcoin. My first use of Bitcoin has been to send money cheaply and almost instantaneously to my family abroad. In the research for a talk I gave to retail bankers in 2016 I realized the commission charged by the incumbent players was close to 15% (way to high in my opinion). It would go up as high as 30%, in the poorest countries (where the options are limited of course -a perverse effect of the law of supply and demand). At the time, the World Bank had said that a 5% reduction in remittances prices could save up to $16B per year. If you asked me, this money should better go in the pockets of the most fragile populations: those who feel obligated to send a family member abroad so they can feed their children at home.

At the time of this writing (April 2019), the World Bank says the average cost of sending remittances is 6.94%. It is still quite high, but for the last few years, a good number of challengers have been launching their services at much lower commission rates: Abra, Transferwise, Xoom (Paypal is in the game), and many others. Bitcoin still works fine of course, and it has become easier to use with the popularization of ATMs (about 700 in Canada alone according to Coin ATM Radar). However, newer applications are the easiest to use, as people don’t need to figure out what Bitcoin is, nor learn how to securely manage crypto-assets and dealing with taxes.

Financial service providers (including the banks) have been using Blockchain technology to create this improved user experience. HSBC announced it has settled $250B in trades on Blockchain in 2018 alone. The Royal Bank of Canada partnered with IBM for their US/Canada cross-border payments. ConsenSys has several interesting case studies on cross-border payments, real-time gross settlement (similar to project Jasper in Canada, but for the South African Central Bank), and a very interesting financial inclusion project in the Philippines (i2i) which can lead to a fully digital and blockchain-based national currency. This is where I see the action going for the near future, especially as the IMF and the World Bank encourage these practices.

In recent months, we’ve been working with Société Générale (aka SocGen) to accelerate innovation in Africa. This project goes back to my roots of driving corporate change from the inside out. After training a select group of intrapreneurs on Blockchain applications for the Enterprise (especially financial services), we went into corporate hacking. In the end, a startup was selected to pursue its dream of helping wannabe entrepreneurs gain a better access to financial services, while improving trust and security thanks to a Blockchain layer. Eventually, it will end up helping everyone take control of their data, positioning African populations competitively in the global economy. West African countries are already experimenting a record GDP growth. I’m proud of contributing in some capacity to this initiative lead by SocGen.

Saving time and especially money to people is indeed a good idea. People are tired of paying too many taxes and fees while barely making ends meet (e.g. Gillets jaunes in France, the rise of populism across Europe and the Americas). At the same time, the global debt doesn’t seem to get under control and, ten years after the last financial crisis, many people are worried that governments will have to save “too big to fail” corporations once again. According to the IMF, “On average, the world’s debt now exceeds $86,000 in per capita terms, which is more than 2½ times the average income-per-capita.” (emphasis added)

While the debt levels remain high, wealth is increasingly concentrated in fewer hands. The number of billionaires has doubled since the last financial crisis according to Oxfam (see the infographic below). The cryptocurrency community believes that Blockchain will democratize investment, allowing regular people to participate in otherwise inaccessible economic rent flowing from the capital. Initial Coin Offerings (ICOs) and Security Token Offerings (STOs) can be the poor man’s IPO. All kinds of financial instruments, including cryptocurrency-backed debt and derivatives, will contribute to further democratizing this field (e.g. Celsius, and 3iQ in Canada). The financial institutions are after the cryptocurrency pie as well (e.g. the $2.5 trillion life insurance market in France, Fidelity’s $7.2 trillion in client assets).

I mentioned earlier our work with the Sustainability.Exchange. Prediction markets are implemented with Blockchain technology as a game rewarding those who are providing the best data forecast. This novel approach has several interesting benefits. Participants are incentivized to report data and insights about corporate ESG performance. They are also self-curating the data, keeping each other honest. Finally, the Open Source nature of the Blockchain technology ensures a fair level of fairness, allowing everyone to audit how fairly the game works.

Maybe more important for those who don’t have a lot of capital (or otherwise more debt than savings), Blockchain can help them get a better return on their work. It has been hard for certain categories of value creators to capture the fruit of their labour, particularly artists. The many intermediaries (studios, publishers, managers, etc) were already eating their margin, but the digital revolution has further limited their ability to even get paid. Access Copyright, a Canadian not-for-profit that helps creators and publishers, has launched Prescient to explore the future of rights management and content monetization. The first step forward is an Attribution Ledger that keeps track of the relationship between a creator and his or her work of art.

A few years ago, ConsenSys funded Ujo Music, to connect artists and fans directly. What if singers and musicians could self-publish their art and avoid both traditional intermediaries and newer ones such as Apple Music and Spotify, which are known to flow very little money back to the artists? With Youtube and other social media, many have become producers. What if they could become “solopreneurs”, and get rid of the intermediaries? The Gig economy and the rise of the freelancer is a growing trend beyond the art world, as the CEO of Oxygenmat explains on Forbes.

Kevin Owocki has launched Gitcoin (Gitcoin is not a coin) to help software developers earn money working on Open Source Software projects that benefit everyone. Today, coders using Gitcoin get paid up to USD$62 an hour. The positive portfolio effect popular on GitHub, still works: about 25 developers were picked up by head hunters. Gitcoin is on a good trend, making it easy for developers to focus on what they do best.

The Bounties network goes one step beyond Gitcoin to make every type of work available to freelancers. Construction, cleaning, art, marketing, algorithm design… anything works. Last December, the platform launched a Bounties for the Oceans in partnership with Coins.ph to clean up Manila Bay. Anyone could receive the equivalent of USD$10 for picking up trash. The Bounties Network has a mechanism to manage the proof of (human) work so that people get paid fairly.

Social Good

Beyond financial literacy and financial inclusion, there are more Blockchain applications that improve human condition across the globe. Here are a few examples.

Hala Systems is a US (for-profit) social enterprise aiming to protect populations living in war zones. The team is using several emerging technologies. Blockchain is used to provide immutable evidence that events took place. When bombing occurred, for example, you’d like to maintain evidence of it so that people can eventually be taken accountable. Hala Systems is using a public Blockchain to secure that information.

NeedsList is developing a registry for humanitarian aid. They used Blockchain to maintain a decentralized list of much-needed resources such as food and clothing required for disaster response. NeedsList is a finalist at the SXSW Interactive Innovation Awards this year (2019).

The project Bifrost is another humanitarian project to help populations in needs. ConsenSys, MakerDAO, and Dether have partnered to move funds to charities on the ground more efficiently. Blockchain is leveraged to move money (fiat) through a cryptocurrency rail using stable coins (a cryptocurrency that is pegged to the US dollar, or any other fiat money).

To improve worker welfare, Harvard, Levi Strauss and ConsenSys developed a Blockchain application that enhances factory audits with self-reporting. The project is deployed in three Mexican factories employing 5,000 workers. This is a step forward that can help global brands enforce high standards and governance in their complex network of subcontractors abroad. Both Nike, Gap and H&M have been suffering from backlash in past sweatshop scandals that impacted their brand, and their economic profits as well. Blockchain is a solution allowing to govern a very complex supply chain while keeping everyone honest.

Millennials have set new standards through their consumption and their relationship with the brands. WhatRocks aims to disrupt the advertising industry by becoming the leading label for social impact advertising. Consumers earn Rocks (coins circulating on Blockchain rails) when they view ads showing the WhatRocks label. They can use these Rocks to make a donation and to get free or discounted event tickets. Blockchain makes possible the use of the Rocks cryptocurrency securely and efficiently.

Unfortunately, facts and evidence are under attack in Western societies. Everyone has in mind the so-called “alternative facts” that suddenly appeared in the American public discourse -if such a thing can actually exist. Civil has put together a Blockchain solution that is designed to keep everyone in check about their facts. The team fights for a professional and independent journalism, a true civil discourse, and the freedom of the press. Again, Blockchain proves to be an ideal tool to keep everyone honest about their data. Let’s dream with them about a future when we can all agree on the facts.

The environment

There are a fair number of Blockchain projects aiming to improve the environment. I already mentioned the bounty to clean the oceans. During my work at ConsenSys, I must have encountered a handful of projects on carbon pricing across several continents. Blockchain allows the measurement and tracking of anything. Carbon units can be sold on peer to peer market places allowing price discovery and near immediate settlement. Blockchain is ideal to enable those market places.

Luxarity is an interesting social venture that educates the fashion-conscious consumer and fostering sustainable and responsible consumption. Luxury goods can have a second life in a secondary market, whereby some of the funds are donated to charity. The Blockchain enables this secondary market while ensuring the donation are effectively transferred to the intended party.

To protect the fish population, the World Wildlife Fund has worked with Viant on an initiative to demonstrate food provenance. The project Bait to Plate helps customers understand what they’re eating. Unfortunately, the majority of fish labelled Tuna is not really Tuna. Again, blockchain is an ideal record of the facts, and a database that modern applications (Dapps) can use to create delightful experiences on our phones.

We can start imagining collaborative tools built on Blockchain anyone can use to monitor the tree population, any type of living organism, and location in this planet. The first step to make and enforce laws is to secure hard evidence. Blockchain can be the global database that everyone can trust. As it seems, the development of applications leveraging Blockchain technology is just getting started.

Let’s do more

We can mention only a few examples of social innovation projects leveraging Blockchain. It is only the beginning. There are (only) 2,000 application (DApps) on the public Ethereum network today (the largest number as far as I know). There will be many more. Looking at the future, let me share some parting thoughts.

1. Social Innovation

It may be wishful thinking, but I think that Social Innovation is becoming a common mindset across Wall Street and Main Street alike. Business leaders and everyday people have begun to envision work, life, and play through a social and environmental lens.

2. Blockchain

The Ethos of the Blockchain community is aligned with the spirit and methods of Social Innovation. Blockchain draws from the best technical and social practice, from the Open Source community and from the social activists who have risen after the 2008 financial crisis.

3. We are all in

Social Innovation requires everyone to participate. Blockchain, pushing decision-making and ownership to the edge of the network, empowers every one of us to take control. The locus of control is shifting to the edge.

4. Barriers to innovation are low

Technology has given everyone a voice through social media, and the ability to create an app from a dorm room and to deploy it in the cloud with lunch money. Grants are available from the not-for-profit organizations (e.g. Ethereum Foundation, AION Foundation, Bitcoin Foundation) to improve Blockchain technologies. The big IT organizations continue to offer grants for social innovation projects. More importantly, investment in social ventures is rising.

5. Canada is home to Blockchain technologies

Canada is a great place to start a business. Toronto is the cradle of many leading Blockchain technologies such as Ethereum, Cosmos, AION, Shyft… and the home of world-class development shops. That’s where I decided to launch the Metamesh Group, a new consulting practice focusing on making business, life, and society more purposeful and impactful, leveraging new technologies such as Blockchain.

Ping me if you’d like to be part of this adventure!