Can cryptocurrency become the UN money of the future?

International organization, decentralized currency
International organization, decentralized currency
Image: AP Photo/Gillian Flaccus
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The UN may not be the most innovative of institutions, yet it does, with surprising frequency, experiment with new technology and solutions. In recent years, it’s undertaken initiatives that incorporate artificial intelligence, virtual reality, and blockchain technology.

These projects often remain confined to the realm of experiments. But a recent undertaking by UNICEF, the UN agency tasked with providing aid to children around the world, now offers what could be a glimpse of the future: The Cryptocurrency Fund, which collects contributions in cryptocurrencies, and then doles out those donations in the same currency. No exchange needed.

The crypto fund is nested within another UNICEF venture, the Innovation Fund, which provides seed funding to blockchain-based companies developing products or services that could potentially be of use in social and development settings.

Beginning in October 2019, UNICEF has been outfitted to receive donations in two cryptocurrencies—bitcoin and ether—with the first donation coming from the Ethereum Foundation, the organization that created ether. So far three organizations have received funding through UNICEF’s crypto fund.

As it does in other settings, cryptocurrency presents opportunities and challenges for UNICEF and, more broadly, the whole UN system. Cryptocurrencies are volatile and vulnerable to scams and money laundering. But they are also highly traceable and, when it comes to the UN, could some day provide the international organization greater independence from the countries that make up its members.

Charity, but make it crypto

The Innovation Fund, and the crypto fund that’s part of it, is managed by an office at UNICEF that handles projects that incorporate technology like drones, machine learning, blockchain, and other advancements. So far, the Innovation Fund—which amounts to $25 million—has supported more than 20 companies with seed money, up to $100,000 per investment.

The projects funded vary—from digital prescription services, to drug delivery, to mobile networks. To receive funding a project must be based in so-called emerging or developing markets, work in a field with a market cap of $1 billion, and work with open source technology. There are no limitations, however, to the field in which the company operates, nor must it provide an immediate social good. Atix Labs, for instance, an Argentinian blockchain developer and a fund recipient, provides services to high-profile clients like Nestlé and Honda.

Since the opening of the crypto fund, a portion of the Innovation Fund’s investments are now made in cryptocurrency. The donations made into the crypto fund aren’t converted into fiat currency, but given out in the same cryptocurrency in which they were received, so the recipients need to be familiar with blockchain technology and cryptocurrency.

A move toward transparency

“Digital finance is going to change pretty significantly how we work as an organization,” Sunita Grote, who manages the Innovation Fund, told Quartz. “There was a need to prepare the organization to be able to leverage the kind of emerging technologies in that field to make us more efficient.”

UNICEF is an organization with an annual budget of $7 billion that makes a lot of financial transactions. “The sheer volume of the funding that we move means that any gains in efficiency, any increases in transparency, could have quite a significant impact on how we operate as an organization,” Grote said.

As a large international organization with many layers of bureaucracy, each donation to and from UNICEF has to go through several steps, and digital currency makes that process much easier to track—and much quicker to complete. According to Grote, transactions that could take months to get through the required levels of authorization, can happen in a matter of minutes with blockchain-based currencies, because the required authentications can happen exponentially faster.

In this sense, the crypto fund is a way to “grease the wheels and build up that muscle memory internally,” Grote said. “We can imagine that, a couple of years down the line, we would be making more transactions in digital currencies at greater volume.”

Although it is small, and likely to remain such for the foreseeable future (Grote dismissed the idea that there may be a future in sight where the UN works exclusively in digital currency), the potential seems significant, in particular given the fact that the fund doesn’t convert back to other currencies. This means that where today the cryptocurrency donation received is transferred directly to a blockchain technology development company, in a faraway tomorrow the recipient could be an employee receiving a salary.

All that glitters isn’t crypto

While the program has worked so far, there are several issues that the use of cryptocurrency at the UN raises, beginning with volatility. The value of cryptocurrencies can fluctuate dramatically, and while UNICEF says the fact that there is no conversion and donations are made to and from the fund in the same digital currency, that doesn’t necessarily eradicate the issue. For instance, the donation made by the Ethereum Foundation in October was 100 ETH, or about $18,000. It is now worth roughly $22,700.

“Companies may be used to dealing with cryptocurrency, but most still need to pay bills in a local fiat currency,” Angus Champion de Crespigny, a cryptocurrency expert and managing director of technology at strategic firm C|T Group, told Quartz.

There are other issues to consider, like the risk of hacking and scams related to cryptocurrency accounts, or the fact that volatility can make it hard for a government to track exactly how much money is being donated and received, which raises money laundering concerns.

There is also the value organizations like the Ethereum Foundation derive from having UNICEF use their currency—a situation made more complicated by the fact that Ethereum Foundation itself was the first to make a large donation to the crypto fund, and that the organization’s persistence was reportedly behind UNICEF’s embracing of blockchain and crypto currency. The lobbying seems to have paid off: Ether seems to be the go-to currency for UNICEF’s crypto transaction, and is being tested in its Kazakhstan office, where the agency has set up a system to make internal payments in ether.

“A recognized public institution such as the UN accepting and distributing bitcoin and ether is of course a vote of confidence in their respective ecosystems,”Champion de Crespigny said. While this isn’t intrinsically a bad thing, it can have enormous impact at a stage when the value of crypto currency changes so dramatically, and getting the endorsement of a large international organization might help propel the value of the digital currency.

While these potential problems are all of concern, Grote said the UNICEF’s crypto fund acts as a sort of test case, allowing managers to learn from the issues that arise and design protocols and best practices to address them—ultimately helping to potentially introduce the use of cryptocurrency across the whole UN system.

International organization, decentralized currency

There is also an important political component to cryptocurrency—perhaps best revealed by Facebook’s Libra. Although the social network’s currency experiment has yet to take off, it revealed the potentially disruptive power of decentralized currency. It is the first instance in which a currency is associated with a community that exists independently of the currency itself. In a way, Facebook’s users are to Libra what the citizens of a country are to that country’s currency.

This concept can become particularly powerful in the case of an international organization like the UN. Despite being an institution comprised of numerous member countries, until now it’s been forced to use national currencies. There have been proposals to introduce an “international currency” backed by a reserve of state currencies, but no real action has been taken in that direction. Cryptocurrency, which is not associated with any national banks, could be an alternative way to relieve the UN of having to rely on the currencies of individual countries, giving it a new level of independence, and perhaps even more international authority.

After all, what distinguishes cryptocurrency is its decentralized nature.

“Many would argue that bitcoin’s sole value proposition is to allow people and entities to be independent of central banks,” Champion de Crespigny said, in which case “non-sovereign organizations could absolutely use assets such as bitcoin to remain as independent as possible from all parties in a not-too-distant future.”

That is, however, at least in theory, and with the usual caveat applicable to cryptocurrency, that it’s still too early to understand with any degree of confidence whether it is the gateway to a new economic—and political—future, or just a fad.