Governments contemplating social welfare programmes have to wrestle with two seemingly irreconcilable problems. On one hand, voters demand social welfare programmes to take care of the poor, sick, elderly and marginalized. On the other, governments need to prevent welfare spending from ballooning extravagantly and ensure that recipients spend the money wisely. In this article, I will examine the use of blockchain technology to develop next-generation food assistance programmes.
Blockchain technology is a step up above existing schemes such as Electronic Benefits Transfer cards. Properly designed, it offers the ability to significantly reduce instances of fraud and abuse, enable quick and accurate accounting, creates the opportunity to positively shape recipients’ diets for the better, and the technology is easily transferable to other benefits schemes.
And it can do this within the next five years.
Today’s technology can replace EBT cards and their equivalents with a blockchain-based platform that uses internal tokens and smart contracts. For this article, let’s call this token NutriCoin.
NutriCoin requires three distinct accounts: consumer, merchant and government. Consumer accounts may only receive tokens from the government account and spend them at merchant accounts. Merchant accounts may only receive tokens from consumer accounts and trade them with the government account for fiat. The government account sends tokens to consumer accounts and receives them from merchant accounts. No other types of transactions are allowed; thus, a merchant cannot use NutriCoin to buy fresh foods, and a consumer cannot transfer his tokens to another.
Every day, a recipient uses NutriCoin to purchase groceries, meals and other essentials from authorized merchants. This transaction takes the form of a smart contract, which states that the merchant will provide goods in exchange for so many tokens. The merchant then trades the tokens with the government for fiat. This second transaction is another contract, which states the government will pay so much in fiat for so many tokens. At the end of the day (or some other block of time), the government tops off every consumer account with a fresh batch of tokens.
NutriCoin isn’t simply a next-generation food stamp. Key to its existence is restriction: it can only be used to purchase specific types of goods from licensed and vetted merchants. A drug dealer won’t be able to get a license to sell narcotics, so he won’t be able to set up a merchant account. A legitimate merchant, such as a supermarket, can only accept NutriCoin for sales of certain kinds of pre-registered food. Further, as all transactions are recorded on the blockchain, fraud can be quickly detected.
In EBT fraud, an EBT cardholder sells his card to an unscrupulous merchant (say a clerk or cashier) for a fraction of its dollar value. The clerk then uses the card to buy food items to restock the store’s shelves or key in false entries to transfer EBT funds into the store’s account. The cardholder gets free money, while the store enjoys lower operating costs or increased profit margins.
NutriCoin eliminates this by making the transaction visible. If someone suddenly splurges his entire allowance at a store, the transaction will be recorded on the blockchain, including the smart contract that details the goods he bought. Discrepancies in the store inventory will prove fraud. The only way to hide this is to throw out the goods allegedly sold to the customer. Since these goods must now be replaced at market price using fiat instead of NutriCoin—as opposed using an EBT card to make tax-free purchases on the government dime—there would be reduced incentive to engage in fraud and would-be fraudsters would have to invest greater time and energy to develop ways to defraud the system. The government should also conduct snap inspections of NutriCoin merchants to ensure their honesty.
What about customer-to-customer fraud? In this case, a NutriCoin recipient sells his account and PIN to someone else for cash, allowing the buyer to commit NutriCoin fraud. To combat this scenario, the use of NutriCoin could be paired with identification documents, such as a driver’s license, passport or identification card.
As technology advances, NutriCoin wallets may incorporate biometric testing to verify the user’s identity, such as fingerprints or voice samples. After the user keys in his biometric password, the wallet is locked and cannot accept other users or new passwords. The act of keying in a fresh password (but not the password itself) will be recorded on the blockchain, and attempts to change that password without approval will also be noted and recorded. In addition to combating fraud, this also creates increased security for recipients in case their wallets are stolen.
Going beyond restrictions, NutriCoin can nudge people towards healthier living. Welfare recipients are on a tight budget, and so choose the cheapest and longest-lasting foods available. These are inevitably highly-processed and/or junk foods. A steady diet of such so-called food will inevitably lead to obesity, heart disease, diabetes and other illnesses, compounding the recipient’s woes. NutriCoin can prevent this.
The government can pre-designate a whitelist of healthy foods that can be bought with NutriCoin; no other types of food may be purchased with NutriCoin. The smart contract in every consumer-to-merchant transaction will record the type of food the merchant sold, and the merchant-to-government contract will consolidate these transactions for inspection. If there are any discrepancies, the police can again quickly track down the parties involved and examine the merchant’s stock.
While this whitelist should not include high-end luxury foods like organic quinoa or Wagyu beef imported from Japan, it would allow the poor to readily afford fruits and vegetables without worrying about whether they can afford it. By enabling NutriCoin recipients to afford healthy diets, this approach would reduce the incidence of chronic diseases in the long run.
To be clear, the government itself does not set the price for these foods. The merchants are free to decide what price they will set for them and whether to offer discounts for NutriCoin recipients. The government simply ensures that NutriCoin is used for buying affordable, healthy food. More restrictive states will also prevent the use of NutriCoin for buying junk food—which may or may not be desirable, depending on your political preferences.
The beauty of NutriCoin is its adaptability. Once the infrastructure is in place, the basic concepts can quickly be expanded to incorporate other services. This includes public transportation allowances for soldiers, subsidies for utility bills, tokens to pay for higher education or medical fees, NutriCoin POS systems for street vendors and hawkers, subsidised or free meals at food courts and hawker centres, and more. The sky is literally the limit.
There Ain’t No Such Thing As A Free Lunch
The technology described above either exists today or are evolutions of today’s technology. It may even be possible to have a testbed for the system within the next five years. But NutriCoin is not a be-all and end-all solution. It has a few costs which must be overcome or accepted.
The most obvious one is infrastructure. NutriCoin can only exist in a country with a high penetration of smartphones (with an app-based solution), commonplace use of the Internet to deliver services, and a robust information communication technology network. This presently limits its potential to the First World. Fortunately, countries that can contemplate the development of such a comprehensive welfare programme tend to be First World nations themselves.
However, there are still significant implementation costs. Recipients may only need to download an app on a smartphone or carry a hardware wallet. However, merchants will need to integrate this technology into their inventory and point of sales systems, and their bank accounts, requiring new hardware and training. Governments will need to drive development of the blockchain technology, enforce transactions, punish fraud and abuse, assess, approve and monitor recipients, and ensure system uptime. Such costs may well be considerable, especially for small independent mom-and-pop stores in neighbourhoods not served by supermarket chains. While development costs might be reduced through adaptation of existing blockchain and cryptocurrency technologies such as Ethereum, it will not eliminate it.
The next problem is privacy. This blockchain set-up means that the buying patterns of recipients can be monitored, and so can the activities of merchants. Anybody with access to the blockchains and user account databases can quickly and easily identify specific individuals and their patterns of behaviour.
However, since the recipients are beneficiaries of taxpayer money, shouldn’t the taxpayer know how his money will be spent? Perhaps privacy is not such a high price to pay to ensure that NutriCoin is not spent on narcotics or black market guns. One way to safeguard user privacy is to ensure that the records and blockchains are kept and administrated by an independent party, such as a non-profit government-linked organisation or a separate government agency. The police may not access these records without a warrant. Coupled with proper IT security planning, it may enable a reasonable expectation of user security and privacy.
The third issue is cost. Someone has to pay for the programme, and that someone is you, me and every other taxpayer. NutriCoin will be costly. It requires people to manage and administer the blockchain, hardware to keep the system going, police to enforce the law, and a whole new layer of government bureaucracy to ensure proper disbursements of tokens and money and to keep everything running. And that’s not even accounting for the costs of paying merchants when they trade in their NutriCoin.
Furthermore, If NutriCoin were restricted only to healthier foods, the government may have pay out more per recipient than SNAP. Healthy food tends to be more expensive than junk food. This is an especially tricky problem in countries like Singapore, which must import virtually all their foodstuffs from overseas.
Such food costs can be mitigated somewhat with ugly foods. These are irregularly shaped fruits and vegetables that are otherwise perfectly edible. Such foods are usually discarded because they do not meet a merchant’s standards for presentation. They can instead be sold to NutriCoin recipients at a discount, simultaneously reducing costs and food waste. It would not, however, eliminate the issue of cost altogether; it would simply make it less onerous.
A related issue is food deserts. It may be fine in principle to restrict NutriCoin to only healthy foods, but in food deserts, junk food may well be the only kind of food available. This may not be a concern in small countries and city-states like Singapore, but it is a pressing urban issue in America and elsewhere. While the ideal response is to figure out how to push healthy foods into food deserts, this is not a problem NutriCoin alone can solve.
NutriCoin is also not immune to other issues associated with welfare programmes. These include determining eligibility and means testing, how many tokens to dispense to recipients, how the entire programme can be funded and sustained, and so on. It becomes easy—indeed, it may even become necessary—for the government to pass tax hikes to continue funding NutriCoin and other such programmes, which opens a whole new can of worms altogether.
In my opinion, should there be a call for it, Singapore offers the ideal testbed for such a program. Singapore does not have a significant percentage of the poor and homeless people, but it does have a growing number of elderly people who will require assistance. As a First World nation, Singapore has the technology base to implement NutriCoin, and indeed is a regional hub for Ethereum development.
Food deserts are practically unheard of over here, as there is ready access to abundant amounts of nutritious food. Most the population is served not by mom-and-pop grocery stores or corner shops with limited selections, but by major supermarkets—including the Fairprice chain run by the National Trades Union Congress. As the sole trade union in Singapore, NTUC works hand-in-hand with the government. Fairprice enjoys the economies of scale to implement NutriCoin on a national level, its ties with the government would smoothen possible political friction. The major question is whether Singapore can afford to implement this programme, and, of course, whether the government wants to. After all, like with every social welfare programme, the government must pay for everything, and the cost will be passed on to taxpayers.
Blockchain technology offers an opportunity to develop enhanced welfare programmes for the poor and marginalised. The NutriCoin proposal laid out above allows the poor access to healthy foods and merchants to retain their profit margins. However, like all government welfare programmes, NutriCoin carries costs and risks of its own. The question is not simply how blockchains can overhaul food aid programmes and other welfare measures, but also whether such programmes are desirable. Before jumping on the blockchain bandwagon and overhauling welfare programmes, countries would do well to study the technologies and weigh the pros and cons of such initiatives.