Blockchain

SEPTEMBER 2023
Blockchain

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Table of contents

1. Executive Summary 5

2. Definition 7

3. Applications 9

4. Blockchain projects throughout the world 11

5. Blockchain Solutions from IDB Group 12

6. Recommendations for the development of blockchain projects 14

7. Best Practices for Blockchain Projects 15

8. Privacy and Security 16

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Authors: Alejandro Pardo Antonio Leal

Lucia Latorre Mariana Gutierrez
Marcos Allende Fernando Puerto

Contributors: Jennifer Nelson David Abensur

Sandra Corcuera Fernando Pavon

The TechReports are an initiative of the Emerging Technologies Laboratory of the

IDB’s IT department, known as TechLab, which is in charge of exploring, exper-
imenting, and disseminating information about new technologies to learn about
their impact on the IDB Group and the LAC region.

Acknowledgments: The IDB team would like to thank all the individuals who participated in interviews
and provided key information for this document.

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1. Executive Summary
Decentralized and immutable digital registers based on blockchain
technology make it appealing for the development of applications in the
public and private sectors where the integrity of the information needs to
be secured and transparent.

The IDB Group has embraced and promoted the adoption of blockchain
technology in the region. In order to develop the blockchain ecosystem
in Latin America and the Caribbean, IDB Lab and IDB’s Technology
department founded LACChain in 2019, a global alliance between
stakeholders from the public and private sectors to create an enterprise
and government grade blockchain infrastructure suitable for real life
solutions.

Some of the most relevant applications for the public and private sectors
include transparency in procurement processes, transparency and
verification of supply chains, health certificates, academic diplomas, and
digital assets.

Across the world, institutions and organizations are taking advantage of

blockchain technology to move forward their business and development
goals. These include the Ministry of Labor in Peru creating a system for
the verification of graduate certificates called Certijoven; Climate Trade
a company that aims to empower large-scale decarbonization, created
a system to track the offsetting of carbon emissions in Bolivia, and
Colombia’s financial superintendency and central bank approved the
issuance of the first blockchain-based bond in the LAC region.

Specifically, IDB Group has supported projects in the region including the
issuance of digital diplomas to graduate’s digital wallets, self-managed
domestic violence evidence collection, improved operations between the
custom administrations of the Pacific Alliance and four other countries
in LAC, proofs of concept of cross-border payments, and leveraging
the LACChain blockchain network as a regional trust registry aligned
with WHO1 standards, enabling LAC countries’ the issuance of health
credentials and its verification in real-time and in a cross-border manner.
ITE’s TechLab has made an observatory of solutions available with up-to-
date information on projects, vendors, and use cases.2

https://www.who.int/
1

https://idbg.sharepoint.com/sites/tech_lab#/observatory/technologies
2

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As a result of the extensive experience the IDB Group has gained

through working on blockchain projects, some key recommendations
when starting a new project are: (i) select a blockchain network before a
blockchain protocol, (ii) identify the project stakeholders to ensure project
completion and solution adoption, (iii) design appropriate application
program interfaces to integrate with the blockchain network. When it
comes to regulation, it is important to consider the use case rather than
the technology.

Lastly, it’s important to keep in mind the ethical use of the data involved
in the solution. All information registered in a blockchain network is
transparent to all participants and immutable. Therefore, no data with a
minimum sensitivity should be stored on the network.

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2. Definition
Blockchain technology allows the creation of decentralized and immutable
digital registers. The decentralized3 nature of these digital registers comes from
the distributed architecture and governance of blockchain networks, where there
is no central authority or single point of control, and blockchain’s distributed
architecture ensures a copy of the chain of blocks4 is replicated in the network
nodes.5 They are immutable because they only accept new entries and do not
allow the editing or deleting of previous ones. These entries are arranged in
blocks that get added by consensus and in a sequence to the original chain,
each block linked securely to the other.

These characteristics make blockchain networks appealing for the development

of applications in the public and private sectors, where the integrity of the
information is secured by the cryptography used in the technology.

Depending on the use case and requirements, and according to ISO blockchain
networks available today are6:

• Permissionless public: anyone can join at any time. Most of these networks
are generally linked to cryptocurrencies. They are open and transparent but
typically have high transaction fees and no privacy. Additionally, as participants
are using pseudonymous, it is difficult for transactions and applications to
enforce regulatory compliance.

• Permissioned private: a consortium of finite and well-defined entities that

deploy, run, and maintain all nodes. Generally, these networks are developed and
even maintained by a blockchain service provider. In general, private networks
do not have transaction fees (although there might be a fixed cost charged by
the service provider, if applicable), and allow for high levels of privacy. However,
these networks are not decentralized nor transparent, and their scalability
is very limited. In addition, they are usually designed for a single use case or
application. Examples of permissioned private networks include the hundreds
of private blockchain networks behind specific blockchain applications, the IBM

3
Decentralization: The transfer of authority and responsibility from a centralized organization,
government, or party to a distributed network
4
Block: After a certain number of transactions have been added to the ledger and consensus has
been reached among the nodes that the transactions are valid, they are then cryptographically
locked into a “block” and officially recorded. This “block” forms the basis for the next one; in this
way, they are all linked together in a chain.
5
Node: Public blockchains consist of a network of computers that synchronize the network’s
data, coordinate transaction requests, and participate in consensus regarding the validity of those
transactions; each one of these computers is called a ‘node’.
6
Source: LACChain Framework for Permissioned Public Blockchain Networks: From Blockchain
Technology to Blockchain Networks https://publications.iadb.org/en/lacchain-framework-
permissioned-public-blockchain-networks-blockchain-technology-blockchain

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FoodTrust, and the blockchain network of the Energy Web Chain by the Energy
Web Foundation (EWF) consortium.

• Permissioned public: these networks are open, transparent, decentralized,

and generally do not have transaction fees. At the same time, every participant is
identified so that both privacy and compliance with regulations can be achieved.
Examples of these networks are Alastria in Spain, led by an association of over
500 members; EBSI in Europe, led by the European Union; and LACChain in
Latin America and the Caribbean led by the Laboratory of Innovation of the
Inter-American Development (IDB Lab).

The IDB Group has embraced and promoted the adoption of blockchain
technology in Latin America and the Caribbean to empower vulnerable
populations, improve digital security, and strengthen trust in the economy. As
a result, LACChain was created in 2019 by BID Lab to develop the blockchain
ecosystem in the Region. Forging an alliance with stakeholders from the public
and private sectors, LACChain blockchain infrastructure is ideal for governments,
international organizations, and organizations, in general, that seek to use the
technology in a regulated space.

Within the LACChain project, LACNet was created as a non-profit independent

legal entity based in Uruguay to serve as an orchestrating vehicle for the
networks developed under the LACChain framework as well as other networks
developed in Latin America and the Caribbean.

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3. Applications
Blockchain has many uses, the widely known is the use of cryptocurrencies, as
for example Bitcoin or Ether, among others. In this report, we are going to deep
dive in the blockchain enterprise use cases where IDB is fostering different use
cases that will impact the lives of vulnerable populations in Latin America:

A. Digital Identity: Nowadays everyone has digital profiles on different

platforms, but this information is owned by the platform owner and used
according to their terms of service. Using blockchain technology to implement
Self-Sovereign Identity digital identity (DIDs) credentials can be stored in digital
wallets that are trusted, fraud-resistant, portable, interoperable, and privacy-
preserving. A digital identity owned by an individual can streamline the process
of obtaining benefits for citizens while enhancing privacy by curating personal
information to be shared with others.

B. Verifiable Credentials: Built on top of digital identity, a verifiable credential

(VCs) can be issued, held, and verified as a digital version of a title, such as
an employee identification card, digital birth certificate, and digital educational
certificate. Today, as an example, the diploma mill industry is worth more than
$200 million a year, issuing fake diplomas for an average cost of $1,000 for
a master’s or PhD degree. With a verifiable process on a blockchain network,
credentials are verified instantly without sharing personal data and ensuring
tamper-proof and decentralized information.

C. Cross-Border Payments: International money and value transfer demands

transactions to be settled and cleared in different trust registries, which in
most cases involves manual processes. These reconciliations usually take days
and lead to inefficiencies, risks, and higher fees. Blockchain technology allows
to represent value and assets on-chain using smart contracts, which allow to
automate the lifecycles of value and asset transfer. When value is exchanged
over blockchain networks, transactions can be settled and cleared in real-time
without any post-trade processes. This increases efficiency and reduces costs,
while also allowing for more transparency and auditability. Blockchain can also
be very helpful to enable better means for transferring international aid in the
form of official development assistance and conditional cash transfers, having
an impact on development and financial inclusion.

7
https://www.researchgate.net/figure/Some-Estimates-of-the-Business-of-Fake-Degrees-
Worldwide_tbl1_235976192
8
Smart Contracts: automated actions that can be coded and executed once a set of conditions is
met.
9
https://publications.iadb.org/en/cross-border-payments-blockchain8https://makeavideo.studio

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D. Traceability: Supply chain and international exchange of goods can

sometimes be challenging due to the number of actors and validations involved.
Technology currently appears as a disruptive instrument to favor this relationship
of trust, by providing mechanisms of verification and traceability10. Blockchain
technology at the end-to-end supply chain logic can be programmed into smart
contracts among participants, keeping a tamper-proof record of activities along
the supply chain for accurate, actionable, and immediate transparency along
the process11.

E. CBDC: Central Bank Digital Currencies are the digital version of a country’s
fiat currency that is issued and backed by a central bank. Unlike decentralized
cryptocurrencies like Bitcoin, CBDCs are centralized and controlled by a central
authority. CBDCs are being explored and developed by several central banks
around the world, including the People’s Bank of China, the European Central
Bank, and the Federal Reserve.

F. Digital Assets: Blockchain technology enables the tokenization of assets

using smart contracts to define their features, rules, and permissions. These
tokens12 could be identical to each other in value, such as cryptocurrencies, or
unique such as non-fungible tokens (NFTs).

10
http://www.revistasice.com/index.php/ICE/article/view/7291/7327
11
https://hbr.org/2020/05/building-a-transparent-supply-chain
12
Token: a token represents an asset issued on an existing blockchain.

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4. Blockchain projects
throughout the world
1. Across the world, institutions and organizations are taking advantage of
blockchain technology to advance their business and development goals. In
Peru, the Ministry of Labor launched a solution called Certijoven13 that allows
beneficiaries under 29 years of age to issue certificates for non-criminal
backgrounds, judicial, police, academic degrees obtained, or formal work
experience.

2. In Bolivia, Zero Hunger in Pando seeks to offset carbon emissions with

afforestation by issuing of SDG Corporate Securities based on Forest Carbon
Bonds, recognized by the United Nations Collaborative Programme on Reducing
Emissions from Deforestation and Forest Degradation in Developing Countries
(UN-REDD)14.

3. Similarly, Banks are testing the technology for potential mainstream uses
in the future. The Asian Development Bank will seek to develop ways to directly
connect in a blockchain network central banks and securities depositaries in
the ASEAN+3 region15, while Banco Santander issued the first $20 million end-
to-end blockchain bond16 opening the potential for a secondary market for
mainstream security tokens in the future.

4. The World Food Program’s Building Blocks17 enables the secure access of
multiple forms of assistance from different organizations via one access point
to one million people in Bangladesh and Jordan, making it the world’s largest
implementation of blockchain technology for humanitarian assistance.

13
https://lacnet.lacchain.net/certijoven-eng/
14
https://market.climatetrade.com/projects?id=386
15
https://www.adb.org/news/adb-develop-prototype-cross-border-securities-transaction-
system-using-blockchain
16
https://www.santander.com/en/press-room/press-releases/santander-launches-the-first-end-
to-end-blockchain-bond
17
https://innovation.wfp.org/project/building-blocks

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5. Blockchain Solutions
from IDB Group
The IDB has encouraged and supported projects across the Region. The following
are featured projects that showcase different use cases. For a complete list of
projects, please contact the Tech Lab or visit our Observatory of Emerging
Technologies.18

Blockcerts Caribbean

Blockcerts in the Caribbean leverages blockchain technology for the issuance

and management of digital diplomas in the Caribbean using digital wallets. The
IDB is working with the Caribbean Examinations Council (CXC), responsible
for the issuance of diplomas in 16 countries of the Caribbean, to enable digital
issuance, management, and verification of digital diplomas.

Ni1 +

Ni1+ facilitates the collection and self-management of administratively valid

evidence of violent acts to mitigate the effects of gender violence. This
application is accessible from a mobile device to record evidence and online
notarization, enabling administrative processes, and civil or penal complaints in
Colombia.

Proyecto Cadena

The CADENA Project is a blockchain-based solution for real-time exchange

of information regarding Authorized Economic Operator (AEO) certificates
among customs administrations. It involves customs agencies from the Pacific
Alliance countries (Colombia, Mexico, Peru, Chile), as well as customs agencies
from Costa Rica, Bolivia, Ecuador, and Guatemala. The CADENA project has
gained recognition from various international organizations and publications as
an innovative initiative in the use of blockchain within customs and international
trade. CADENA enables real-time interoperability between customs agencies,
enhancing efficiency and security in the supply chain. Currently, efforts
are underway to transition to production environments and to establish
interoperability with other public and private entities.

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LACPass

LACPass initiative aims to implement a regional pilot in Latin America and the
Caribbean countries that enables all countries, independently of their level
of digital maturity, to issue digital health certificates and records that are
recognizable and verifiable in every other participant country. The project is
working with LACCHAIN to learn about decentralized identifiers (DIDs) and how
to send vaccine certificates to digital wallets based on the verifiable credentials
standard.

Trazabilidad Fibra de Alpaca

Trazabilidad Fibra de Alpaca is the implementation of a traceability system for

the production, processing and commercialization of Alpaca fiber in Peru using
blockchain technology and digital wallets.

BME, BBVA and IDB Issue Spain’s First Blockchain-Based Regulated Bonds

The Iberclear subsidiary of Bolsas Mercados Españoles (BME), along with Banco
Bilbao Vizcaya Argentaria (BBVA) and the Inter-American Development Bank
(IDB), have issued the first bonds in Spain to be listed on a regulated market and
also registered.This platform opens the door for similar bond issues in Spain and
Latin America and the Caribbean.

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6. Recommendations
for the development of
blockchain projects
According to LACChain, blockchain technology should be used to register proof
of the information that exists somewhere else. Blockchain is not optimized or
meant to store sensible data nor large amounts of data and if large data is stored
in the network, it would overload the servers resulting in a poor user experience.

When starting a new blockchain project, the LACChain team recommends

following these steps:

1. Define the scope and use case of the solution in order to select the type of
network.

2. Identify the stakeholders and entities that will be part of the solution.

3. Identify the stakeholders and entities role in the solution.

4. Deploy the nodes and build the APIs and interfaces in a layered fashion..
Each node should have an identified owner and its own interface and API.

According to specialists in the Bank using blockchain in their projects, mention

that it is extremely important to ensure that the counterpart has the technical
and financial capability, to develop and maintain a blockchain solution over the
long term. Knowledge transfer is an important component in any kind of project,
but when the solution is based on an emerging technology, it’s imperative to
have the support of an expert willing to train stakeholders and the technical
team responsible for the solution moving forward.

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7. Best Practices for

Blockchain Projects
1. Select the blockchain network before the blockchain protocol

It’s important to understand the difference between blockchain protocols and a

blockchain network. Currently, there are several blockchain networks available
to choose from, but each has different protocols for specific use cases.

2. Establish stakeholders for each component of the solution

Blockchain-based solutions are meant to be decentralized, but that doesn’t mean

that it doesn’t require human intervention in key processes such as technical
and legal support. It’s important to do a stakeholder mapping exercise when
starting a project to identify key people, organizations, and processes and how
that translates to each component of the solution.

3. Design APIs to integrate with the blockchain network

Transparency happens as long as every actor in the network can interface with
the solution without intermediaries. This requires designing APIs to integrate the
designed solution with the blockchain network and leverage the decentralized
capabilities of the technology.

4. Regulate based on the use case

Blockchain simply registers the proof that information exists somewhere else.
How that information is used is what needs regulation. For example, how data
is being handled, depending on the type of data, privacy concerns, traceability
rules, etc. Blockchain as a technology does not need regulation.

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8. Security and Privacy

The Security team within the IDB’s IT department recommends that users
validate the supply chain of software components and assess the risk of using
third-party software components or libraries that may have inherent deficiencies,
such as encryption libraries or wallets with backdoors. Additionally, users should
follow recommendations for securely managing encryption keys or passwords
to prevent theft or other malicious uses.

On the other hand, everything that is registered in the network is immutable and
public to all participants. Therefore, no data with a minimum level of sensitivity
should be stored in the network. Instead, the blockchain only stores proof of the
validity of the information in the form of “hashes.”19

Lastly, it is important to note that the operation of blockchain relies on

cryptography, which may become vulnerable due to obsolescence caused by
the possible increase in computing capacity through emerging technologies like
AI and quantum computing, posing future challenges and potential risks. Once
quantum computing becomes real the cryptographic algorithm will be updated
(and be more difficult) to handle computing power.

19
Hash: In computing, ‘hashing’ is an operation performed on lists or sets of data to create a
reliable index for that data.

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Generative AI
September 2023

Blockchain
September 2023