Armanino Blog

How Blockchain and Cryptocurrency Can Impact Private Education

October 21, 2019

Blockchain and cryptocurrency will revolutionize a wide range of industries in many ways — including private education. Some of the impactful changes are still in an experimental phase, but the technology offers many immediate benefits to schools, including improved transparency and a broader donor base. It is also a potential solution to the pervasive problem of credentials fraud.

The Basics of Blockchain

Blockchain is a decentralized, immutable ledger in which the entries are secured by cryptography and each transaction must be agreed to by the majority of participants/nodes to make it into the ledger.

Decentralized: The network is "trustless" and is not controlled by a single, centralized party. In public blockchains, anybody that meets the hardware requirements can run a node and participate in the network. In private chains, permission is granted to new nodes by the existing nodes in the network.

Immutable: Transactions in a blockchain ledger are final and cannot be altered. These ledgers work like append-only databases with new transactions added to the ledger at select intervals. For example, every 10 minutes a block of new transactions is added to the Bitcoin ledger. This block, and all the previous ones before it, will never change and will always be available for anyone to verify.

Cryptography: This is the magic behind blockchain. It allows a user on a blockchain network to authenticate their transactions using their private key and the nodes to validate that the transactions were properly authenticated by that user without ever needing to know or reveal that private key. Advanced cryptography is even allowing users to transact privately on public networks.

What Is Digital Money?

Digital money is the native currency of a blockchain network. (Cryptocurrency such as bitcoin is one form of it.) Blockchains do not require a native digital money, but digital money requires a blockchain. The types of digital assets vary greatly across the different blockchain networks.

For example, the Bitcoin network is simple: The entire blockchain is just a recorded history of where the bitcoins are moving to and from. The Ethereum network uses their digital money to power "smart contracts" on the network (more on these later). Other blockchains use their tokens as a utility currency to access the services the network provides. Many private, enterprise blockchains such as Hyperledger do not have a native currency.

The Role of Trust in Education

Blockchain is often referred to as "trustless," and it will redefine the concept of trust in our society. Many institutions exist as trust intermediaries. From banks to lawyers to title companies to personal IDs, these models all afford some aspect of trust in a system. Blockchain allows us to transact and make agreements with others without the need for a third party to facilitate a transaction or mediate a dispute. It can also act as a durable proof of existence, removing the need for trusted record keepers.

One trust issue facing education is the problem of fake academic degrees and certifications, which are an epidemic worldwide. So-called "degree mills" have turned into a billion-dollar industry pumping out fraudulent credentials to job seekers willing to fork over cash instead of investing the resources required to obtain the degree properly. In the United States alone, there are more fraudulent Ph.D.s thanlegitimate ones issued each year, and the problem is even worse globally.

The issue of digital identity must be solved first, but this is where blockchain is set to make its largest social impact in education. Teachers, students, employers, accredited schools and certification bodies can implement and join a blockchain network acting as proof of existence for these records. Schools and certifying bodies can record grades, degrees, and certifications to a student's digital identity on the network.

These records will be private, immutable and secured by cryptography, ensuring that the data is legitimate once a student or prospective employee reveals the information to the inquiring party. This will drastically decrease, and perhaps eliminate, degree and certification fraud and lessen the administrative burden on schools and certifying bodies that put many hours into confirming credentials.

Other Blockchain Impact Areas

Other ways blockchain can help private schools include:

Transparency and accountability

Much of the news around cryptocurrency focuses on its privacy and anonymity. While these are desired features in many cases, blockchain also allows for incredibly transparent movement of money.

If the school chooses to do so, a donor sending money to a private school in cryptocurrency could see when and how their donation moves and how much of it ends up at the desired destination. For example, a school could launch a new fundraising initiative for the science department, and a donor could verify their exact donation went to a new set of microscopes and the floor tiling for a room in the new science hall.

Attracting a new donor base

Cryptocurrency is borderless and can be sent to anyone, anytime, anywhere. For private schools, this can open new donor target markets or new fundraising strategies.

Take for instance, a school plans to offer an after-school program for teaching students how to code on Ethereum as part of the new science initiative. Some crypto news publications could pick this story up and paste the Ethereum address for donations in the article, potentially yielding hundreds or even thousands of micro-donations as the story goes viral. In a world where moving value becomes as easy as sending an e-mail, many novel fundraising scenarios are possible.

Even in these early days of crypto, nonprofits and schools accepting it as donations have already benefitted. The Pineapple Fund, started by an anonymous early bitcoin buyer, has donated bitcoin worth over $55 million to a wide range of charities, such as The Water Project and EFF. In April 2019, Ripple co-founder Chris Larsen donated $25 million in cryptocurrency XRP to San Francisco State University — the largest gift ever made in a digital asset to a university.

With the growing market of stablecoins (cryptocurrencies designed to maintain a steady value) such as Facebook's Libra, donor demand to send cryptocurrency will only increase. Stablecoins offer all the benefits of crypto without the volatility that has held back bitcoin and others from mass use. In the case of Libra, it will potentially allow all the world's Facebook and WhatsApp users to donate in seconds with the click of a button.

Lowering transaction costs

In the fall of 2018, one person moved 30,000 bitcoin worth around $194 million for a fee of $0.10, a transaction that would have cost tens of thousands of dollars via banks. The recipient of the bitcoin had the funds ready to spend within an hour.

This demonstrates the powerful potential of transferring value digitally. With traditional payment systems, settlement time is measured in days. With crypto, it is measured in minutes, and one day soon will likely take just seconds.

What the Future Holds: Smart Contracts

Smart contracts are digital agreements between parties that automatically execute once certain conditions are met; the terms of the contract are contained in the code on the blockchain. Although they aren't quite ready for wide adoption, they offer a further glimpse into the not-so-distant future.

The potential uses for smart contracts are wide. For example, alumni or sponsors could initialize a smart contract with their school of choice stating that once they achieve a designated income or profit level, a percentage will be sent immediately to that organization. Or, a school could lay out specific goals in their annual plan and agree to a smart contract with a set of donors whose donations will automatically trigger as the school meets each objective or performance metric. A smart device can even be programmed to donate certain savings such as computing power or leftover electricity to a school.

Even more futuristic are sets of connected smart contracts that can govern the entire operation and management of a school. Known as decentralized autonomous organizations (DAOs), a few of these have popped up related to lending and crowdfunding. A school DAO would operate entirely on code and organizational decisions would be made by majority votes of the members of each DAO, such as the parents and alumni. They could run an entire private school in a decentralized manner through voting on key initiatives, how to spend funds, class structures, staffing, etc.

DAOs are still extremely experimental, but we're likely to see a successful iteration in the next few years.

How to Get Started

Blockchain already has practical applications for education. Benefits such as new donors, transparency, and lower transaction costs can be achieved currently by on-ramping your school into this new digital world. More and more foundations, nonprofits, private schools, and museums are accepting cryptocurrency for payment and donations.

Do you want to be ahead of the curve and prepare your organization for this exciting digital future? Lay the groundwork by getting involved in crypto and blockchain now. Check out our 10 FAQS for CFOs for more information on how to get started.

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