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The philanthropic benefits of blockchain technology for charities

Multiple research reports from the Charities Aid Foundation sing the praises of blockchain technology and spell out the use cases for charities using the blockchain with their organizations.

The Charities Aid Foundation (CAF) has a mission, to motivate society to give more effectively, thereby helping to transform lives and communities all over the world. The UK registered charity dates back to 1924, when it was created by the UK government’s National Council of Social Service.

The global organization now operates in over 100 countries on six different continents, providing services and assistance to charities and their donors, including banking, lending, investments, and fundraising services. The Charity manages over £2.5 billion in funds, while supporting over 50,000 non-profit organisations and social enterprises.

According to a CAF report released in March, charities are facing hard times right now and are desperate for new solutions. The report is published in partnership  with the Association of Chief Executives of Voluntary Organisations (ACEVO).

Sir Stephen Bubb“ACEVO’s polling in the last few years has consistently showed demand for charities’ services to be going up while funding for the sector is getting scarcer.”
— – Sir Stephen Bubb, ACEVO Chief Executive

CAF Chief Executive Dr John Low added that “Charities provide support and opportunities that neither state nor private enterprise can offer. They connect and bond our communities…While governments and corporations come and go, charities remain, underpinning and bringing people together in a common cause. If charities suffer, the people they serve suffer too.”

CEOsNine out of ten CEOs surveyed in the report said they are always looking at ways to improve operations, with 80 percent looking to invest specifically in IT/new technology and online solutions.

The organization has since been studying the use of Bitcoin and blockchains, in order to better the charitable donation process. There have been a further two reports for clients all about bitcoin and cryptocurrencies, authored by CAF’s Giving Thought policy program leader, Rhodri Davies.

The first report, released in May, is called “Giving a Bit(coin) – Cryptocurrency and philanthropy.” Davies explores how blockchains could be the solution to charities’ transparency problems,explains how cryptocurrencies work for the non-initiated, and mentions some crypto charities such as BitGive, and concludes with the “Current State of Crypto-philanthropy.”

Davies sounded enthusiastic throughout while originally concluding that "cryptocurrencies do not represent a game-changing development for the nonprofit sector at this point." However, he urged charities to not discount Bitcoin as irrelevant to philanthropy, even though they are not part of the mainstream right now. “There are features of the way they work that are very likely to be replicated in other technologies in the future and which have potentially significant ramifications for charities.”

Then last week, they released another report called “Giving Unchained: Philanthropy and the Blockchain,” which explores the use of cryptocurrency in charitable donations. This time, Davies has far more hope for using cryptocurrency for philanthropy, as evident in the report’s depth of exploration into bitcoin, cryptocurrencies, and the nature of the blockchain itself, in relation to how they can help all charities.

The findings in this report were more substantial and convincing. It was divided up into sections that talked about the blockchain, trust, smart contracts, digital assets, and the Internet of Things. In each section, the findings could be easily be described as disruptive or industry-changing, either in an exciting or scary way.

rhodri davies“While very few charities or donors may at this stage even be aware of the blockchain, it seems almost certain that the technology is, in one form or another, going to play an increasingly important role in the years to come. Those who want to prosper in this new environment would thus do well to think through the implications now.”
— – Rhodri Davies, Giving Thought Policy Program Leader

CAF believes this report is the first to explore blockchain implications for charitable giving. In summation, Davies spelled out six implications of this technology that no charity should ignore, and should keep in mind during all future organization planning starting now.

Starting with “radical transparency,” Davies explained that the ability for donors to watch what happens to their donations is a powerful way to build trust, but it does come with drawbacks too. “This may offer benefits in terms of increasing levels of trust but it will also present real challenges.”

While the report makes clear that the more trust an organization has, the larger its donations can be, there may be such a thing as too much transparency because most donors typically want to see their donation go ‘to the front line’ of a cause, and not get spent on supporting issues or office work, which is less glamorous but just as necessary to pay for. Some charities such as BitGive, the first Bitcoin 501(c)(3) nonprofit, is already offering transparency using this technology.

connie gallippi v11 150x150“This technology provides a way to show the flow of funds in a transparent way that is public and broadcast across thousands of computers all over the world.”
— –  Connie M. Gallippi, BitGive Founder & Executive Director

Next up was “Low or zero transaction costs,” which would boost financial efficiency at charities. In his opinion, this is one of the most compelling reasons for charities to get involved. “By removing the need for third parties to manage transactions and record-keeping, the blockchain can massively reduce or even remove transaction costs,” according to Davies. Some charities are already benefiting from the low-cost aspect too, including the Water Project, which is also collaborating with BitGive.

Peter Chaase“The blockchain and Bitcoin present an incredible opportunity to dramatically lower our costs to transmit money to countries like Kenya. At the same time, it can also enable a shift to real-time, end-to-end transparency into how nonprofits like ours put donations to good use.”
— – Peter Chasse, The Water Project’s President

“New types of Assets” was an interesting plea for digital assets that could represent anything philanthropic, including donations themselves. “Blockchain technology will open up the possibility for transactions in all sorts of new types of assets where this was previously impractical or impossible.”

In “Sharing replaces Ownership” he pointed out that blockchain technology could work in conjunction with the sharing economy in a way that would  lead to an exponential growth of the latter, which would give charities more ways to help than by simply donating items to those in need. “It may also open up new avenues for philanthropic action, as unused capacity replaces outright ownership as the relevant transferable commodity.”

Davies seemed most taken with the promise of “Smart contracts with philanthropy clauses,” suggesting uses for them like an automatic donation of leftover energy or profits. He said that “the development of smart contracts holds huge potential for philanthropy.” Thinking ahead, he saw "an obvious opportunity" to use this as a way of giving, as well as a business opportunity to "partner with companies that could enable such contracts."

Finally, in “Philanthropic smart contracts,” he went so far as to suggest that smart contracts could be used with smart objects in the Internet of Things to algorithmically govern the funds for a philanthropic project, although it would likely only work in projects where the emotional connection isn’t as strong as usual. Smart objects could potentially be enabled to "act philanthropically without the need for constant human involvement," he wrote.

Taken all together, these six statements about what is possible with blockchain technology may be some of the most forward-thinking ideas about the blockchain ever put to writing by someone outside of the bitcoin industry. If most charities were to see these reports as intended, charity as a whole could very well become an extremely solid foundation for bitcoin and cryptocurrencies to jump into the mainstream from.

“This technology [blockchain] has the potential to revolutionise the way charities work…The answer to some of the biggest challenges charities face today – raising money, increasing transparency and trust and improving their effectiveness in supporting their beneficiaries – could lie in a technology which is likely to become increasingly mainstream in the not-too-distant future."
— – Davies


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