One of the big promises of blockchain is that it can reduce costs by eliminating or reducing the role of intermediaries. And charities are intermediaries, helping to transfer money from donors to people in need. Could blockchain, then, eliminate charities? Not entirely, but it could make them much more effective.
Blockchain-based smart contracts, a type of code that self-executes when a certain condition is met, could manage donors’ funds more effectively than charities sometimes do, with no overhead and with funds only being released to support specific projects that donors have selected and only when certain conditions or milestones are met. Platforms such as Alice even make sure donors can redirect their funds to other causes if the charity fails to meet the promised milestones. While Alice uses blockchain technology to manage donations, givers can contribute in fiat currency.
Some charities — Red Cross, Save the Children, United Way, the Wikimedia Foundation, and the Electronic Frontier Foundation, to name a few — accept donations in cryptocurrency. So does Fidelity Charitable. The 501(c)(3) associated with the brokerage Fidelity Investments received cryptocurrency donations totaling $69 million in 2017.
Because the IRS categorizes cryptocurrencies as assets, both charities and donors get a major benefit from donating them. Investors save on capital gains taxes by donating appreciated assets directly. Charities receive the full value of the assets since they are exempt from paying capital gains taxes.
Charity Industry Challenges Blockchain Can Help Solve
- Donations have been declining. According to the Chronicle of Philanthropy’s June 2018 report, the percentage of Americans donating to charity has dropped from 66 percent in 2000 to 55 percent in 2014
- Too much of donors’ money goes to charities’ overhead expenses, whether because of mismanagement or because staff and office space are expensive
- Some projects get funded and others don’t. Small donors have little to no control over how charities use their donations
- There isn’t enough transparency regarding how charities use donors’ contributions
- Charities spend lots of time completing regulatory paperwork, which takes time away from fulfilling their mission
- The administrative costs of hiring local organizations to put donors’ money to work mean charitable dollars don’t go as far as they could
- Charities can get away with misreporting their expenses and saying that more of donors’ money goes to fund projects than actually does
- Settlement times for transferring funds from charities to beneficiaries are too slow
- Donations wind up in the hands of corrupt officials, especially in unstable countries abroad
- Donations are stolen or distributed too slowly after natural disasters such as hurricanes and earthquakes
- Donations made in foreign currencies or securities are volatile
The United Nations World Food Programme conducted a blockchain-based test project with refugees in Jordan. Using biometric technology, refugees were able to acquire food by having their irises scanned. They didn’t need cash, vouchers, or payment cards, which could have been stolen or used for purchases other than food. Refugees’ food entitlements were recorded on a private blockchain. This system made it more likely that refugees would actually receive the food they needed since no cash or cash equivalents were involved in the transaction.
The use of blockchain by charities, as with all industries, is still largely experimental, and there are more ideas about how it could work than proven projects, especially long-term ones. But the technology has promised to accomplish what enthusiasts hope it can.
How Blockchain May Disrupt the Charity Industry
With blockchain, we can:
- Create a stable coin that eliminates the volatility problem of donations made in foreign and cryptocurrencies
- Track exactly how a charity uses a donor’s contributions to encourage efficiency and accountability and root out corruption
- Reduce fees for transferring money internationally so that almost all of a foreign donor’s contribution actually goes to charity
- Enable smart objects such as buildings, vehicles, and appliances to donate their spare capacity to charity
- Reward good actors in the charity space for their transparency
- Provide immediate financial support directly to victims of natural disasters faster than banks, governments, or aid agencies can and with much lower transaction fees
How It May Impact Donors
Shifting charitable giving to a blockchain could:
- Give donors voting rights based on contribution size and reputation. Increasing donor involvement could increase donations
- Build donor trust, thereby increasing the dollar amount of donations and the number of charities that receive meaningful donations
- Help donors decide where to spend their charitable dollars by making charities that provide blockchain-based transparency more attractive targets for donations
- Offer donors a new way to make donations and a better way to make anonymous gifts
- Allow donors to give intellectual property to charity using colored coins
How It May Impact Employment
Blockchain in charitable giving may:
- Shut down charities that don’t offer blockchain-based transparency and accountability
- Create opportunities for visionaries to build out new models of charitable giving
- Eliminate jobs in charities with bloated payrolls
- Cut administrative jobs as blockchain handles certain financial and reporting tasks and allows for direct transfers between donors and recipients
- Add jobs for blockchain-savvy coders