The Use of Blockchain for Charity

Introduction

Every new technology was once an idea. So was the blockchain technology in the latter part of the 20^th century. It was no more than an obscure computer-science idea. Hardly could one imagine that it would rule the scientific and financial world a few decades later. The advent of Bitcoin in 2008 proved the worth of blockchain technology. In the scientific world, institutions now use it for transparency and freedom. Charity institutions have also started using it to solve various problems.

Problems Faced by Charity Institutions

Information asymmetry is the most serious problem plaguing charity institutions. Donors are often reluctant to give away their money due to the fact that they do not know where their money is going. If a person is donating a good part of their earning, they have got every right to be provided the money trail. One solution is to hire an intermediary to make things fair and transparent. But observations testify that this solution may aggravate the problem as the intermediaries themselves get involved in corrupt practices like embezzlement and misappropriation of charity funds.

Blockchain for Charity: What Blockchain Solves

What Blockchain technology offers in this situation is a public, tamper-proof ledger that takes any bad practice out of equation. Smart contracts on the blockchain ensure programmable money. Disbursement is subject to the conditions programmed into the smart contract.

On the whole, there are 3 areas where the introduction and implementation of Blockchain technology brings improvement in the management of charity organizations. These three areas are visibility of funds, programmability of disbursement, and the friction of cross-border transfers.

Visibility issues are solved by the public ledger. Trust of donors is strengthened when they see their donations reach their destinations without being exploited by any malpractice. Usually, donors feel hesitant to ask the organization to provide the details of expenditures. Blockchain technology makes every single financial as well as managerial activity public. Not only can donors track their own payments, but they can also view the record of other donors.

Third World Problems

Furthermore, many rich companies want to donate money to the charity organizations in underdeveloped countries but step back due to unrestrained corruption there. Unfortunately, their reservations are justified as reports show that several non-governmental organizations in the third world exist solely to get money apparently for the poor. In actual, the charity money is the livelihood of the members who run those NGOs. Value of foreign remittance stands them in a good stead socially and financially. If donors set the condition that the donation will be carried out only if blockchain technology is introduced and all transactions be made on chain, it will solve the murky visibility of funds, cross-border transactions issue and trust issue.

Intermediary: A Problem Rather than a Solution

As hinted earlier, hiring of an intermediary in an organization can be counterproductive in that they can misappropriate donations. They can tamper the records of the organizations or diverge funds to another destination for personal benefits. The worst thing about such a situation is that the culprit draws salary for all the bad practice.

In many third world countries, corrupt clerical staff raised eyebrows when the government started digitalization of the manual record. Their disapproval was the result of the fact that they would no longer be able to tamper the record and hide the files to force the affected people to grease their palms. In exactly similar way, there are loud voices rising against the blockchain technology from the sectors that have been benefiting from lack of transparency.

Concrete Use Cases and Examples

Founded in 2013, BitGive is the pioneer organization to have used blockchain technology and Bitcoin in their philanthropy network. GiveTrack is their flagship program that publishes donation transactions and links them to milestones or receipts. As a result, donors can verify how their funds are used. These steps increase donors’ confidence and remove the trust barriers.

In 2019, UNICEF launched CryptoFund to receive, hold and disburse funds in the form of cryptocurrencies, mainly Bitcoin and Ethereum. Areas like healthcare, education, and digital inclusion get attention of UNICEF when utilizing the fund. One thing that distinguishes this fund from other blockchain-based funds is that while other funds convert cryptocurrencies to fiat currencies, CryptoFund utilizes received and held funds in their original forms.

Conditional and Outcome-Based Disbursements

An amazing feature of blockchain technology in the management of charity funds is the ability to disburse funds conditionally. For example, smart contracts can be programmed so that the funds should be disbursed only when a new well is dug or required vaccines are delivered to the children of an impoverished region.

Faster Humanitarian Transfers and Cash Aid

Ironically, the areas that need money the most and fastest are the areas that have improper banking services. Using traditional financing system, it is a challenge to accommodate the needy of those areas. Crypto payouts are much faster than banking systems. Pilot programs have explored using stablecoins for this purpose.

Furthermore, non-fungible tokens and token launches have been used to raise funds and create ongoing revenue streams for causes.

Challenges and Limitations (Technical, Legal, Ethical)

Donations in the form of cryptocurrencies have to be converted into fiat immediately lest the value against USD plummet. Volatility of cryptocurrencies makes crypto donations less than ideal. Funds in the form of stablecoins help mitigate the risks arising from volatility.

Many countries have very strict anti-money-laundering rules that take crypto transactions into their range. Donors and receivers may land in trouble unintentionally. It is wise to check the local legal framework before proceeding with blockchain-based crypto transactions as illegal and unethical activities, no matter whether done advertently or inadvertently, make you liable to penalties.

Although blockchain tech is highly useful in philanthropic networks, scams and hacks can mar the advantages. Fraudulent charity tokens, fake fundraising campaigns, and phishing schemes can exploit donors’ trust, diverting funds away from genuine causes.

Bottom Line

Donors have always been trusting the recipients blindly for centuries. Blockchain technology brings accountability, verifiability, trustworthiness and transparency in charity organizations. Money trail can be viewed by anyone. Disbursement within the organizations has also been overhauled by making transactions conditional to outcomes. In short, charity has been revolutionized by blockchain-based financial system.