How Bitcoin, Cryptocurrency, and the Blockchain will Impact Philanthropy

Over the past three years, I have been monitoring the growth in blockchain enabled technologies, primarily as they relate to cause-based organizations. The more I learn, the more I think this is a trend likely to continue gaining momentum. Occasionally there is an innovation that fundamentally changes the playing field. In my lifetime, I have seen the internet accelerate cause-based organization and then about a decade later I saw social media and data analytics do the same thing. Now, as the internet, social networks, and analytics are maturing two other fields are show a lot of promise for civil society organizations, one is the growth of deep-learning AI (a post for another day) and the other is the growth of blockchain tech.

This article is broken into three sections; the first provides a high-level overview, the second covers definitions, and the third provides examples of how the tech is or will be used in the philanthropic sector.

1. Introduction

While the banking industry is the first industry in the cryptocurrency cross-hairs, the underlying tech has the potential to disrupt many industries including the way we fundraise and how charities get work done. I follow the world's largest data brokers (Facebook, Google, and Amazon) very carefully. In the past year, I have become increasingly convinced that if anything poses a serious threat to these three firms, it is blockchain technology. I'll explain later. Let's turn first to Fidelity Charitable and what they are seeing.

Cryptocurrency is One of the Fastest Growing Donation Type to Fidelity Charitable

Recently, Fidelity Charitable (the largest charity in the United States) released their 2018 Giving Report in which they included a new section highlighting their fastest growing donation type, cryptocurrency. In 2017, Fidelity saw a tenfold increase in bitcoin and other crypto contributions. Fidelity, in 2015 became one of the first charities to accept crypto donations. In their first year, they received $7M in donations, and now in 2017, that number had increased to $69M.

In a recent interview, Amy Pirozzolo, Vice President of Marketing at Fidelity Charitable said:

Cryptocurrency is one of the fastest growing assets that we are seeing wanting to be contributed to charity. Many people who own bitcoin or other forms of cryptocurrency do want to be philanthropic

While this growth in donations is impressive and should not be underestimated, I am more impressed with the potential of the underlying technology. For those not familiar with the blockchain, bitcoin, and cryptocurrency, let's cover some basics first. Then I'll share a few ways I think cause-based organizations could benefit.

2. Definitions:

What is Cryptocurrency?

Cryptocurrency is a digital asset that uses cryptography for financial transactions. Cryptocurrencies are difficult to counterfeit because of this security feature. Bitcoin is the best known and first of 1,384 cryptocurrencies in circulation. Cryptocurrencies are based on eliminating traditional intermediaries like banks and governments. This decentralized feature makes them nearly immune to manipulation by individuals, governments, or central banks. Removing intermediaries also reduces transaction cost which many believe will allow banking to reach the poorest of the poor. Security is achieved through a decentralized system of nodes or computers verifying and certifying transactions. Transactions all take place peer-to-peer via the use of public and private keys and a distributed identical ledger maintained on each of the nodes of the network.

What is Bitcoin?

It is likely you have heard of Bitcoin. It has been hard to miss in the news over the last year. Bitcoin, launched in 2009 (one year into the world financial crash), is the largest and so far most successful worldwide decentralized digital currency that functions without a central bank. It is based on a peer-to-peer network where transactions between users take place without an intermediary. It solves the double spending problem in digital currency by verifying all transactions through a distributed digital ledger maintained and verified by a massive network of nodes, all holding and verifying each transaction in the system.

There are currently almost 17M bitcoins in circulation valued at an astounding $181 billion dollars.

What is the Blockchain?

For me, the blockchain is the most exciting part of this growing technology. While, the wealth being created via cryptocurrencies like Bitcoin is a trend fundraisers should stay up-to-date on, the underlying technology that enables these currencies is even more important. To define Blockchain, take a moment and watch the following videos.

Ethereum and Smart Contracts

Bitcoin was the first blockchain based platform. Since it's launch, another platform Etherem has been gaining traction. The central feature of Etherem is the innovation of something called Smart Contracts. Smart Contracts are digital contracts stored on a blockchain. They are smart because they contain programming logic that can automatically execute the terms of a contract. The Etherim blockchain, unlike the Bitcoin blockchain, allows for the creation and execution of smart contracts. These contracts are executed peer-to-peer without a middleman. Business processes and logic can be and are being turned into smart contracts and run on the Etherem blockchain. The following video is a nice overview of what smart contracts do and how they might be extended.

3. Impact of Blockchain on Philanthropy

We are still in the early days of what is possible with blockchain and cryptocurrencies. Some of the promised possibilities are still just that, possibilities. However, some of that value is here now. Here are just a few examples of how this tech can help civil society organizations.

Crypto-Philanthropy

The first and currently most apparent blockchain value-add is the berth of crypto-philanthropy. Already several organizations are accepting cryptocurrency as a donation. Most notable are the United Way, Greenpeace, the American Red Cross, Best Friends Animal Society, and Save the Children. Others are struggling to know what to do, as a recent Bloomberg Business Week article points out. One of the easiest, lowest hanging fruits for caused-based organizations is to establish a crypto-gift acceptance policy. With a policy in place, seeking out and developing relationships with your crypto-millionaires could make a lot of sense.

Bitcoin and Cryptocurrency Billionaires and Millionaires

In a somewhat ironic twist, (at least for Mark Zuckerberg) the Winklevoss twins (Harvard University) of Facebook's early day's fame now have an estimated $1.3 billion in bitcoin and are at least the most public about their crypto-wealth. They are not alone. The Winklevoss twins are among an MSN Money estimated 200 bitcoin billionaires around the world.

Have you ever considered adding to your development portfolio constituents or alumni with known and public crypto-wealth? It is not challenging to do this kind of analysis and begin developing philanthropic relationships. Here is a short sample list of individuals with at least $350M in crypto assets and their alma mater (hint, hint...if you are one of this institutions, this is someone you should probably know). Chris Larsen (San Francisco State University & Standford University), Joseph Lubin (Princeton University), Changpeng Zhao (McGill University), Matthew Mellon (Drexel University, Carnegie Mellon University), Brian Armstrong (Rice University), Matthew Roszak (Lake Forest College), Anthony Di Iorio (Ryerson University), Brock Pierce (University of Southern California), Brendan Blumer (unable to find a college), Dan Larimer (Virginia Tech University), Valery Vavilov (Transport and Telecommunications Institute), Charles Hoskinson (University of Colorado-Boulder), Brad Garlinghouse (Harvard and University of Kansas), Vitalik Buterin (University of Waterloo), Song Chi-Hyung (unable to find a college), Barry Silbert (Emory University), Blythe Masters (University of Cambridge), Dan Morehead (Princeton University), Tim Draper (Stanford University and Harvard University), Charlie Shrem (Brooklyn College), Tony Gallippi (Georgia Institute of Technology), and Michael Novogratz (Princeton University).

For perspective, if the estimated 200 bitcoin billionaires is correct, that would represent 13% of the estimated 1.5K traditional billionaires worldwide.

Estimates on bitcoin millionaires are even harder to pin down than the billionaires. A BitInfoCharts.com spokesman recently told Barron's that there are 23,943 addresses holding at least a million dollars worth of bitcoins, but it is impossible to know for sure. The number could be as low as 20K or as high as 200K. Bitinfocharts maintains a list of the top 100 bitcoin addresses here. Recently, Forbes created a new list they are calling the Cryptocurrency Rich List. According to the data they have gathered, the average age of this group is 42 compared to 67 for their traditional list.

Cryptocurrency has already created some billionaires, and like their traditional billionaire friends, there is a trend towards philanthropy. Several traditional billionaires have made the GivingPledge, a commitment to give a majority of their wealth to philanthropy. Crypto billionaires are also moving in this direction with the creation of the Pineapple Fund which encourages the crypto-wealthy to give "because once you have enough money, money doesn't matter."

There is one more class of wealth being generated via a blockchain feature called an Initial Coin Offering or ICO. I'll write about them in an upcoming article, but for now, ICO's enable a startup to generate capital without needing to involve traditional banks, lenders or venture capital firms. They pre-sell tokens at a stated value, raising the money they need to build and launch their blockchain based company. Theoretically, investors eventually make money off the initial offering, and the founder hopes to do great as well. A lot of wealth has been created (and lost) in the ICO world.

While philanthropy is the early mover, there are several other very interesting applications and potential applications of blockchain in the charitable sector.

Transaction, Risk, and Processing Cost Reductions

Because blockchain technology at its core reduces the need for middlemen there will yet be many cost-saving charitable organizations will find as they process gifts. While I am not aware of anyone implementing blockchain in this way, I won't be surprised if it happens.

Directed Giving

Since cryptocurrency is immutable and public, an individual donor in the foreseeable future could give and then track their donation right through a charity and into the hands of a recipient. Take a look at Helperbit and organization on the front lines. HyperGive is another interesting organization getting in the on the trend. Here is a brief video intro.

Micro-Donations

Right now it is difficult for an organization to consider donations below a certain dollar amount because of the transaction costs. In the future as cost drop to near zero campaigns like the failed Penny for London campaign might actually work.

Charity Coins

There are currently an early set of cryptocurrencies that have been set up entirely for charitable purposes. I am not sure any of them will take off, but they are, at the very least, laying the groundwork for a future charitable currency. GiftCoin, MissionCoin, Clean Water Coin, and Wishcoin are examples of charity cryptocurrencies.

Providing Banking to the Worlds Unbanked.

Organizations like the Bill and Melinda Gates Foundation and USAID have projects underway to provide bank services based on blockchain technology and greatly reduced transaction costs in the developing world. These and future charitable projects strive to make it easy for people to send money anywhere at very low costs.

Fraud Reduction in Program Expenditures

The World Food Program has been experimenting on Etheirums blockchain to help reduce fraud and track how donations are being spent. The results are promising, and more aid organizations are likely to adopt this practice to ensure money is being used appropriately.

Transparency of Donor Funds and Better Stewardship.

Organizations like Ant Financial a subsidiary of Alibaba Group and operator of Alipay announced their ambitions to increase the transparency for Chinese donors. Donors will now be able to track transaction histories and gain a clearer understanding of where their funds go and how they're used. This will also provide charities with the ability to more effectively deliver stewardship messaging that reflects the exact impact of a donors gift.

Conclusion

The blockchain is not a silver bullet for addressing all social challenges, but neither is the internet, social media, big data, augmented reality, machine learning or any other innovation in the recent past. However, I think this technology will continue to revolutionize how individuals and systems interact and exchange value. The Blockchain movement is still the wild west right now. There are con men and thieves, but there is also serious value being created, just as has happened in past disruptions. For organizations seeking to influence others and make a positive impact on the world, this is a technology you need to add to your to-do list. If we can help you think through your strategy, don't hesitate to reach out.