Top 3 Ways Blockchain May Affect Non-Profits
Matthew Schroeder
Marketing Lead at Tearfund Canada | Nonprofit strategy | Consultant | Networker | Published Writer
Today there is a lot of buzz about “bitcoin”, “blockchain”, and “cryptocurrencies”. You might be thinking – “Ok, what exactly is a blockchain? And how does it affect me?” If you are, than this article is for you.
Blockchain is a decentralized ledger of all transactions across a peer-to-peer network. Transactions can include anything that has value associated with it – currency, physical assets, bonds, services, contracts, and IP. There are three key features to blockchain technology. The first is that it is distributed. The ledger runs on computers provided by volunteers around the world. There is no central authority or database. Second, the blockchain is public, anyone within the network can see the ledger. Third, the whole system is encrypted. Every 10 minutes transactions are verified, cleared, stored in a “block” which is linked to a preceding “block” – creating a chain. In order for the block to be valid, each block must refer back to the preceding block. This protocol makes it vitually impossible for anyone to alter the ledger because altering one transaction would require re-writing the entire history of the asset on the chain.
Confused yet? OK, perhaps the below diagram created by PwC will help.
www.pwc.com/us/en/financial-services/fintech/bitcoin-blockchain-cryptocurrency.html
OK, I understand blockchain (sort of) but what is bitcoin?
Good question. Bitcoin is just one of many “cryptocurrencies” developed on a blockchain platform. Basically it is code that is recognized as currency and can be exchanged with other parities. It is one of the more popular ones, but there are many others.
So does this affect me in the charitable sector? How so?
No… and yes. Although blockchain is still much in its infancy it is starting to gain traction to the point that governments and banks are starting to pay attention. May people think it is a question of “when” and not “if” blockchain will change the world much like the internet did. Since blockchain is basically a ledger of trust, it is very relevant for the charitable sector. Let’s dig in.
3 ways blockchain may Affect charitable giving
1. By increasing donation accountability
Over the past few years donors have become increasingly scrutinizing of charitable activities. Plagued by scandals, donors are increasingly of giving to charities not knowing if their donations are going to their intended purposes. Since blockchain is public it is transparent. Also, since it is digital there is the possibility of writing “smart contracts” associated with donated funds. For example, a donor could write a piece of code associated with the donation to ensure the money only gets released if certain conditions are met. This certainly will force charities to re-think how funds are used and how they communicate why they do activities the way that they do.
2. More Mircro-donations
Although large donations often make the headlines it is often smaller donations from the ge neral public that keep the lights on. Micro-donations have been around for many years now, but with blockchain they can be taken to the next level. The cryptocurrency Bitcoin can be subdivided up to at least 8 decimal points and occur zero transaction costs when transferred. This may make it possible to build unnoticeable micro-donations into everyday purchases. Imagine millions or billions of transactions allocating unnoticeable micro-donations to charity – it may be a way for charities to secure steady sources or revenue
3. New ways of tracking value
Blockchain isn’t limited to recording cryptocurrencies like bitcoin it can literally record anything that has value associated to it; including untraditional methods of value like livestock and even intangibles such as trust reputation.
In many parts of the world people lack financial inclusion because they do not have access to financial systems or they do not track wealth in traiditonal means. Blockchain can address these two problems. Being digital, anyone with a mobile devide and an internet connection can participate in blockchain. Furthermore, being decentralized, there are essentially zero transaction costs associated with exchanging, borrowing, or loaning assets with another person – anywhere in the world! This makes it possible for a remote farmer in Nigeria to transact with someone else in Berlin easily.
What will he exchange though?
Good question. With blockchain it is not necessary that people trade based on state currencies, they can trade anything they see as valuable. Trust for instance can be used as a currency of exchange. For instance, a person can participate in small transactions all verified on the blockchain platform. If known to fulfill her obligations others will validate this and her trust profile will improve. This trust profile, if strong enough, will help other vendors be confident that she is trustworthy in other parts of the world. Potentially allowing her to acquire new loans, services on credit, etc…
The power of the blockchain in addressing financial inclusion is evident. If realized, this may help lift millions out of poverty greatly reducing the number of NGOs needed in some parts of the world.
Challenges
Blockchain, although having great potential, is still very much in infancy and there are many challenges associated. To state the obvious, blockchain runs on the internet – something not all people have. Additionally, some form of basic literacy is needed to take advantage of blockchain. There are also legal and regulatory challenges. Currently cryptocurrencies are extraordinarily volatile and are considered similar to stock rather than currency by many tax authorities. Finally, like any technology, blockchain can be used for good or evil.
Questions to ask yourself
Although it may take a few more years until blockchain is being used mainstream, charities in the meantime can ask themselves the following questions:
- What effect will emotionless giving have?
- What will we do if blockchain makes our charity irrelevant?
- How will we respond to 100% transparency?
- How can we use blockchain technology to become more effective?
So is blockchain relevant to you?
Perhaps. Some charities are already starting to take blockchain seriously and some even accept cryptocurrencies such as bitcoin as donations. Blockchain in the end should be seriously considered by charities and other organizations within Canada’s social sector. For more information feel free to download the free white paper which goes into more depth around how blockchain may disrupt the charitable sector.