Getting to grips with Blockchain and cryptocurrency can seem ‘cryptic’. But these innovations have some clear benefits for the charity sector.
Blockchain is a technology that could have a huge impact on the charity sector and philanthropy, helping to manage and distribute funds in a secure and transparent way. Businesses and governments are already using blockchain innovations in wide-ranging use cases.
But what exactly is it, and why does it matter?
Blockchain and cryptocurrency can seem like enigmatic buzzwords, and the maths is certainly complex, but the ideas behind them are actually not too difficult to understand. Getting familiar the basics is worthwhile as blockchain becomes more widespread and commonplace.
The basics of Blockchain
Blockchain first emerged in 2008 because secretive transactions over the internet needed enormous trust between buyers and sellers or banks to mediate. Anonymously penned by a mysterious unknown person known as Satoshi Nakamoto, a white paper was released that suggested a way to eliminated the need for a bank to intermediate between buyers and sellers.
The idea is relatively simply – blockchain is essentially a ledger of transaction data that is owned and maintained by all users of the system. Random actors in the market act as ‘nodes’ to verify and make sure that transactions added to the ‘blockchain’ are real. These transactions are encrypted and added onto the public ledger – this ledger discourages fraud because it ensures complete transparency of all transactions carried out, and is always tracked and verified. Nothing can be altered once it’s in the ledger and it guarantees security against any kind of data manipulation.
Once released in 2009, the open-source code for creating blockchains gave birth to cryptocurrencies – digital currencies built on Blockchain technology that are not linked to any government or centra bank. Bitcoin, the most well-known cryptocurrency, now serves as a bell weather for the value of cryptocurrencies, such as Ethereum and Litecoin.
Now that digital currencies have been firmly established, charities have the opportunity to engage with a new set of donors. Looking across borders, fundraising platforms that accept cryptocurrencies are the easiest first place to look for charities to starting out.
Far more than just a gimmick, the benefits of cryptocurrency for charities include the ability to track and trace donations with complete transparency, improving trust with donors. Digital fundraising can be transformed on a wider scale, by enabling charities to accept payments from anywhere in the world without the need to pay foreign exchange fees or consideration of currency exchange rates.
For charities working in difficult parts of the world, the ability to trade in non-geographic currency can also be a massive benefit.
Large charities have signed up to new currencies for online charity fundraising campaigns. Big names from UNICEF to the Salvation Army have registered onto the platform cryptogivingtuesday.org to accept Bitcoin, Ethereum, and other cryptos.
While not yet as established as US counterparts, there are handful of UK charities accepting Bitcoin and other major digital currencies – Breast Cancer Support and the Royal National Lifeboat Institution, for example. English Heritage, by signing up to Giftcoin, is also dabbling in Blockchain technology, which allows it to communicate with donors about how and where their funds are being spent.
Blockchain’s verifiable trail of transactions has helped bring transparency to the use of funds by enabling donors to track their gifts. And by using Blockchain to mine the unused processing power of donors, platforms such as Give Byte aggregates and translates unused computing capacity into money towards good causes.
While not all charities have subscribed to Blockchain or cryptocurrency fundraising, there is interest and funding behind exploring the technology. In 2018, for example, the Information Commissioner’s Office (ICO) launched a round of grants to support innovative solutions for charities.
Targeted at Blockchain for charities, the ICO’s funding was made available for independent projects supporting privacy developments. The collaboration between BitGive and the University of Edinburghfocusing on the applications of cryptocurrencies for charities is another example of the significant interest in blockchain for charities.
Breaking the code
Cryptocurrency for charities, being not as established as major hard currencies, has its drawbacks.
One is the lack of understanding around Blockchain. One of the earliest cahrities to adopt cryptocurrency, the RNLI started accepting digital currencies in 2014.
In an interview with the Guardian, Luke Williams, the RNLI’s social media and innovation officer at the time, said: “Any initial reservations were often based on a lack of knowledge. There have been negative stories and we discussed these, but we felt that, on balance, this was a technology that we should know more about. We took time to understand how it worked and to figure out how we could accept donations in the most secure way.”
The more glaring point for charities to note is the price volatility of cryptocurrencies. In the first week of July 2019 alone, the price of the most widely traded cryptocurrency, Bitcoin, ranged from a low of £8,668 to a high of £16,118 – the remarkable range makes it difficult for charities to make financial plans around the value of the currencies they have to hand.
But this volatility can work to the advantage of both donors and charities. The appreciation of cryptocurrencies can be advantageous in that a donor may donate purchased cryptocurrencies at low prices, leaving charities with the appreciating pricing upside.
Looking to the future, transparency is key to how Blockchain can be used to trace the whereabouts of donor funds. “The idea that transparency, public ledgers, and non-fungible units are all around donation transparency. Pretty much all the live projects have transparency as one of the key features,” said Rhodri Davies, Head of Policy at CAF, in an interview on how blockchain will impact the charitable sector.
While blockchain and cryptocurrencies may still be mysterious to many, the growing interest, funding, and donor possibilities have excited many more in the charity sector, prompting not only individual charities to accept cryptocurrencies, but support for pilot projects to encourage its wider adoption.