Blockchain Applications: Charitable Giving
As a promising but early-stage technology, blockchain is surrounded by hype and misinformation. It’s frustrating and hard to know where to begin learning about how blockchain can be used, especially when it comes to the social impact space. I wanted to avoid the hype by looking for real-world applications of blockchain that are being used today, right now, to see how organisations are currently using blockchain technology to improve lives around the world. This is the first of a series of articles I am writing for the Blockchain Philanthropy Foundation on how blockchain can be used for social impact.
For this article, I searched for and found five blockchain initiatives that are improving transparency and efficiency across the charitable giving sector. Many of these projects are still at the pilot stage of partnering with charities and non-government organisations to collect data and test the technology. Nonetheless, they are already showing the types of problems that blockchain can solve and where this technology is moving. While blockchain continues to evolve and many risks remain, it is inspiring to see what is already being done with the technology and to start thinking about the opportunities ahead.
In the first section, I highlight some of the problems that the charitable giving sector is trying to solve. While most charities do amazing work, high-profile scandals and a lack of transparency have reduced trust and confidence across the sector. It is also very costly for charities to transfer funds and operate in countries that need developmental aid. These are problems that many organizations recognise and are trying to solve.
In the second section, I look at how and why blockchain technology could help solve those problems. In particular, I look at what early-stage blockchain companies are already doing to improve transparency, security and accountability in charity donations and spending. The case studies also show how blockchain technology can significantly reduce a charity’s administration and financing costs. This is particularly true for international charities that provide services to countries with poor or corrupt financial services and infrastructure.
Additional detail is provided on each case study at the end of the article. While it is too early to fully evaluate these projects, these case studies demonstrate global interest, recent success, and strong potential for blockchain technology in the charitable giving sector.
What are the problems in charitable giving?
Trust and confidence in charities has been declining around the world due to various high-profile scandals and a general lack of transparency in charity spending. The Australian Charities and Not-for-Profits Commission reported that public trust and confidence in Australian charities have steadily declined from 37% in 2013 to 24% in 2017. Additionally, 16% of Australians have heard or seen something about charity wrongdoing. The most important explicit factor influencing trust in charities is the perceived worthiness of the cause(54%), followed by the proportion of funds going to those in need(51%).
“Australians think it is important for charities to provide information regarding donation use. It is evident that transparency around donation use is fundamental for establishing trust.” ¹
Media stories about charity scandals and high administration costs have also significantly reduced the level of trust in charities around the world. In the USA, about 35% of people surveyed have little or no confidence in charities. Only 13 percent said charities do a very good job of spending money wisely.² In the 2018 UK Love Charity Research report, 45% of people said their trust in charities had fallen over the last year, of which 71% said it was due to concern about how charities spent donations.³ As trust falls, so do donations. Charities need to improve transparency or they will continue to lose donor support.⁴
The high cost of transferring funds around the world is another challenge faced by the charitable giving sector. Each year, over US$600 billion in aid finance is distributed globally to address development and humanitarian challenges. Traditional banking systems charge high fees to transfer funds, especially across borders, and these transactions can take weeks, even during a crisis response.⁵ As funds cross borders into countries with poor or corrupt systems, it can be almost impossible to trace funds from end-to-end, creating the potential for mismanagement and losses.
How can blockchain help?
Blockchain technology’s features of immutability, accountability and security make it a promising technology to improve transparency and efficiency for charities. These 5 case studies show that blockchain is realising at least part of that potential by providing solutions to collecting, tracking and disbursing donations:⁶
Case Study #1: World Food Program — Syrian Refugees, Jordan
The WPF is using blockchain technology to automate and track cash-for-food aid to 100,000 Syrian refugees in Jordan. Financial service fees have been reduced by 98% and blockchain is making these transfers more efficient, transparent and secure.
Case Study #2: Alice Funding Platform — St Mungo’s, United Kingdom
Alice is a social funding platform that uses blockchain technology, and specifically smart contracts, to help charities collect donations but only transfer payments to charities when predetermined milestones are achieved.
Case Study #3: Amply— School Subsidies, South Africa
The Amply platform use blockchain to help South African teachers save 4,000 hours every month, by digitally capturing and verifying class attendance records needed for government subsidies.
Case Study #4: BitGive — Chandolo Primary School Water Project, Kenya
BitGive, a bitcoin donation platform, bypasses banks and financial institutions to make transactions faster, cheaper and more secure. Their GiveTrack platform allows donors, non-profits and the public to see when donations are received and spent in real time.
Case Study #5: AIDChain — AidPay and AidCoin Cryptocurrency
AIDChain is a giving platform that charities can use to promote projects, collect and manage donations. AIDChain has developed a payment gateway, AidPay to allow charities to accept cryptocurrency donations on their own platforms. They have also created AidCoin, their own cryptocurrency, to drive AIDPay and the AIDChain ecosystem.
Many of these global initiatives have gained support from traditional charities, non-government and government organisations. In the case of the World Food Programme, blockchain technology is being used in conjunction with digital identity technology to successfully automate and track cash-for-food aid to 100,000 Syrian refugees in Jordan. Financial service fees have been reduced by 98% and blockchain is making these transfers more efficient, transparent and secure. The program has been so successful that World Food Program is expanding the program to cover all 500,000 Syrian refugees in Jordon by the end of 2018.
Organisations like Alice and Amply are using blockchain, and specifically smart contracts, to help charities collect donations but only transfer payments to charities when certain predetermined milestones have been met.⁷ By integrating independent verification of milestones into the system, these results-based financing platforms create transparency and trust. They can also significantly reduce costs and improve efficiency by automating much of the checks and balances required.
The Amply platform helps school teachers digitally capture the school attendance records required to get subsidies from the South African government. The Amply mobile app enables schools to automatically gather attendance data and submit it to the government. Blockchain infrastructure behind the app ensures that a third-party evaluator verifies the attendance records. Since the pilot began in November 2016, the project has recorded 81,168 attendances for 3,327 children across 87 Centres and 122 service providers. Amply reports that it has saved teachers over 4,000 hours every month.
As a new form of wealth, cryptocurrency owners are a potential new source of donations that are, by themselves, more transparent and efficient. In 2017, Fidelity Charity received US$69 million in donations of cryptocurrency, such as bitcoin, a nearly tenfold increase from the previous year.⁸ Large cryptocurrency market players are also setting up their own endowment funds to share the enormous wealth created from cryptocurrency.⁹
Given the dramatic fall in cryptocurrency prices over the last year, it is not clear whether the total value of cryptocurrency donations can continue to grow in the near term, however, the size of the market is still large.¹⁰ It is also not clear how charities should be managing the high risks of holding volatile assets like bitcoin and cryptocurrency. In some cases, charities are required to keep donations in cryptocurrency. In other cases, charities would need to put policies in place to manage cryptocurrency risk in the same way they manage country, foreign exchange and other risks.
On the positive side, charities that allow cryptocurrency donations, may receive donations that they may not otherwise have been received. There can also be transparency and efficiency benefits. As long as the donations are kept as cryptocurrencies, it should be possible to track when a charity receives, holds, transfers or exchanges a cryptocurrency donation.¹¹ Cryptocurrency can also be significantly cheaper, quicker and easier to receive and transfer funds than local currencies — especially in countries with poor or corrupt economic and financial systems. Unfortunately, not all countries have access to cryptocurrency exchanges and ecosystems that allow individuals and smaller organisations to receive and make payments with cryptocurrencies. However, in the countries that do have ecosystems, there can be clear efficiencies in using bitcoin and other cryptocurrencies over local currencies and banking systems.
BitGive has been encouraging charities to accept bitcoin donations since 2013. The have partnered with Save the Children in the Philippines and West Africa, The Water Project in Kenya, and Medic Mobile in Nepal to raise bitcoin on their GiveTrack Platform. Using bitcoin has allowed charities to bypass banks and governments, and like the World Food Program, make transactions faster, cheaper and more secure. The transparency of bitcoin’s public blockchain has allowed donors, non-profits and the public to see what happened to the money and how it was used in real time. BitGive’s biggest problem to date has been the lack of bitcoin ecosystems in developing countries. For that reason, they have only run projects in countries where it is possible to use and convert bitcoin.
BitGive encourages charities to keep donations in bitcoin so that holdings can be tracked on the blockchain. Once charities pay vendors or convert donations to local currencies, they are no longer reported on the bitcoin blockchain. The lack of transparency over these ‘last mile’ transactions are a problem for all charities using cryptocurrencies and blockchain to track donations. BitGive believe that despite the ‘last mile’ problem, the savings in fees and faster transactions have been significant, and the benefit of seeing how donations are used in real time has been revolutionary for charitable giving. BitGive also report results of ongoing charitable efforts by include photos, videos and other media to update donors on progress and milestones.
Various organisations want to go one step further and create new cryptocurrencies to drive new global ecosystems of donors and charities. AIDChain has developed a payment gateway, AidPay, to allow charities to accept cryptocurrency donations. They also have created a new cryptocurrency, AidCoin, that can be used to track donations, create transparency and secure valuable impact data. All donations that go through AIDPay are converted to AidCoin which allows charities and donors to track and manage donations using a single cryptocurrency.
The AIDChain platform and AidCoin token are conceived and developed by CharityStars, a Swiss charity fundraising company that has worked with UNICEF, Save the Children, WWF and others to raise over US$10 million. CharityStars aims to promote the use of AidCoin through its auction platform and ecosystem of charities, donors and events. AidCoin is still at an early stage. They recently completed their first blockchain-based charitable campaign for Alice for Children, a Kenyan charity for educating kids living in slums, and have partnered with a number of charities to raise funds. Given the difficulty of finding liquid markets for established cryptocurrencies like bitcoin, creating a new cryptocurrency and building active markets will be especially difficult without widespread support from larger participants. That said, creating a cryptocurrency to create a global charitable giving ecosystem could provide enormous efficiency and transparency benefits of the type already shown by the World Food Program and GiveTrack.
Further details on each case study can be found here. It is still early days as most of the programs are small-scale or still in pilot stage, but they are already demonstrating that blockchain can improve trust and confidence in charitable giving. They are also demonstrating that blockchain, and in particular cryptocurrencies, can significantly reduce a charity’s administration and financing costs. This is particularly the case for international charities that provide services to countries with poor or corrupt financial services and infrastructure. Given these benefits and the strong interest from well-established charity organisations and advisors, this space will continue to grow.
Disclaimer: This is not investment advice or endorsement of any blockchain technology, cryptocurrency or specific provider, service or offering. Blockchain technology is an early stage technology that is constantly changing and has many unknowns. Cryptocurrencies are speculative, complex and involve significant risks — they are highly volatile and sensitive to many factors. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service before making any decisions.
Written by Dr. Denise Tambanis for the Blockchain Philanthropy Foundation, supporting global charities and accelerating humanitarian initiatives through blockchain technology. For comments and questions regarding this article, please contact the author.
[1] https://www.acnc.gov.au/tools/reports/public-trust-and-confidence-australian-charities-report-2017
[2] https://www.philanthropy.com/article/1-in-3-Americans-Lacks-Faith/233613
[3] https://www.thirdsector.co.uk/research-finds-trust-charities-holding-half-public/fundraising/article/1488301In June 2018, Oxfam reported that it needed to make £16 million in cuts to poverty-relieving programs due to fallout from a scandal in Haiti where Oxfam staff allegedly used sex workers during a relief mission. https://www.theguardian.com/world/2018/jun/15/oxfam-warns-staff-urgent-savings-16m-haiti-scandal
[4] According to the Giving Australia 2016 report, a fifth of all Australians did not donate money to a charity or non-profit in the previous 12 months. More than half of non-givers (55.7%) reported they couldn’t afford to give. The next three reasons for not donating related to a lack of trust in the charity sector:
- “I don’t know where the money would be used” (34.4%)
- “I think too much in every dollar is used in administration” (32.8%)
- “I don’t believe that the money would reach those in need” (31.8%)
Some 48.1% of non-givers indicated that better information on how the money will be spent would influence their future giving. http://blog.bus.qut.edu.au/giving-australia-2016/50-key-messages-non-donors/ Transparency about where the money goes is the most important factor in deciding whether UK survey participants decide whether to trust a charity. https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/723566/Charity_Commission_-_Trust_in_Charities_2018_-_Report.pdf
[5] http://www.disberse.comDisburse is a blockchain fund management system developed to help aid agencies track funds from donors through to the final recipient. They are discussed in an upcoming article on blockchain case studies in finance — international remittances and access.
[6] This section covers charities and charitable giving in general. In cases where the blockchain charities are collecting donations for sector specific projects such as energy or identity, they will be showcased as a blockchain use case for that sector. For further examples and discussion of blockchain technology and social impact see Stanford Graduate School of Business’ “Blockchain for Social Impact”, April 2018 report on Philanthropy and Aid, https://www.gsb.stanford.edu/faculty-research/publications/blockchain-social-impact
[7] Smart contracts are sets of rules layered on the blockchain that set predetermined conditions that must be met before donations are transferred. Once those conditions are met, the money is automatically transferred.
[8] https://www.fidelitycharitable.org/docs/giving-report-2018.pdf In some countries like the U.S., tax laws have made it beneficial to donate assets like cryptocurrencies to avoid paying capital gains on cryptocurrency owned, and receive sizable tax deductions. https://theconversation.com/charities-take-digital-money-now-and-the-risks-that-go-with-it-103983
[9] https://techcrunch.com/2018/06/28/coinbase-ceo-unveils-crypto-charity-fund/In June 2018, the CEO of Coinbase, one of the largest cryptocurrency exchanges, announced the launch of GiveCrypto.org. They aim to raise US$10 million by the end of the year and have a goal of reaching a US$1 billion fund size within two years. https://medium.com/givecrypto/introducing-givecrypto-org-fce707da03ee
[10] The price of bitcoin has fallen from a high of US$19,497 on 16 December 2017 to US$3,425 on 10 December 2018, a fall of more than 90%. The total market value of bitcoin was approximately US$60 billion and the market value of the top 10 cryptocurrencies excluding bitcoin was approximately US$33 billion as of 10 December 2018. https://coinmarketcap.com/currencies/bitcoin/historical-data/?start=20130428&end=20181213
[11] Custody relating to how individuals or organisation like charities safely hold their cryptocurrency is very problematic. Third-party custodians are starting to provide solutions for holding cryptocurrency on behalf of institutions but until then, although non-trivial, organisations should be able to put in controls to manage their holdings internally. https://www.bloomberg.com/news/articles/2018-06-18/regulated-crypto-custody-is-almost-here-it-s-a-game-changerhttps://custody.coinbase.com
