What Does Blockchain Mean for Charities?
Charities, particularly those involved in overseas aid, have an image problem. High-profile misuses of money and the wave of short-lived viral phenomena like Kony 2012 have eroded public faith in charitable organisations. The Oxfam scandal which took place in early 2018 further dented public confidence, with the overall perception of charities reaching what feels like its nadir.
In fact, figures published by the Charity Commission found that trust in charities has fallen to its lowest level since 2005, to an average of just 5.5 out of 10. When you consider that the same report found the average man/woman on the street to be trusted at 5.7 out of 10, then the scale of the problem faced by charities comes into focus.
The research found that of all the factors determining an individual’s trust in charities, “transparent about where money goes” was the most important. This was followed closely by “efficient use of resources” and “entirely volunteer-run”. Ultimately, people want to know that the money they give to charity is going towards what they had been told it would. This, obviously, oversimplifies the complexities of running a charity and the reality that staff usually have to be paid, etc., but shows the public is largely cynical about where donations actually go.
Blockchain technology can make donations completely transparent and traceable at all points.
This could go a long way to improving trust on both sides. For the charity, it would be able to quite easily trace the source of the currency being donated, to fully ensure its legality.
Enforcing rules
The current model of charity monitoring has governments or regulatory bodies overseeing a set of rules. If a charity breaks one of those rules, the overseer has the jurisdiction to punish them. This works to a degree, though there will always be those who run the risk or are simply not caught. As long as a regulatory model is based on deterrents, there will be those that ignore them.
Blockchain could fundamentally change the model itself. Rather than wrongdoers being punished, the rules would themselves be enshrined into the smart contracts the system is based on. This would make it impossible, rather than simply illegal, for charities to break that set of rules. Rhodri Davies of the Charities Aid Foundation described it as a “fundamental shift from a model of governance by enforcement to governance by algorithm.”
This requires a lot of faith in the quality and durability of the smart contracts, but governance by algorithm for charities could set an important precedent for other regulatory bodies going forward. Transparent, unavoidable frameworks that ensure that companies played by the rules could relieve a lot of the strain on regulators and go some way to restoring public faith in not only charities, but corporations too.
Diverse Assets can be Donated
One thing blockchain allows for is the tokenisation of all kinds of valuable assets. This could be anything from shares or bonds to even less tangible assets like intellectual property. The music industry, for example, is interested in recording intellectual property on the blockchain, with a host of companies popping up looking to service that need.
Ultimately, the goal is to utilise the immutability of the blockchain to avoid ownership disputes. The owner of intellectual property can be registered when the work is created and this cannot be altered while being spread across every record. This intellectual property could then be written into smart contracts which determine the price at which the works could be used by others and ensure that the compensation is made automatically without any dispute. The large-scale operation of what would in many cases be a significant number of micro-payments is something blockchain makes eminently possible.
For charities, this means that donations can be diversified. To use the example of the intellectual property one more time, it is possible that an artist could donate a portion of that intellectual property, from which the charity could receive a portion of the royalties paid. Immutability, in this case, might hold this idea back — an artist’s circumstances may change, for example — but it could be built into the smart contract itself that the artist had the right to withdraw the donated portion, or something to this effect.
The rise of tokenisation is affecting everything from intellectual property to real estate. At Primalbase, our PBT grants access to office spaces all over Europe and beyond. As a utility token, the holder is granted access up until the point at which they sell the token, when they can recoup their initial investment. As the marketplace for utility and security tokens blossoms there will be more opportunity for trading between parties of more than just cryptocurrency. Donations to charities will have the opportunity to diversify as transfers of tokens are made as smooth as that of the likes of Bitcoin.
We are certainly some way off charities being based and run on the blockchain. However, the benefits are so clear that it seems obvious that charities will be interested once blockchain technology is ready for widespread adoption. With public trust such an important factor in how much a charity can achieve, committing to a transparent blockchain and the governance of smart contracts would be a statement of intent that would resonate with the donating public.
