Most people are kind and have donated to charities at some point in their life, but how can you be sure you’re donating to a legitimate charity? No one wants to give money to a “homeless” guy and then see him get into his Mercedes moments later. It hardens people’s hearts when they feel scammed, and they become less likely to help in the future.
Although the blockchain won’t eliminate all issues with charitable organizations, it will help donors know precisely who they are donating to by adding full transparency to donation spending. This can be achieved through open tracking of performance, DAOs that allow people to vote on the uses of funds, and cryptocurrencies allow for access to more funds and more PR for a charity.
Full Transparency of Donation Spending
There are quite a few charities that don’t really act in a charitable way. For example, the Kids Wish Network; they’ve raised millions of dollars under the pretense of helping sick children, and they spend less than 3 cents on every dollar on the cause they claim to be supporting. In the last decade, it discovered that $4.8 million was paid to the charity’s founder and his own consulting firms and $110 million went to corporate solicitors.
Some nonprofits are nothing more than fronts for fundraising companies that bankroll their startup costs and lock them into exclusive contracts, driving the charity into debt. Project Cure in Florida has raised more than $65 million since 1998 but has also been in debt every year since 1998.
Blockchain technology will help expose bad actors like this to its donors because the blockchain is a transparent public ledger. No longer would they be able to cook the books, without the public being able to check and expose the issue in real time. Entries cannot be deleted or manipulated, so if there is an error, the incorrect entry remains, forever preserved as evidence.
More Efficient Regulation
Currently, charities are established as legal entities, like corporations but with different qualifying rules and more paperwork. In the future, you could create charities as blockchain entities. The requirements to be a charity would be encoded in smart contracts, and there would be a reduction in fees and time associated with their initial setup since you are reducing the need for a central planner to do it.
Another way the blockchain is going to help charities financially is by reducing administrative costs. More donations will be able to go to people that need these funds by reducing the need for administrators. That three cents on the dollar mess can be a thing of the past.
A DAO is a Decentralized Autonomous Organization. This means that the rules encoded into the organization are transparent and are controlled by shareholders, not a central authority that could easily doctor their books.
Platforms like Alice, which is built on the Ethereum blockchain, take part of their revenue and redistribute it as grants to help social organizations launch projects. Users vote to decide on what projects get funded. This takes a lot of the politics out of charity and gives donors democratic input.
Companies Using Blockchain Technology
A-Cubed, the Silicon Valley outpost of Airbus, has launched an open source, public blockchain project aiming to assist charities and non-profits that are onboarding cryptocurrencies and smart contracts. They are using Ethereum-based blockchain technology developed by Heritage. Heritage records donation data as ERC-721 tokens that are owned by the donor. When a donation is made through Heritage, it is recorded along with the donor’s Ethereum address and donation amount. They can also record and issue donation certificate information for taxation purposes. Heritage is also working with Unicef to encourage blockchain development.
Charities Aid Foundation (CAF) is a charity and bank for better giving to help donors, companies, and charities by essentially acting as a broker for charities. They gather funding and take a percentage of it. CAF offers banking, loans, and savings accounts for charities and individuals. They have in-depth videos and articles on how the blockchain will affect charities.
Another initiative, the RootProject, is soon to launch an official Initial Coin Offering to support anti-poverty work. Their new digital currency, called Roots tokens, will be sold and exchanged for dollars to fund community projects targeting the poor. Some Roots tokens will even be reserved to support a pension fund for individual project workers. The RootsProject’s presale of Root coins alone generated well over $200,000 for the organization.
Companies Are Accepting Crypto
The Pineapple fund was established by an anonymous crypto enthusiast that goes by Pine who donated 5,104 Bitcoins that were turned into $55 million at the height of the market to differing charities.
Even if charities don’t utilize blockchain technology, they have begun accepting crypto payments to increase their donor pool. The Red Cross, United Way, Greenpeace, Save the Children and others all accept Bitcoin donations.
Because cryptocurrencies are global there is no need for charities to handle conversion rates if they are spending the crypto but they can also convert into the fiat currency of the charity’s headquarters if desired. With more vendors and employees accepting crypto as their payment, these conversions will not be as necessary in the future.
However, if charities don’t fully know who their donors are they can’t follow up with them for future campaigns unless people willingly decide to give out that information. This would cut down on the charity sending you those stickers, letters in the mail and other swag gifts. People in the nonprofit world may see this as a negative, but I think donors might actually see this as a positive. What’s the point of me sending you $50 if you send me a $25 gift bag right after?
Those that want a follow up can sign up with their email and mailing information. Smart contracts will help dictate and track where your donation goes, similar to the terms of a will after you pass away.
The BitGive Foundation has launched an initiative called GiveTrack, which they call the “Bitcoin charity 2.0 initiative.” According to Bitgive, the system will “allow donors and the public to trace nonprofit transactions on a public platform in real time to see how funds are spent, ensure they reach their final destination, and track the results generated from contributions.”
The Benefits of Bitcoin for Nonprofits
One incentive for nonprofits to accept Bitcoin is that premier digital currency payment processors and “wallets,” like Coinbase, do not charge processing fees for digital currency donations to 501(c)(3) nonprofits. If a donor wishes to donate Bitcoin, for example, the organization receives the entire donation. Paypal, which has among the lowest transaction fees for nonprofit donations, charges 2.2% plus $.30 per donation. Also, Bitcoin donations are tax-deductible and treated by the IRS in the same manner as stock and bond donations to charity.