Blockchain For Nonprofits: Decentralized Social Impact
By: Ayush Aggarwal
“Poor fundraising practice, inappropriate data sharing, damaging commercial relationships… have all combined to knock the public’s confidence in charity”. This was explained by William Shawcross, chairman of the Charity Commission, who corroborates that trust in financial institutions has been steadily decreasing since 2005. Shawcross argues that there has been a 15% decrease of public confidence in nonprofits. Donors ultimately want to be sure their contribution matters, and to know what impact their money is making. Ambiguity in financial planning clouds the public’s view of an organization. A possible solution to this issue lies in this year’s most popular tech trend — the blockchain. This mysterious and often misunderstood technology once served the sole purpose of powering Bitcoin, a digital currency that utilizes direct peer-to-peer transactions on the internet. Since then, blockchain technology has expanded to cover a variety of different applications and uses that can be utilized to benefit nonprofits.
What is a blockchain?
The term “blockchain” describes a type of data structure, which holds information in the form of a distributed, decentralized, and immutable ledger. As Cryto-Blogger Mona Nomura puts it, blockchain “enables transfers of digital assets (in any form) in a safe, secure, transparent way with no middleman.” Using the internet, blockchains distribute the full ledger of all transactions across every single computer involved in the network, providing incredible security to the system as no single entity controls the data. This also means that once a transaction is recorded, it’s permanent. The only way one could change an entry is by performing another transaction to update previously entered data. The key here is that the original data is never deleted, but rather the entity that accesses the information simply ignores it in favor of the new data. There are other blockchain platforms as well besides Bitcoin and Ethereum which are more useful for different types of applications.
How does it work?
To get a little more technical, each transaction on the blockchain is verified when another computer solves a cryptographic puzzle, and confirms that the solution is the correct intended solution from before the data was encrypted or “hashed”. Solving these puzzles to verify transactions costs significant computing power, so each blockchain network needs to provide an incentive to these “miners” to verify transactions. In the case of Bitcoin, the incentive is simply earning some currency. For other applications, however, incentives can vary and oftentimes target niche demographics, such as research institutions who want data for a certain population. This is called a Proof of Work consensus mechanism, which Ethereum uses.
Why should nonprofits care?
Blockchain technology presents amazing solutions to common problems nonprofits may face. Because a blockchain is a distributed and immutable ledger, everyone who accesses the data technically owns a copy of it, and said data cannot ever be changed once it is appended to the chain. Thus, by its very nature, information on the blockchain is entirely transparent, and unable to be manipulated by an external force or even the institution itself. Nonprofit institutions can leverage this transparent infrastructure to engage donors and increase overall trust in their organization. Particularly for smaller nonprofits without a ubiquitous brand name, a public blockchain-based ledger would ensure accountability and help the organization garner trust directly from the distribution of assets.
Another key feature relating to the structure of a blockchain is decentralization. In the case of Bitcoin, for example, no central bank needs to verify a transaction for it to be considered valid. This is possible due to the blockchain technology behind Bitcoin, and the distribution of the workload among many computers in verifying that transaction. Thus, blockchain powered systems can fully circumvent the use of a third party in all transactions including banks, governments, and foreign exchange institutions. For nonprofits, this means that the transfer of money across borders becomes instant and costless. Without a third party mediating and pocketing a cut of the transaction, the full extent of the currency (whether it be a heavyweight cryptocurrency like Bitcoin, or a dollar-pegged stablecoin such as Dai) is transferred to the user. This is really important for international organizations to avoid uncompetitive foreign exchange costs. UK charities, for example, are losing 50 million euros a year in transfer fees and exchange rates. Avoiding centralized banks also serves to mitigate the aforementioned loss of trust in such financial institutions, adding to donor confidence.
How can nonprofits utilize blockchain?
There are a couple of existing blockchain projects specifically geared towards the nonprofit space. Notably, alice.si is a platform built on the Ethereum blockchain that highlights accountability and transparency for donors. Alice.si uses automated Smart Contracts to release donated money only when the organization completes the goals listed on their page. Donors can be assured their money is making an impact, as the platform also provides analytics for each transaction with a “My Impact” tab, allowing the user to see exactly where their money has gone. This sort of transparency is unprecedented and only achievable utilizing blockchain technology. Alice also comes packed with features that help nonprofits benchmark other projects and analyze their data through decentralized impact management.
For organizations that are reluctant to make a full switch to asset management on the blockchain, an easier first step is setting up a wallet for cryptocurrencies. Organizations can easily setup a wallet to start receiving donations via cryptocurrency (Bitcoin, Ethereum, etc.), and engage a huge space with lots of capital. A useful decentralized network for nonprofits is Stellar. Using its own token, Lumens, Stellar allows organizations or individuals to move money across borders quickly, reliably, and for fractions of a penny. Whether the organization is based in the United States or abroad, having the capacity to accept cryptocurrency could be hugely beneficial. Last year marked a historic, unprecedented explosion in cryptocurrencies, with the total market value reaching 177 billion dollars for 2017. There is no better time for a nonprofit organization to enter the cryptocurrency space, and start mixing in Bitcoin, Ether, and other forms of currency into their revenue streams.
Blockchain is an exciting new technology that has spurred massive interest in the last couple of years. The use of this data structure can fundamentally change the way nonprofits fundraise by circumventing the need for financial institutions and mandating full transparency in spending. As this space continues to grow, it is in every nonprofit’s best interest to explore and take advantage of the buzz.
