Blockchain and Charity

The problem that plagues donations: trust.

Millions of people regularly donate to charity, driven by various motivations such as contributing to a collective good, receiving economic incentives or material rewards, responding to ethical and social values, or simply because donating boosts their mood and gives them moral satisfaction comparable to that of privately consumed goods (warm glow).

However, due to the various and ongoing scandals in the world of charity, donors are increasingly disillusioned and suspicious that non-profit organizations do not use the money received well. Today, more than 60% of people worldwide do not trust non-profit institutions to carry out their missions. This distrust leads to a reduction in donations. This trend is accentuated by the severe economic recession caused by the Covid-19 emergency and the channeling of donations towards hospitals.

Digitization of the sector.

Moreover, the donor profile is changing. There is a trend towards a progressive digitization of donation behavior. One in four donors has donated through digital platforms and events, such as online shops, lotteries, and virtual auctions. Facebook, Instagram, and WhatsApp are the three social media that most encourage citizens to donate. This brings with it the need for better digital communication, constant and more engaging, making transparency one of the key issues in today’s philanthropic world.

Several studies have highlighted how charities could increase donations by almost 50% if they were more transparent about how the money is spent.

In this context, Blockchain technology is truly strategic for improving the credibility of charities that seek to promote transparency while reducing the risk of fraud, allowing donors to track transactions and be sure of the absence of fraudulent activity.

Blockchain applied to donations.

Transparency.

Blockchain and smart contracts open up new opportunities in philanthropy, transforming aid into digital resources and creating trust in charitable organizations by allowing donors to monitor the impact of their contributions, while charities can increase the donations received.

Today, this possibility is too often ignored by charities due to a lack of understanding, which can be due to a lack of technical competence, as well as the difficulty of explaining how blockchain can offer tangible benefits to charities.

By incorporating blockchain into the registration of charity donations, donors can be able to monitor exactly where their donations go and when they are used. Blockchain provides greater transparency behind non-profit organizations and gives both donors and operators greater responsibility when it comes to how donations are spent.

With the immutable structure of the blockchain, donations cannot be falsified and are permanently recorded so that donors can see them. Moreover, blockchain can track how much of each donation is channeled to actually help the cause being marketed, which in turn prevents organizations from diverting funds for improper or personal use.

With large centralized charities, there is always the possibility that too many levels of management will erode their funds. With blockchain-based charities, the number of intermediaries between donors and those who want to help is minimized, allowing a greater portion of donations to go to those in need.

Monitoring, storage, and authentication of donations.

By utilizing Blockchain technology for monitoring, storage, and authentication of donations, donors can verify their donations themselves and keep a close eye on exactly how their money is being used. Blockchain promotes trust that donors have in charities by allowing greater visibility of charity transactions, paving the way for a more philanthropic future.

As charities grow in size, so does their administrative staff. However, a report from the University of Maryland found that both rural and suburban volunteering hit historic lows in 2015. With fewer people willing to volunteer for nonprofit organizations, charities fill this gap by hiring more workers.

With more workers and increased costs of managing them, funds raised from donations risk being primarily used to pay staff to ensure the charity organization runs smoothly.

By integrating blockchain into their systems, nonprofit organizations can reduce their staff without sacrificing the integrity of their organization. With a smaller administration, there would be fewer overhead costs. This would, in turn, ensure that a greater percentage of donations go towards the cause being promoted.

Much of the work of charity administration revolves around fund management and recording how funds are spent. The path and distribution of donations would be recorded quickly, efficiently, and immutably, reducing administrative inefficiency and potential financial fraud.

The use of blockchain to record money received and its uses also generates an immutable digital receipt of the funds and improves the credibility of organizations. By incorporating blockchain into their administrations, charities could quickly resolve some of the staffing issues in their organization.

Blockchain for charity tracking and fraud prevention

The challenge of transparency in charity organizations can be addressed using blockchain technology. When people donate to charities, they typically trust that the organization will ensure their money is well spent. However, many non-profit organizations are not as explicit about their expenses as donors hope, only revealing the distribution of their funds in general terms and failing to disclose details or even falsifying their records.

Therefore, donors are left in the dark about how much of their money is actually used to help those in need and how much is diverted to other organizations, budget issues, and other general costs.

By adding blockchain to charities, donors would no longer be unaware of what is being done with their money. Donation information would be stored in blocks along with donor information, but donors would be able to preserve their privacy with a kind of digital signature that does not reveal their identity. Since blockchain is a publicly viewable ledger, charity fraud would be very difficult to commit; donors would be able to carefully monitor their funds and ensure that no data is manipulated.

The blocks are stored permanently and chronologically, so donors can check how their donations are spent, who holds their funds at any given time, and where their money has been transferred.

Furthermore, if a sufficient number of donors connected their computers to the blockchain (which would then function as nodes), they would strengthen the security of the blockchain, their donation information would be more difficult to manipulate, and they would have more confidence in the security of their transactions.

Blockchain for fraud prevention in charity

Although most charities and fundraisers are legitimate and seek to help the less fortunate, there are still some fake operators who are only trying to scam people. With a blockchain-based ecosystem, donors can use validation mechanisms to identify which nonprofit organizations are authentic.

Many charities use third-party contractors to solicit donors and manage their funds, as it is usually much cheaper than hiring full-time staff dedicated to fundraising. However, in an investigation conducted by the Tampa Bay Times and their Center for Investigative Reporting, among the 6,000 charities that paid for-profit companies to help with donations, the worst 50 charities used only 4% of donations for direct aid. The rest of their funds were given to vendors and companies hired to help solicit donors through advertising and other means.

The Blockchain technology can help charities manage their funds more closely and serve as a marketing strategy, eliminating the need for intermediaries. Comparing these charitable organizations to businesses, the use of blockchain is a sellable point, as it would encourage more people to donate with the certainty that their money will go directly to the cause they support.

Additionally, in this increasingly digital era, most people do not verify the information they see online, leading to opportunities for fraud and misleading advertising. Rather than requiring potential donors to research reputable organizations before donating, the blockchain, which documents various donations over time, would serve as an affirmation of the charity’s legitimacy. In a busy world, presenting itself as a self-verification platform, the blockchain would encourage a growing amount of donations.

Furthermore, the blockchain is inherently secure because its operation prevents changes by individual users or hackers. It is based on a consensus technology that prevents the blockchain from being modified without an agreement of more than half of the people involved in the blockchain, which is impossible due to the large number of nodes.

Moreover, donating to charities sometimes involves putting one’s identity in the hands of the charity and, by extension, third-party contractors. In today’s era of technological progress, the centralized server used to store donors’ private information can become a target for hackers.

Blockchain and Privacy

With blockchain, the privacy of donors would not be violated as their private information would be encrypted and not visible to users. Storing donor information on a blockchain would put an end to the assumption of intermediaries to record transactions, ultimately strengthening the charity’s security and increasing donors’ trust in the organization.

Blockchain technology and applications that rely on it, such as digital wallets, commercial exchanges, and loan solutions, could introduce a range of new and innovative tools for philanthropic organizations.

Smart contracts are applications that run on blockchain technology, which have rules and programmed conditions inside them and trigger certain events when these conditions are met. In the case of philanthropy, these contracts can represent agreements between the donor and the charity organization.

This offers many opportunities for all parties involved in the donation process and can make it completely automated and uncompromising. Clauses and provisions could be integrated into smart contracts, establishing when and where funds, goods, or supplies should be transferred. These agreements could regulate the percentage of payments that go to support the charitable cause. The entire process of disbursing donations could be streamlined, from receiving payment to selecting recipients to concluding operations to beneficiaries.

This creates much more trust between charitable organizations and donors, allowing them to see how the money is being spent and receive a refund if the impact of the donation is not verified by the smart contract.

Donors can also be more involved through the tokenization of assets, creating digital resources that represent something of value, such as charitable donations, which could be purchased and shared among stakeholders. Such digital resources could be used to support a fundraising system in which donors are rewarded with tokens for participating in charity events. The tokens grow in value as more donations are made by other supporters of the cause, creating an effective engagement model.

Tokens could be assigned to specific causes, such as supporting daily operations in a foster home or providing medical supplies. Instead of financially supporting an organization, donors can decide on the projects they want to be involved in and send their funds directly to the people they want to support.

Blockchain and Social Sharing Economy

Blockchain can also integrate with social sharing economy platforms that today create more ways to help people than simple donations. Placing resources in a distributed system like blockchain makes them universally accessible. Home and apartment rental services, ridesharing, skill and talent sharing can be used by charities to provide affordable housing, commuting, and education for people in need.

These platforms also offer more efficient ways to identify and access resources so that charities can operate and expand their ecosystem. Ultimately, sharing economy systems integrated into blockchain open new channels for philanthropic action and offer charitable organizations a wider reach.

Cryptocurrencies, IoT, and smart contracts coming together in the social sector.

The most well-known application of blockchain technology is cryptocurrencies. Non-profit institutions accepting cryptocurrencies, which currently represent between 1% and 5% of the value of global donations according to Nonprofit Tech for Good, can expand their donor base and simultaneously reduce expenses. In fact, charities are often global organizations, so paying fees for international money transfers will have less of an impact on their budgets as cryptocurrency transfer fees are much lower than banking fees.

Blockchain technology can increasingly integrate with IoT and artificial intelligence systems to allow for the collection of large amounts of data on how donations are spent and generate insights from that data to optimize the distribution of funds.

With its decentralized nature, complete transparency, and immutable data storage, blockchain is a turning point for philanthropic organizations. It can create a global ecosystem for charitable donations where donors can easily monitor their donations and extract value from supporting those in need with tokenized resources.

With increased trust in charities, they will be able to provide greater donations to the causes they support. Supported by smart contracts, beneficiaries will receive help in the most direct way, while donors can be confident that their contributions will make a difference.

https://www.charitytimes.com/ct/Transparency-among-charities-could-increase-donations-by-50.php https://www.fastcompany.com/90289331/more-transparency-means-nonprofits-get-more-donations https://www.cafonline.org/my-personal-giving/long-term-giving/resource-centre/five-reasons-to-give-to-charity Le motivazioni alle donazioni individuali di EE Bertacchini https://charitydigital.org.uk/topics/topics/how-charities-can-use-blockchain-8886 https://italianonprofit.it/risorse/guide/global-trends-in-giving-2020/ https://pixelplex.io/blog/blockchain-charity-projects-and-their-philanthropic-benefits/ Managing charity 4.0 with Blockchain: a case study at the time of Covid-19 di Adalberto Rangone & Luca Busolli (https://link.springer.com/article/10.1007/s12208-021-00281-8) https://www.cafonline.org/about-us/caf-campaigns/campaigning-for-a-giving-world/future-good/blockchain