Blockchain For Charities: How It Addresses The Biggest Challenges

How Blockchain Is Helping Charities Tackle Trust, Transparency, & Fundraising Issues in the 21st Century

Table of Contents

  1. Introduction To Blockchain For Charity
  2. But First: What Is Blockchain?
  3. Challenges Charities Face & How Blockchain Can Help
  4. The Other Side Of The Coin: Criticisms & Limitations
  5. Blockchain For Charities: To The Moon

Introduction To Blockchain For Charities

Charities are there for those who are in need. And supporting charities with powerful tools and technologies can help those who are helping others. Blockchain is one of these tools.

Blockchain is a highly innovative tool that can help charities with efficient access to funding and help address challenges like trust and transparency.

The Russian invasion of Ukraine was one example where charity efforts were in immediate need. One surprising (and quick to act) organisation was none other than the popular crypto exchange Binance. Typically known for facilitating a large portion of the world’s crypto trades, Binance was quick to set up the Ukraine Emergency Relief Fund — a cryptocurrency-focused crowdfunding platform that allowed people to make contributions to emergency relief efforts.

Binance’s Charity Foundation committed at least $10 million in aid for refugees on the ground (including a $6 million direct contribution of their own BNB cryptocurrency token), which was to be split between nonprofit organisations on the ground. Regardless of your stance on crypto, Binance’s Ukraine Relief Fund is a powerful example of how blockchain can play an important role for charities.

The aim of this article is to explore the challenges faced by charities, to provide an understanding of blockchain, and finally go into how charities can leverage blockchain in addressing some of their key challenges.

But First: What Is Blockchain?

Blockchain has to be one of the most misunderstood technologies of the 21st century. Is it money? Is it a computer? Is it legit? Yes, sort of, and yes.

Let’s begin by attempting to unpack blockchain (and for those who are already deep in the blockchain rabbit hole, you can skip to the next section, you degenerate).

Blockchain is not only the innovative technology powering popular cryptocurrencies like Bitcoin and Ethereum, it is a transformative technology that will play a pivotal role in the future of finance and the next generation of the internet.

Blockchain allows new types of businesses, systems, assets, and processes to be created. It’s a decentralised database, it’s a system for verifying the validity and ownership of something, it’s a way to track the movement of things, it’s the underpinning of an alternative financial system, and it’s only just getting started.

Blockchain is a digital ledger that records transactions (like in a spreadsheet) and stores and maintains the ledger across a network of computers (as opposed to a file stored on your computer or in a cloud somewhere). These transactions are stored in batches (or blocks if you will), which are then linked together in a chronological order, forming a long chain of transactions — hence the name blockchain.

It’s like a public library where anyone with the right keys can participate in the library. Every transaction (entry into the library) is recorded with a timestamp and signature of who made the entry. Users can then go and inspect the transaction history, and because the file is stored on many computers, it makes it very hard to tamper with the ledger.

Blockchain as a public library

There’s some cryptography, economic principles, and novel software stuff in there too, all of which contribute to the ability for the blockchain network to run securely and efficiently, but let's keep things high-level for now.

Not only can the transactions have a monetary value themselves (like trading Bitcoin), but the transactions and corresponding assets could represent many things with an assigned value. Tokens may include data like media files (read: NFTs), or business documents like invoices and contracts, or other important documents like verifiable personal identity documents (IDs). These documents can now be stored, verified, transferred, and accessed by various approved participants in the system (the blockchain network).

Okay, okay, we can go in many directions about how blockchain can be used beyond crypto, so check out my other posts (obviously after finishing this one first!) to see how blockchain can be more than digital money, but for now — blockchain and charities.

Challenges Charities Face & How Blockchain Can Help

Charities play an important role in our modern societies. They’re a refuge from corporate profit incentives, a friendly alternative to nation-state governments, and they often tackle the most complex and difficult issues — helping those who need it most.

Unfortunately for charities, they don’t always have it easy. They’re often tasked with lofty missions, complex operations and delicate situations. Whilst pursuing their goals, they face additional pressure to instill trust by proving their efficacy, providing transparency, and ensuring they meet regulatory compliance — all against a challenging fundraising landscape.

Luckily, blockchain’s transparent, borderless, and efficient nature could make it a useful ally in addressing the aforementioned challenges. So, let’s unpack how blockchain can help charities.

Efficient Fundraising & Transparent Spending

Charities face a variety of challenges when raising funds. Beyond the competitive nature of fundraising, charities rely on building and maintaining trust, requiring effective operations, and transparency and accountability for their spending.

Charities are often international by nature, meaning navigating complex regulatory and tax compliance challenges. They often rely on in-person charity events and the ongoing participation of large donors, and in the 21st century — money is increasingly digital and donors will often be found online. All of this means that charities need to adopt new ways of engaging with potential donors. Enter, the internet and blockchain.

Tracking Donation Spending

In the Ukraine Relief Fund campaign, contributions could be raised from anywhere in the world with minimal friction and transaction fees. Donations could be made by anyone with an internet connection and access to the chosen blockchain network. This was probably mostly people trading crypto on Binance and other exchanges, but it could’ve included anyone with a compatible blockchain/crypto wallet and the desire to help.

With Binance’s Ukraine Relief Fund campaign, donations can be tracked via the official fundraising page, which shows a list of donors and how much they donated, the total amount raised, and when and where it was allocated.

This ability to peak into the blockchain ledger and look at the transactions makes it very easy for stakeholders to ensure that contributions are being distributed fairly. This relieves the burden on charities to manually provide transparency into payments and it makes it easier for them to build and maintain trust regarding their spending.

Efficient Donation Collections

Crypto payments are becoming incredibly cheap and efficient. The internet helped usher in the era of digital payments with online crowdfunding campaigns and payment gateways that make it easy to collect money online. Payment services like Stripe and PayPal made it possible for anyone to start accepting payments with minimal setup or fees.

The next chapter of this evolution is blockchain-enabled crypto payments, as we have seen with Binance’s Ukraine example. Major blockchain networks are helping bring down the cost of transactions (to close to zero in some cases) and software developers and crypto exchanges are making it increasingly easy and accessible to turn fiat money into magic internet money (crypto).

With over 80 million crypto wallets already existing and with forecasts of 200 million wallets by 2024, crypto payments are becoming increasingly mainstream and this is a trend that charities looking to raise funding should not ignore.

Simplified Compliance

All donations are recorded on the blockchain ledger which can then be viewed, verified, and audited by anyone curious enough to take a look. The total funds raised could be confirmed and the outgoing fund distribution could be tracked too. No more manual reporting and time-consuming auditing.

For now, most crypto exchanges require KYC (know your customer) compliance, meaning they know who owns the wallet/account. Many other wallets and accounts are not KYC’d though, so we don’t always know who is doing what. If the finance police, a.k.a. the SEC (Securities and Exchanges Commission), have their way, all crypto wallets will be KYC’d in the future.

In this KYC world or in a situation where a funding campaign only accepted donations from verified and known accounts, ensuring donor transparency, fraud prevention, regulatory compliance, and even simplified tax returns — could all be a reality.

Challenges Charities Face & How Blockchain Can Help

Smart Contracts & Automation

Dutch blockchain company mintBlue gives us a glimpse of what a blockchain-based business and financial world could look like — a world where your money, transactions, invoices, and business records all exist in a transparent interoperable system.

This is what mintBlue has been demonstrating via their identity verification project with their local government business registrar (KvK) and major accounting firm Visma | Yuki. It’s an interesting endeavor that shows how blockchain can be used to efficiently verify documents, payments, and identity.

Smart contracts are software that adds a layer of programmable logic to blockchain transactions. They are automatically executing contracts with pre-defined rules that enable efficient automated processes. For example, you could write a smart contract that gives an approved supplier permission to be paid automatically as soon as an invoice is submitted on-chain.

In our charity example, approved beneficiaries could automatically receive their funding as soon as a campaign funding goal is reached. You could also allow the taxman to automatically register donor contributions, meaning an automatic tax deduction and no more manual end-of-year accounting and tax returns.

Some may describe this as an Orwellian nightmare, whereas others will see a hyper-efficient and transparent system. When donors are verified, transactions are recorded on-chain, and tax systems are integrated — charities can raise funds efficiently, disperse funds with transparency, and provide simplified compliance for all involved.

Borderless Democratic Decision-Making via DAOs

A DAO (or Decentralised Autonomous Organisation) is a type of democratic organisation that is native to blockchain. A DAO allows for democratic ownership and control via stakeholder voting. Put another way by Cooper Turley: “A DAO is an internet community with a shared bank account.”

In a charity context, you could have an organisation truly run by its donors or its elected decision-makers. When a DAO is established, founding members or delegated individuals (or organisations) can receive special tokens that may have special privileges like types of voting power. Stakeholders could then vote on proposed charities or projects to support.

Back to the invasion of Ukraine in 2022, the Ukrainian government set up a campaign where anyone could contribute cash and crypto to the National Bank of Ukraine, raising over $50 million in the process. The crypto community took charge, and the UkraineDAO was also set up, raising another $7 million for the non-profit Come Back Alive. Interestingly, this $7 million was raised from a community that may not have provided this support if this crypto solution was not available.

Because UkraineDAO only deals in crypto, people could easily donate from anywhere in the world, and Ukrainians were able to access the money even if local banks put restrictions on cash withdrawals. Beyond the democratic nature of DAOs, the Ukraine DAO shows the power of blockchain to facilitate donation campaigns to quickly and efficiently raise and distribute funds, even against an extremely challenging geopolitical and humanitarian backdrop.

The Other Side Of The Coin: Criticisms & Limitations

We’ve seen how blockchain can help charities with efficient fundraising efforts, transparency, alternative control structures, and automation benefits. But what about the limitations? Let’s take a look.

First of all, not all charities are going to be ready to adopt an innovative technology like blockchain. While there are clear benefits to adopting blockchain, charities who are still struggling to collect online donations or run crowdfunding campaigns are probably going to struggle to leap ahead to blockchain.

Sufficient technical know-how and modern security practices are a must for implementing a new technology like blockchain. While turn-key solutions make it easy to run a campaign or track spending, there are still requirements for knowing how to safely handle sensitive data and navigate the online world.

Knowing how to handle login credentials, store access keys, and avoid phishing scams are all going to be necessary to handle crypto payments and access to third party platforms. While these are very real concerns, they are manageable and well worth the effort when stacked against the potential upside of adopting blockchain.

Blockchain For Charities: To The Moon

I truly believe blockchain is an amazing opportunity for charities and it will only play an increasingly pivotal role in the future of fundraising and charity operations. Beyond what we’ve discussed in this article, there are many other great examples of how charities can leverage blockchain so don’t just take my word for it.

We’ve seen how blockchain can be used to help charities navigate some of their biggest challenges. Now it’s time for action. Do you want to add donation transparency to your fundraising? Check out Bitgive. Want to find and support efficient charity projects? Head over to Alice. Who doesn’t want near-zero-cost gifting? Thanks, Giveth. Want to easily develop your charity fundraising campaigns? Check out Aidcoin, and I could go on and on.

This article is dedicated to those who commit their time and resources to give back to those in need. I appreciate you and I hope the content here helps you in achieving your mission.