The technology that underpins cryptocurrencies has been gradually entering the charity sector, purportedly providing more transparency and trust to the industry — especially given a decrease in people’s trust in charity organizations, where the public is increasingly concerned about how charities spend raised money.

Governments and blockchain projects embrace charity space

Governments around the world have been showing increasing interest in blockchain deployment and digital currency adoption for philanthropy, although few of them have implemented clear regulations toward the new type of currency at the legislative level.

Recently, the British Virgin Islands — a United Kingdom overseas territory in the Carribean — partnered with blockchain firm Lifelabs.io to launch an alternative cryptocurrency-enabled payments infrastructure for residents across its network of islands to ensure that residents can continue access essential goods and services in the event of a humanitarian crisis.

Andrew Fahie — premier and minister of finance of the British Virgin Islands — said that blockchain-based financial innovation “comes at a pivotal time for our people and our economy, while the memory of recent natural disasters remains fresh in our minds and hearts, and the pressure for increased economic efficiency keeps mounting.”

The mayor of the South Korean capital, Seoul, introduced a five-year plan for developing the blockchain industry in the city last October. The project entitled “Blockchain City of Seoul” contains a number of measures for promoting and developing blockchain-related initiatives and education in the city from 2018 to 2022.

Last September, China’s Ministry of Civil Affairs (MCA) revealed plans to implement blockchain as part of an overhaul of its charity tracking system. The MCA’s four-year plan through 2022 specifically pledges to “explore the use of blockchain technology in charitable donations, charity tracking, transparent management” and elsewhere.

Officials were set to “build a tamper-proof charity organization information query system and enhance the authority, transparency and public trust of information publishing and search services.” The plan confirmed that the blockchain tech component was chosen to “complete the new round of the ‘Charity China’ platform’s upgrade.”

Recent years have seen a number of blockchain and crypto-focused organizations — from well-known to newly formed ones — stepping into the charity industry as well. Just recently, news broke that a charitable campaign dubbed “Airdrop Venezuela” — which is set to enable direct transfer of $1 million in cryptocurrency donations to the country’s citizens — registered 60,000 verified beneficiaries and raised $272,000.

The campaign leader, professor Steve Hanke, underscored that the project aims to demonstrate how crypto can be used by relief agencies globally to securely and transparently deliver funds and aid to people in need. As the country struggles a still-ongoing political crisis and ongoing economic turmoil, bitcoin (BTC) trading volumes in Venezuela were reported to have reached an all-time high in February of this year.

In the United States, the Bail Bloc Initiative started using cryptocurrency raised through charity to help people get out of the U.S. Immigration and Customs Enforcement (ICE) pretrial incarceration last November. ICE is a law enforcement agency of the federal government of the U.S., the mission of which is to monitor cross-border crime and illegal immigration.

The Bail Bloc set a goal to help charged immigrants pay their bail with money raised through cryptocurrency mining. The initiative released an app that consumes a small portion — from 10% by default to 50% optionally — of users’ computing power to mine monero (XMR) once it is installed.

Leading cryptocurrency exchange Binance revealed in February that its philanthropic arm, Binance Charity Foundation (BCF) — which was first launched in October 2018 — rolled out its charity campaign “Lunch for Children” in the capital of Uganda, Kampala. According to the program, the organization is set to provide two meals a day during the full year of 2019 to more than 200 students and school staff.

In late 2018, the BCF opened a new fundraising channel on its blockchain-powered donation platform. The program is conducted in support of terminally ill patients and disadvantaged children in Malta and Gozo.

The CEO of cryptocurrency exchange Coinbase, Brian Armstrong, announced the launch of a charitable initiative dubbed “GiveCrypto.org” to “financially empower people by distributing cryptocurrency globally,” last June. GiveCrypto.org intends to raise funds from crypto owners and distribute small amounts to people who live in emerging markets — more specifically, to those going through financial crisis.

A bitcoin-only charity called the Pineapple Fund that was established by an anonymous donor contributed 5,104 BTC to 60 charities around the world in 2017, supporting a variety of projects, from clean water supply in sub-Saharan Africa to digital rights protection. At the time, the donated digital currency was exchanged into $55,750,000.

The progressive adoption of digital currencies makes traditional nonprofit organizations more flexible in attracting funds from new sources. According to a report by the largest donor-advised fund in the U.S., Fidelity Charitable, the organization received over $30 million in cryptocurrency contributions in 2018 and $106 million since the program’s launch.

In 2017, Fidelity reportedly received $69 million — which made it a record year for cryptocurrency donations — while in 2016, the value of crypto donations amounted to only $7 million. Fidelity notes in the report that digital currency donations “eliminate any capital gains taxes and give the full fair market value to charity.”

Recently, the world was appalled by the massive destruction of the 800-year-old French cathedral Notre Dame de Paris following the devastating fire that engulfed the church on April 15. Days after, an array of companies, organizations and individuals donated millions of dollars to reconstruct the damaged cathedral, with the international cryptocurrency and blockchain community reacting promptly by launching donation campaigns as well. The French crypto community also launched a cryptocurrency donation campaign dubbed “Notre Dame des Cryptos” to help rebuild the cathedral. The team behind the campaign emphasized that many people around the world want to fund the reconstruction, with bitcoin being a global and universal cross-border solution that is reliable against censorship.

Blockchain’s potential to ensure fairer, more equitable aid and distribution of donated funds has been recognized by leading organizations around the world, including the United Nations, the Red Cross and Save the Children, and the Notre Dame case is just a local example of how effectively blockchain has been helping raise charitable donations in recent years.

United Kingdom-based Charities Aid Foundation (CAF) recognizes digital currency and blockchain as the technologies that “have some fascinating features that could have a huge impact on charities and charitable giving,” and points out their “potential for ‘radical transparency’ of donations, and the possibility of making it easier to get aid money to where it is needed.”

Commenting on blockchain integration into internal processes of charity organizations, Rhodri Davies, head of policy and program leader at CAF, told Cointelegraph:

“Radical transparency through the use of decentralised ledgers (either using crypto or some form of tokening) bring the potential for enhancing trust among donors by giving far greater certainty over how money is spent — this would be particularly valuable when giving cross-border into jurisdictions where there are often justifiable fears about corruption and mismanagement.”

However, Davies noted that radical transparency may cause problems, as well as that “many nonprofits already face challenges convincing sceptical donors about the need to spend money on core costs (which are seen as ‘overheads’ or ‘admin cost’) — if those donors were able to see where their individual donations went within an organisation, this is likely to exacerbate the problem as there would probably be many instances where a donor would not be happy that THEIR money wasn’t going to the perceived ‘front line.’”

How blockchain and crypto may transform the charity space

Recent years have marked a significant progress in the adoption of digital currencies and blockchain in philanthropy by some governments and international organizations. Indeed, blockchain enables donors to see what path their donations came from — from the moment it was contributed to the moment it was spent — purportedly ensuring a high level of transparency and eliminating misreporting.

The blockchain-powered project GiveTrack, backed by bitcoin nonprofit organization BitGive, was created with the objective to let donors trace transactions on a public platform in real time, thus being aware of the final destination of their donations. Over the life of the platform, it recorded fund flows to projects featured from Code to Inspire, Desafio, Run for Water and America Solidaria. BitGive — which supports 12 cryptocurrencies — carried out global campaigns, including Medic Mobile, the Water Project, Save the Children, Techno, Fundación Parlas and Team Rubicon for Tornado Relief.

Davies stressed that charities also need to be careful what they put on a ledger:

“For instance, if a grantmaker is funding LGBTQ rights in a country where homosexuality is still illegal (e.g. Uganda) and they use a blockchain-based platform to move money, they would need to be very careful that they didn’t unwittingly publish information that allowed organisations or individuals to be identified and arrested.”

News broke in 2015, when nonprofit media outlet ProPublica reported about inappropriate expenditures of donated funds that the Red Cross received in the course of the Lamika project, which was aimed at building of hundreds of permanent homes for those affected by the earthquake in Haiti’s capital city, Port-au-Prince, in 2011. The Red Cross had reportedly received nearly half a billion dollars, while only six houses were built as of 2015. “The Red Cross won’t disclose details of how it has spent the hundreds of millions of dollars donated for Haiti. But our reporting shows that less money reached those in need than the Red Cross has said,” the news outlet argued.

Notably, the survey “Trust in Charities and the Overseas Developments Sector” prepared by research consultancy firm nfpSynergy shows a 6% fall in people’s trust in charities in 2017, wherein 54% of 1,000 surveyed adults said they trusted charities “a great deal” or “quite a lot” compared with 60% a year earlier. Blockchain is set to cut out middlemen and issues presented by bureaucracy, as well as a lack of administrative expertise, which could subsequently improve the reputation of charities.

Francesco Nazari Fusetti, social entrepreneur and founder of Ethereum blockchain-based token AidCoin and full-service platform CharityStars, which was designed to allow charitable organizations to raise funds, told Cointelegraph that “charities must keep in touch with their donors all the way through the project, and keep updating them about the new milestones reached” in order to prove that a success story is true, as well as to ensure the work is sustainable. Nazari Fusetti continued:

“Adding financials and proofs of payment definitely helps to create a success story, but only with crypto and blockchain we can aim to give full transparency about the use of funds.”

Davies made an example of the use of decentralized autonomous organization (DAO) structures that purportedly enable social movements to coordinate and operate more effectively at scale:

“We have already seen a growing trend for such movements to take the form of loose networks rather than traditional centralised organizations (e.g. Black Lives Matter, #MeToo, the climate strikes). Often these movements face challenges in terms of maintaining focus and momentum, or carrying out practical action, and the additional structure provided by a DAO might enable them to overcome these challenges but without having to adopt traditional approaches.”

Among other challenges blockchain can purportedly help solve are slow settlement times for transferring funds from philanthropy organizations to beneficiaries and the volatility of contributions made in foreign currency or securities. Although price volatility of digital currencies poses the risk that donations could be worth something different the moment it is needed, it also applies to foreign currency markets.

Last October, Binance released a report on crypto donations to provide relief for west Japan following devastating floods in mid-July, stating it had raised $1.41 million in various types of ERC-20 tokens at the time. Volunteer service provider Open Japan — which received 169.85 ether (ETH) (5.3 million yen, or $47,257, at that time) from Binance — said that “it was carried out instantly, and after confirming the transfer we were able to convert it to Japanese yen. Receiving this donation left us with a deep impression of cryptocurrency: both its growing effect on our world and its potential.”

Digital competence of charities

Bitcoin is currently the leading cryptocurrency in terms of charitable donations. While no exact figure is available for the amount of bitcoin that charities received in 2017, it was certainly in excess of $100 million, eXeBlock’s survey dubbed “Eight Ways Charities are Cashing in on Cryptocurrencies” says, and further adds:

“For U.S. donors, making charitable contributions in cryptocurrency is a good tax planning strategy because if the IRS considers these currencies as property for tax purposes, meaning that upon liquidation, any appreciation of the assets are subject to capital gains tax. However, if the cryptocurrency is donated prior to be being converted to dollars, the donor receives a tax credit equal to the market value of the asset at the time of donation. There is no tax on cryptocurrencies that are converted to cash in a donor advised account. This approach increases the donation size by up to 21%.”

Speaking about major obstacles that stand between a charity and its mission, Nazari Fusetti named fundraising to be the biggest issue for charities nowadays. This is, according to him, why charities are keen to explore new tech opportunities to attract new donors.

Sharing his experience of working with charities, Jorge Mejia, assistant professor of operations and decisions technologies at the Kelley School of Business at Indiana University, told Cointelegraph that charities are “often not led by tech-savvy leaders, but I think they are getting better over time. Particularly, because many charities have realized they need some online presence to tap into the charity crowdfunding market. I think a large gap for charities is obtaining volunteers that want to work on the tech side of things.”

Meanwhile, among 5,352 nongovernmental organizations surveyed, 72% accepted website donations, with only 1% accepting bitcoin, and only 3% had a digital wallet. In the United Kingdom, only 15% of surveyed charities have been through the full digital transformation process and have embedded it, while 45% did not have a digital strategy at all.

In 2018, the survey showed skills to be the second-biggest barrier (51%) for charities, following funding (58%). Over half (53%) reportedly saw their digital strategy skills low, and 55% rated themselves as fair or low at keeping up to date with digital trends.

Notably, 73% of the surveyed charities said that they had low to very low skills in artificial intelligence (AI), which is up from 68% a year earlier. Also, 62% of the survey participants reportedly rated their digital fundraising skills as fair to low, with 58% saying their digital governance skills as fair to low.

Nazari Fusetti argued that “through blockchain we could score a life changing goal for charitable organizations.” However, the general trend shows that charities are reluctant to tech adoption:

“Generally charities are reluctant to tech adoptions but there are some cases, especially with big brands such as UNICEF, which show the opposite. Innovation takes time, skilled employees and financial capital which are limited resources to small charities. Therefore it makes it more difficult for them to embrace new technologies.”

Davies stated that technologies such as augmented reality (AR) and virtual reality (VR) have already entered the charity sector, as these technologies can purportedly be deployed to craft compelling narratives and drive empathy. According to Davies, a number of nonprofits already use AR and VR in their fundraising and awareness-raising.

The key findings from TechTrust’s “Digital Survey 2018” report, which surveyed 1,262 charity organizations, show that in 2017, the majority (58%) of charities did not incorporate digital into their overall strategy, with 14% of those with no IT staff being from large multinational companies.

Of them, 82% reportedly hold sensitive data that is not to be shared and are aware of the General Data Protection Regulation (GDPR). Also, 27% of the surveyed said they would upgrade their IT infrastructure, and only 9% of charities were planning to reduce their spending on IT infrastructure. Of the surveyed charities, 31% did not have applications in the cloud, 9% did not have remote access to their customer relationship management (CRM), and 27% saw benefit in cloud software.

According to the International Fund for Agricultural Development, “transaction costs to send remittances currently exceed $30 billion annually, with fees particularly high to the poorest countries and remote rural areas.” The World Food Program — the food-assistance branch of the United Nations and the largest humanitarian organization fighting hunger — claimed that, through the implementation of blockchain, it managed to reduce fees for international payment transactions, which let the program to save around $150,000 a month.

Mejia argued that philanthropic organizations can strive to record and track their successes and failures using mobile and web apps, and added:

“A charity no longer needs to depend on a small but influential number of donors but can actually reach millions of people through the web. However, I think to be successful online, charities need to document their ability to deliver value. They need to be able to show potential donors that they can truly solve problems for people in need. [...] The question is whether they can do it consistently. I have always felt that there is too much distance between donors and charities. For example, if I donate $10 for an emergency relief effort, why can’t I get some assurance that the money was used properly?”