How Cryptocurrency and Blockchain are Changing Philanthropy: Expert Take

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Much of the growing interest in Bitcoin and other digital currencies has focused on getting and not giving. But flying under the radar is an exciting new trend toward leveraging cryptocurrencies for philanthropy.

Fundraising with Crypto

Over the last few years, a number of charities and foundations have been trialing Bitcoin donations. These include such well-known organizations as the Red Cross, Save the Children, United Way and the Electronic Frontier Foundation. Cryptocurrency donations to charity are clearly on the rise. Fidelity Charitable, which houses the nation’s largest donor-advised fund, received $69 mln in cryptocurrency donations in 2017, up from $7 mln received in 2015 and 2016 combined.

Beyond charity donations are many innovative platforms and projects happening in the emerging “crypto-philanthropy” space. These include crowdfunding platforms such as BitHope, which allows donors to make Bitcoin donations to selected charities for their fundraising campaigns. Besides, some new tools like GiveTrack and Alice can track the flow of donations from donor to a donee openly, and to verify what charities have received and achieved, all on a Blockchain.

Charity coins

Beyond cryptocurrency donations and tracking, a number of social purposes digital coins have been created to support specific nonprofit programs and endeavors. Clean Water Coin, for example, was designed to raise money for the nonprofit Charity:Water and bring clean water to the families around the world. Pinkcoin, a philanthropy coin which allows investors to both donate to charity and to earn a return on their investment, is listed on major cryptocurrency exchanges and has performed well in comparison to other commercially traded digital currencies.  

Crypto-foundations

Another new arrival in the cryptocurrency for charity space is the “crypto-foundation.” One anonymous investor established a foundation to give away 5,057 Bitcoins.  The motto of the donor’s charity, the Pineapple Fund, is: “Because once you have enough money, money doesn’t matter.” So far, through the anonymous outreach of an individual who goes by the moniker of “pine,” $56 mln has been donated to 56 hand-selected charities.

Further down the road, we may even see an autonomous and decentralized foundation or fund, under which grant and financial distributions are made purely through the votes of holders of foundation created tokens. Such a “Distributed Autonomous Foundation” would be governed by an external collective of shareholders with the right to direct donation flows and even produce and fund project ideas through majority token rule.

Blockchain-based systems could also help to improve the reputation of charities. According to recent studies, one in three Americans are said to lack faith in nonprofits, many believing that these institutions spend too much of their budgets on overhead and too little directly on programs. Reduced overhead spending due to improved operational efficiencies and disintermediation through Blockchain technologies (e.g., direct donor to beneficiary giving) could help restore faith in charitable giving among skeptical givers. This, in turn, could lead to increased philanthropic engagement and a rise in overall giving.

In the future more charities, and even foundations, could produce their own cryptocurrencies, the sale of which may enable a new sustainability model. A charity token exchange developed exclusively for the buying and selling of them, may one day bolster a new market-based approach to philanthropy in which both philanthropists and charities make money from trading “digital currencies for good.” Nonprofits and foundations could also engage in fundraising through token mining.

Despite unlimited opportunities, there are many challenges ahead. Most prominent among them is the fact that digital currency donations and Blockchain anchored systems are still new and untested in the world of philanthropy, and there is limited awareness and interest among individual givers, charities, and foundations.

What the future holds

In the short term, it is unlikely that cryptocurrency and Blockchain platforms will significantly disrupt or displace traditional philanthropy, but they will drive further innovation and experimentation in the sector.

As donations through Bitcoin and other digital currencies become more commonplace and acceptable and assuming the crypto market continues to flourish, crypto-philanthropy will indeed grow. There will also be more testing of smart contracts and Blockchain managed giving and tracking which, if successful, could establish a new norm for transparency in philanthropy. Ultimately, as givers and beneficiaries interact more directly, we may see diminished roles for charities, aid agencies, and foundations - in some cases even the removal of these entities from the philanthropic equation.

On the flip side, if greater transparency in giving and impact does lead to increased confidence in charities, millions (or even billions) of dollars more could be generated for the social sector.

Regardless of which way the wind blows, it’s a brave new world just waiting to be explored by those wanting to give a little back.

Paul Lamb

The views and interpretations in this article are those of the author and do not necessarily represent the views of Cointelegraph.