Blockchain: what charities really need to know

Don't have a clue about digital public ledgers? Then read on

Unless you are a troglodyte, the chances are that you will have heard of this year's buzzword – "blockchain".

But what precisely is blockchain and why is it the subject of so much hype?

Earlier this week, the think tank Charity Futures published the report Nothing To Lose (But Your Chains), which examines the potential of the technology in the charity sector. Written by Asheem Singh, the former interim chief executive of the charity leaders body Acevo, the report says blockchain technology "could herald the sort of seismic changes in the charity sector as the digital revolution before it". Yet many people in the sector know little about blockchain.

So here is Third Sector’s guide to the crypto-craze.

What is blockchain?

Most people know blockchain as the technology behind the crypto-currency bitcoin, but are unaware of its wider potential. A blockchain is a digital public ledger containing records of transactions. No one person controls the ledger and it does not exist in a central location. Anyone on the network can see it and approve new transactions before they are verified. Each transaction adds a block of information to a chain. "The technology has the potential to revolutionise almost any transaction involving value, whether money needs to be exchanged, goods need to be traded or services delivered," Singh says.

How can charities benefit?

Crypto-philanthropy "could provide immense funding benefits", says Rhodri Davies, head of policy at the Charities Aid Foundation. For example, last year an anonymous bitcoin early adopter set up a philanthropic fund called the Pineapple Fund with $86m (£65m) of donated bitcoins. By May this year the fund had donated $55m (£41m) to 60 charities. Charities can also create blockchain fundraising appeals. 

Are any charities doing this?

The RNLI became the first major charity to accept bitcoin donations in 2014, but few have followed suit. Luke Williams, former project lead at the RNLI, says the charity's future developments insights group, which identifies emerging trends, evaluated and then recommended accepting bitcoin donations. Now anyone who visits can donate via either a bitcoin wallet address or a QR code. A list of all anonymised donations is available on the RNLI website.

Williams says setting up a system to receive bitcoin donations wasn't difficult, but many charities remain unsure and lack expertise. "Some people associate it with the dark web, but there is a higher percentage of illegal cash transactions," he says.

What are the other benefits?

Blockchain can be used to transfer digital currencies, decentralise governance and conduct auditing in real time. Aid agencies are particularly interested in its potential, because bureaucracy and corruption diminish the value of government aid distributed to banks. Blockchain's transparent supply chain allows government, NGOs, delivery partners and beneficiaries to share and approve details of each transaction. Federico Malvezzi, business development and project lead at AidCoin, which helps charities implement blockchain, says this open history of transactions can revive the sector's image. "It's a huge opportunity for charities hit by scandal to show they are transparent," he says. "If trust is there, money flows in."

What are the pitfalls?

There is little regulation, prompting some governments to consider prohibiting crypto-currency trading. Early trials have not proved overly successful. The homelessness charity St Mungo's raised less than £5,000 from a fundraising campaign that used the blockchain platform Alice, which allowed donors to track the impact of donations. Rebecca Sycamore, executive director of development at St Mungo’s, says: "We're open still on long-term prospects and use. However, it remains to be seen if there can be any substitute for excellent stewardship and donor-relationship development in terms of achieving fundraising goals."

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