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Blockchain for charity fundraising: behind the buzzword

Getting to grips with the technology underlying blockchain and cryptocurrency can seem ‘cryptic’. But these innovations have some clear benefits for the charity sector, as we explain.

Blockchain is a revolutionary technology that could have a huge impact on the charity sector and philanthropy, helping to manage and distribute funds in a secure and transparent way.

Businesses and governments are already using blockchain innovations in wide-ranging use cases. But what exactly is it, and why does it matter? Blockchain and cryptocurrency can seem like enigmatic buzzwords, and the maths behind them is certainly complex, but the ideas behind them are actually not too difficult to understand. Getting familiar the basics is worthwhile as blockchain becomes more widespread and commonplace.

Blockchain first emerged in 2008 because secretive transactions over the internet needed enormous trust between buyers and sellers, or banks to mediate. Anonymously penned by a mysterious unknown person known as Satoshi Nakamoto, a white paper was released which suggested a way to eliminated the need for a bank to intermediate between buyers and sellers.

The idea is relatively simply – blockchain is essentially a ledger of transaction data that is owned and maintained by all users of the system. Random actors in the market act as ‘nodes’ to verify and make sure that transactions added to the ‘blockchain’ are  real. These transactions are then encrypted and added onto the public ledger – this ledger discourages fraud because they mean complete transparency of all transactions carried out, and is completely tracked and verified. Nothing can be altered once it’s in the ledger and it guarantees security against any kind of data manipulation.

Once released in 2009, the open-source code for creating blockchains gave birth to digital currencies (cryptocurrencies) – digital currencies built on this blockchain technology, that are not linked to any government or centra bank. Bitcoin, the most well-known, now serves as a bell weather for the value of cryptocurrencies, amongst others that have emerged like Ethereum and Litecoin (there are currently 1,600 different cryptocurrencies available).

Breaking the code

Cryptocurrency for charities, being not as established as major hard currencies, has its drawbacks.

One is the lack of understanding around blockchain for charities. One of the earliest adopters of cryptocurrency for charities, the RNLI started accepting digital currencies in 2014.

In an interview with the Guardian newspaper, Luke Williams, the RNLI’s social media and innovation officer at the time noted that, “Any initial reservations were often based on a lack of knowledge. There have been negative stories and we discussed these, but we felt that, on balance, this was a technology that we should know more about. We took time to understand how it worked and to figure out how we could accept donations in the most secure way.”

The other, more glaring point for charities to note is the price volatility of cryptocurrencies. In the first week of July this year alone, the price of the most widely traded cryptocurrency, Bitcoin, ranged from a low of £8,668 to a high of £16,118 – the remarkable range makes it very difficult for charities to make financial plans around the value of the currencies they have to hand.

But this volatility can work to the advantage of both donors and charities. The appreciation of cryptocurrencies can be advantageous in that a donor may donate purchased cryptocurrencies at low prices, leaving charities with the appreciating pricing upside.

Looking into the future, transparency is key to how blockchain can be used to trace the whereabouts, and use of, donor funds.

“The idea that transparency, public ledgers and non-fungible units are all around donation transparency. Pretty much all the live projects have transparency as one of the key features,” said Rhodri Davies, Head of Policy at CAF, in an interview on how blockchain will impact the charitable sector.

While blockchain and cryptocurrencies may still be mysterious to many, the growing interest, funding, and donor possibilities have excited many more in the third sector, prompting not only individual charities to accept cryptocurrencies, but support for pilot projects to encourage its wider adoption.

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