The benefits of blockchain technology are creating new operating models for many types of organizations. Charities, which manage large amounts of money, require complex accounting and conduct a lot of research, have much to gain from blockchain technology as digital transactions and smart technology increase.
The Charities Aid Foundation (CAF), based in London, U.K., recently released a 20-page report , “Giving Unchained – Philanthropy and the Blockchain,” which examines how blockchain technology will affect the way charities raise money and operate. The report presents an example of how “smart” household appliances – appliances connected to the blockchain – will generate funds for owners and help them decide what charities and causes to support with these funds.
In a previous paper, “Giving Thought,” CAF explored risks and opportunities associated with the growth of cryptocurrencies for charities. While digital currencies are at the forefront of discussions about the future of money, the new report notes that the most interesting aspect of cryptocurrencies is not the currencies, but the blockchain that supports them. The blockchain is a shared public ledger that records all transactions and who owns what at any given time.
The report claims the blockchain could change the way people contribute to charities and the way charities address social problems.
The report asks the following:
• Can digital colored coins that represent assets create a way to make donations of intangible assets like intellectual property?
• Can self-governing contracts provide new opportunities for businesses to embed philanthropy as well as new ways for charities to raise funds and address social problems?
• Can the blockchain offer a “radical transparency” to overcome the lack of public trust?
• Will the “Internet Of Things” supported by blockchain technology deliver an environment in which smart machines become a “hyper-rational” donor class?
Key features of the blockchain are:
• Transparency: The ledger is public and can be seen by any user. Any system based on it is fully transparent.
• Reduced transaction costs: The ledger is maintained and owned by users, so there is no need for a third party, thereby reducing associated costs.
• Building trust: Since blockchain technology eliminates the need for third parties and makes transactions open, it could deliver major benefits in improving trust.
• Integrating the physical and the digital: Blockchain technology provides a way to represent any asset, tangible or not, in the digital world. It does this in a way that ownership status can be identified at any point in time while being completely integrated with digital payment mechanisms.
The report goes into extensive detail on each of the above four topics.
As more appliances go online, they could become part of the blockchain, adding their processing power in exchange for money.
Opportunities for charities include:
A user will be able to view any transaction’s details. The blockchain, being maintained and owned by all users, eliminates the need for third parties.
Smart contracts are computer protocols that are supported by blockchain technology.
Where traditional contracts need a third party to execute terms, smart contracts are self-executing and are designed to be independent. They can trigger payment when certain conditions occur. Such contracts could create significant support for global charities serving countries where reliable third parties are hard to find. Businesses could also use these contracts to meet pledges on their contributions to charities.
A company could set up smart contracts that specify a certain percent of profits above a particular threshold be allocated to a charity. An electric meter could be programmed to that a percentage of any financial savings made by energy saving measures be given to a charity.
“There is an obvious opportunity for charities to promote this as a way of giving, and to partner with companies that could enable such contracts,” the report states.
As energy meters, toasters, washing machines and refrigerators are becoming connected to the Internet, blockchain technology could offer a tool to enable these appliances to connect with each other seamlessly as well as to users. The appliances could sell spare processing capacity to the blockchain in exchange for money. With smart contracts in place, the user could decide which charities to support.
Blockchain technology could change how people think about asset ownership. It could result in a “sharing economy” demonstrated by services such as Uber, AirBnB and ZipCar. Contributions of spare physical capacity could offer new ways to address social problems. Smart buildings, for example, could create new ways to identify and allocate unused space that could address the challenge of rough sleeping.
The paper includes a diagram showing how a philanthropic washing machine called “Altruistic Industries Caritas 3000″ works. The machine has a philanthropic goal in addition to providing clean clothes. The user can choose to give to causes or allow the machine itself to select donations with the assurance that they will go to the best organizations.
The guide instructs the user to connect the machine to “all appropriate supplies.” It recommends using an approved Altruistic Industries (AI) installer for this task. Next, the user specifies the smart contract conditions to determine which donations will be made.
It could stipulate that revenue will be created by offering spare processing capacity for blockchain maintenance exceeds a certain amount. The device could offer a menu of suggested rules. The user would also be able to create their own rules.
Lastly, using the AI software to select where donations will go. They can specify a charity or group of charities. Or they can choose the cause but not the specific recipient; the device analyzes performance of organizations for the selected cause and decide which one receives the donation. This option requires a smart secondary contract that specifies how these decisions will be made.
Also read: Major U.S. charities start to accept bitcoin
Non-profit organizations and charities need to recognize the huge implications the blockchain will have for changing the way they do business and the nature of social action, said Rhodri Davies, the report’s author.
Major challenges charities currently face include increasing transparency, raising money and improving effectiveness in helping beneficiaries, Davies said. The answer to these challenges could be in a technology that is likely to become mainstream.
The report notes that the blockchain does face challenges, but also offers big opportunities for charities in how they will operate and communicate with beneficiaries and supporters.
Images from Shutterstock and CAF.