The humanities and technology don’t always go well together, but in recent years nonprofits have begun looking at innovations like blockchain to support their work.
Potentially providing a large number of versatile solutions to an equally large number of unique problems, blockchain implementation is definitely not a one-size-fits-all solution. While blockchain has its limitations, if implemented correctly, it is an innovation that can change the way both commercial enterprises and non-profit organizations operate.
Blockchain for Nonprofits?
It can be difficult to understand how a technology that is most often associated with cryptocurrency connects to a non-profit organization. But why not? Blockchain-based solutions have been deployed in many sectors, from artistic authentication to business smart contracts, digital voting, and business process management.
Essentially, the only way a non-profit differs from a commercial business is that its primary goal is not to make money. Still, nonprofits have business needs to address: project management, analytics, accounting, etc. There is no doubt that non-profit organizations can also take advantage of the expertise of blockchain consultants to help them solve their organizational problems.
How Blockchain Solves Problems for Nonprofits
Unlike commercial enterprises, nonprofits as actors for good also experience issues around trust, accountability, and transparency that can be detrimental to achieving their goals. missions. Give.org’s 2019 Donor Trust Report shows that only 19% of respondents have a great deal of trust in charities.
Let’s take a look at the main problems of non-profit organizations and their solutions based on blockchain.
The Issue: Corruption and Liability
A hot topic right now, one of the key issues facing nonprofit organizations is liability. Especially given how recent scandals, from unethical spending to mission drift, have shaken its once pristine image, more and more people are recognizing that those who work for nonprofits aren’t always as clean as they appear. be.
Corruption can be particularly prevalent in economically less developed countries where many non-profit organizations operate. This happens in a variety of ways, including misplaced aid, bribes, and favors for aid, and is particularly damaging to an organization’s image. ACFE reports that nonprofit organizations suffer an average loss of $75,000 due to occupational fraud, including corruption.
But does that mean people shouldn’t donate? Absolutely not. There are those who really need it, and we should not turn our backs on them because of the bad decisions of a few. The fact is that humans are, by nature, flawed. And while we’d like to believe the best about people, sometimes they need a little help staying honest, and this is where accountability comes in.
The blockchain solution
So what makes people responsible in their roles? Information, transparency and general openness in what they do. Blockchain can provide nonprofit organizations with the opportunity to account for their activities, track the passage of funds from donor to beneficiary, and show that the latter’s employees are fulfilling their actual obligations.
When funds seem to “disappear” or cash solutions prove complicated, the use of blockchain for nonprofits can help hold these organizations accountable for exactly how the funds are used. Since each transaction is intricately recorded, any misuse of funds becomes apparent.
The Problem: Trust and Transparency
According to the study Determinants and Consequences of Transparency in Non-Profit Organizations published by the Journal of Accounting, Audit and Finance in 2018, non-profit organizations that are more transparent receive 53% more in contributions compared to less transparent ones. Nonprofits should keep in mind that donors are doing their research before contributing. In addition to a nonprofit organization’s mission and goals, the availability of financial reports may be the key factor influencing a donor’s decision.
In some cases, nonprofit organizations may be hesitant to share their financial reports publicly due to the high overhead costs. However, these expenses are justifiable, as donors will have confidence that their money will have an impact.
Information about how donations are used provides a level of transparency that cannot be achieved in any other way. And in the case of non-profit organizations, the level of transparency corresponds directly to the volume of donations.
The blockchain solution
Donors can now be sure that their funds have reached their desired destinations. Instead of publishing exhaustive reports that are often difficult to validate, nonprofits can simply make their wallet addresses public. The ability to track funds in real time will expose waste and ultimately restore donor confidence.
For example, Alice.si assures donors that their money is really making an impact by storing all donations in smart contracts on the Ethereum blockchain. The platform automatically releases donations to charities only when they reach specific advertised targets. This allows for an unparalleled level of transparency and accountability.
Blockchain means that once a transaction is made, it is permanently encrypted on the network and there is an extremely low probability that this information can be changed. This can also be useful when a donor needs to show proof of donation, as the transaction ID will be enough to prove it.
Blockchain is presented as an almost infallible platform to track funds, services and actions carried out by a non-profit organization. It can help regulate and control cash flows, helping organizations show that their funds are really going to those who need them.
The Problem: Anonymous Donors
From philanthropists doing good to those who may be persecuted for investing in certain nonprofits, anonymous donors have a variety of reasons why they want to remain unknown. Traditional funding methods make it difficult to maintain this anonymity as there is always a financial trail somewhere, whereas blockchain presents the ultimate solution to confidentiality.
The Blockchain Solution
Although every transaction can be traced on a blockchain network, digital wallets can successfully mask the identities of the owners. Transactions can be performed using smart contracts, which automatically trigger a predefined action once certain conditions are met.
The Problem: Overhead
Like any other type of business, nonprofit organizations rely on intermediaries to market their philanthropic intentions and maintain their business operations. This includes bank and exchange fees for international payments, marketing expenses and human resources.
The Blockchain Solution
Due to the architecture of blockchain technology, most intermediaries, such as banks and payment services, are left out of the equation. This helps nonprofit organizations reduce administrative costs and get funds directly to those who need them faster.
The adoption of blockchain-based solutions is also attracting a new target market of donors with strong incentives to donate in crypto. Some non-profit organizations may be put off by the idea of accepting cryptocurrency due to its volatility. However, services like The Giving Block make handling digital currencies risk-free by instantly converting them to cash upon receipt.
The Problem: Emergency Relief
When it comes to catastrophic events, time is priceless. Effective disaster relief requires comprehensive coordination among multiple parties and timely allocation of resources. Unfortunately, current emergency response methods lack the required level of efficiency.
The blockchain solution
It can be challenging to get the necessary funds in place in time to prevent further damage. Since the blockchain is decentralized, funds can travel from one part of the world to another in seconds and with much lower fees.
In addition, the blockchain also serves as a reliable system to do so in case a bank or a national currency collapses, since it retains a certain level of its value (usually compared to the US dollar). One such example occurred in Syria, when the United Nations Food Program provided aid to refugees through the Ethereum blockchain.
Currently, emergency funds distributed by nonprofits to underserved communities are often misused or spent too quickly to have a lasting impact. Furthermore, some economies simply lack the cash to provide. However, blockchain-based financing has great potential for non-profit organizations in this regard.
For example, the Red Cross has unveiled a two-year project to help vulnerable communities by deploying blockchain-based local currencies and thereby stimulating economic activity. Instead of donating fiat money or providing in-kind aid, they help community members become self-sufficient by earning blockchain-based coins for their social services and managing them with mobile wallets.
Other Blockchain Solutions
Less prominent but still significant, these solutions can address other current issues facing nonprofits.
During war and displacement, establishing who is who may be impossible once the dust settles. But even without conflict, one in four children under the age of five does not officially exist, according to UNICEF. By implementing cost-effective blockchain solutions for birth registration, it is possible to grant a legal identity to a person who might otherwise be left without one. This can act as a form of identification and help ensure that no one is left in the cracks when it comes to accessing services, advocating for their rights, or participating in education.
The real estate industry suffers from ineffective protection of property owners’ rights and a lack of transparency. Blockchain solutions can help track the history of a property and detect discrepancies, such as illegal land acquisition.
For example, the US startup Ubiquity partnered with the Brazilian Real Estate Registry Office to improve its real estate ownership registration process. Brazil has always suffered from high rates of fraud and corruption in the real estate sector. Owners now take advantage of the immutability of a blockchain-based data record system that guarantees their property rights and greatly reduces the potential for fraud.
Right to Free Speech
As much as we would like to believe it, free speech is almost never free. Some countries choose to censor the media to skew public opinion and hide events that could be of interest to non-profit organizations. Blockchain-based social platforms can protect free speech rights without risking repercussions.
The importance of big data and its business impacts should never be underestimated. Partly because of its value, it continues to attract cybercriminals.
Theft of donor financial information, data manipulation, and identity theft are real examples of cyber threats to nonprofit organizations. While many organizational leaders are aware of this, NTEN’s 2018 State of Nonprofit Cybersecurity report shows that more than half of nonprofits (68.2%) have no policies and Documented procedures in the event of a cyber attack.
To ensure the highest level of security possible, nonprofit organizations can use private blockchains to store data. Using end-to-end encryption can provide nonprofits with a much higher level of data security and confidentiality, which will also make anonymous donors more willing to donate to nonprofits.
UNICEF Invests in Blockchain
In December 2018, UNICEF announced its intention to invest up to $100,000 USD in blockchain startups through its innovation fund. Chosen innovators included Atix Labs, OS City, Prescrypto, StaTwig and W3 Engineers.
Let’s take a closer look at these initiatives.
An Argentinian developer of blockchain platforms, Atix Labs focuses on democratization and traceability of funds and addresses issues of transparency and accountability. The company makes sure that the funds raised through crowdfunding platforms get to where they are supposed to by using smart contracts.
Based in Mexico, OS City seeks to address issues of corruption, transparency and accountability with a platform that tracks the implementation of state-provided social services and reports on how resources are allocated.
Another Mexican startup, Prescrypto, provides a blockchain-based platform that helps patients send medical information anonymously to pharmacies and doctors. This solution effectively protects sensitive patient data and leverages blockchain interoperability to connect healthcare professionals. The technology can become revolutionary as miscommunication between pharmacies, physicians and physicians often leads to poor medical outcomes.
This Indian startup uses blockchain to increase transparency for logistics providers and their customers. Its goal is to help prevent corruption and ensure proper distribution through its blockchain-based platform that tracks food and vaccine deliveries.
Based in Bangladesh, W3 is developing a blockchain-based open source messaging service to provide access to digital communication to remote areas. The company’s solution helps connect refugees, humanitarian workers and NGOs for emergency communication and broadcast purposes.
The idea of using blockchain for nonprofits has not yet been fully embraced, but it holds great potential to solve critical issues around trust, accountability and corruption and rebuild the faith of people who invest. in doing good.
However, blockchain technology is not a panacea solution that can be applied in any situation. To provide real value, organizations need to thoroughly assess their challenges and ask important questions like: “Is blockchain the only feasible solution for us?”
At the same time, nonprofits often don’t have enough proficiency with emerging technologies to make informed decisions about their adoption, which is understandable since their goals are in a different category. In such cases, organizations should take advantage of partnerships with subject matter experts to get the most out of blockchain technology.
Early solutions can be expensive and confusing, but nonprofits don’t have to go it alone. This nascent field has seen many productive partnerships, and trusted providers can broaden the possibilities for nonprofit organizations to achieve their key goals and make the world a truly better place.