Bitcoin’s huge surge has put cryptocurrency in the spotlight. Finance giants like CME and CBOE are bringing bitcoin into mainstream trading markets, and big businesses are looking into other uses for the underlying blockchain tech.
So what’s in it for nonprofits that might want to get in on the action? There’s the potential to raise cash — but also to change the way people track how their donations are put to use.
Bitcoin is already being used for donations: Fidelity Charitable told the New York Times it had received $13.5 million in bitcoin donations in the first 11 months of 2017, and groups from the American Red Cross to the United Way have accepted bitcoin.
Rumi Morales ⇒, the former head of CME Ventures who’s also a board member at the Chicago Blockchain Center, has been watching the technology for years. While bitcoin’s meteoric rise may draw the attention of more nonprofits, she cautioned against charities accepting donations in the currency just to take advantage of hype.
“If you simply want to jump in because you’ve heard the buzz about it, I would caution anyone against accepting buzz over real money,” Morales said. “Bitcoin and digital currencies can be accepted at some type of value, but as we’ve seen, it can be very volatile.”
But she and other experts see applications beyond just the bitcoin gold rush. They see immense promise in blockchain, the system that sits at the heart of bitcoin and its numerous sister currencies. It’s essentially a mechanism to determine who owns a piece of digital currency and when they took possession of it.
“It’s fundamentally a technology more than it meets any real definition of a currency as most people understand it,” Morales said. “It’s hard to separate bitcoin and blockchain, but they have very different uses. When it comes to nonprofits, personally, I feel that blockchain is more valuable.”
The tech — known as a distributed ledger — is being used by major companies like Walmart and IBM as a new way to track products all the way down the supply chain. A blockchain-based system could streamline payment processing, replacing some middlemen with smart contracts that automatically send payments when certain criteria are fulfilled.
It’s potentially a big breakthrough for business. But in the world of nonprofits, where accountability is king and many donors demand transparency for where their money is going, it could be a game-changer.
Chicago Blockchain Center founder Matthew Roszak is an advocate for the technology’s potential to open up opportunities for nonprofits. He sits on the board of California-based BitGive, which created a bitcoin-based donation platform called GiveTrack that allows people to track their donations in real time.
By using a blockchain ledger, donors and outside observers can meticulously track their donations all the way down the line, he said.
“If you’re able to build a blockchain workflow and really see accountably what’s happening to the dollar … from donor to recipient, and be able to account for the nails and two-by-fours being used to build a school or what have you,” Roszak said, “then my sense, in turn, is if you have that kind of transparency, people wind up giving more.”
GiveTrack launched Oct. 24 and is currently raising money for a few projects, including efforts to build water wells in rural Kenya. It only takes donations in bitcoin today, but the system is able to track progress even after the donation is converted into cash at the end of the chain.
GiveTrack is one of only a handful of organizations that have been able to create a minimum viable product using blockchain to track charitable work, said Rhodri Davies, head of the Giving Thought think tank at the U.K.-based Charities Aid Foundation.
Davies has been studying the implications of blockchain for nonprofits since 2013. While he sees promise in the idea of tracking donations from start to finish, including the potential to reduce corruption, he also thinks total transparency wouldn’t always be a good thing.
“If you’re a development donor and you’re giving to organizations or groups of individuals in Uganda who work on gay or lesbian rights — well, that’s illegal over there,” Davies said. “If it was all on a public blockchain, and the government could just identify all the recipients, they could have a long sort of shopping list of people to go out and arrest.”
On a more basic level, Davies said it could affect the way donations are distributed, taking away money from things like day-to-day nonprofit management.
“A lot of donors believe that too much money is spent by nonprofits on things that they consider overhead or unnecessary core costs; it’s a challenge for nonprofits to show why it’s necessary,” he said. “Donors might be able to use a smart contract to ensure that their donation is only used on certain things like front-line services and not things like fundraising or administrative costs. All of a sudden, that could make it a lot more difficult for organizations to operate.”
On the other side of the coin, Davies believes that down the road, blockchain could also facilitate charitable giving without needing a big organization in the middle — particularly if smart contracts were used to ensure that criteria are met and money is spent properly.
“I’m not suggesting that it’ll necessarily do away with traditional nonprofits or charities, but it raises the question of ‘What are the bits you need to centralize?’” he said. “If you could get big networks of traditional donors coming together and get money directly to people who need it on the ground in another part of the world … then what is it about the old-fashioned model, or the kind of current model, of central governance that still has value?”