Blockchain in the charitable sector: introduction to crypto-philanthropy

Charities often face obstacles to their success, due to a lack of transparency, accountability issues and how they can accept donations. Crypto-philanthropy (or the use of blockchain technology to facilitate charitable donations) offers an alternative solution, with decentralized and direct transactions that can help these organizations receive donations and raise funds more efficiently.

Blockchain Basics

The creation of blockchain systems has brought many benefits to many industries, as they enable increased transparency and data security. Although the concept existed long before Bitcoin was created, it is only recently that the potential of blockchain has begun to be recognized on a larger scale.

Blockchain is indeed a fundamental component of almost all cryptocurrency economic networks. A concept that was pioneered by Satoshi Nakamoto as a digital ledger inherent to Bitcoin, but the technology has since been applied to many other scenarios and has proven very useful, not only for digital currencies, but also for many other kinds of digital communication and data sharing. .

The Bitcoin blockchain operates as a DLT (Distributed Ledger) technology, protected by cryptography and managed by a vast network of computers (the nodes). Such a structure allows borderless peer-to-peer (P2P or peer-to-peer) transactions in an environment that does not require trust. The concept of “trustless” means that users do not need to trust each other, because all participating nodes are required to respect a predefined set of rules (specified by the Bitcoin protocol).

The Bitcoin ledger used for these transactions is not based on a single data center or server. Instead, the blockchain is distributed and replicated across a myriad of computing nodes spread across the globe. This means that every time a transaction is confirmed or data is modified, each participant must update their own version of the blockchain, in accordance with these events (thus they must reach consensus for each modification).

As mentioned, blockchain is often used as a distributed ledger, and the benefits provided by this unique technology serve many philanthropic organizations and charitable foundations. Thus, the Binance Blockchain Charity Foundation (BCF) is a notable example.


Cryptocurrency donations

There is still a long way to go before cryptocurrencies achieve global adoption, and that road will be particularly long when it comes to the charitable arena. Currently, a small but growing number of charities have already adopted cryptocurrency as a donation method.

Donors who want to use cryptocurrency to make their contributions may need to limit their donations to the few organizations that accept them or contribute large enough sums to try to persuade their favorite charities to accept crypto payments.

Before a charity can receive cryptocurrency donations, it must have a process in place that allows it to manage and distribute funds transparently and efficiently. Understanding the basics of cryptocurrency and blockchain technology – and how to convert donations into fiat currency – is therefore crucial for an effective implementation strategy.


Potential Benefits of Cryptophilanthropy

Cryptophilanthropy promises significant benefits to charities and donors, including:

  • Full transparency: Every cryptocurrency transaction is unique, which means it is also easily tracked across the blockchain. The higher level of transparency and public accounting can thus reassure donors and encourage them to give, while strengthening the organization's reputation for integrity.

  • Global and decentralized: Most blockchain networks feature high levels of decentralization, meaning they do not need to rely on a government or other centralized institution. Thus, funds can be transferred directly from donors to charities and the decentralized nature of blockchain makes it ideally suited for international transactions.

  • Digital Agreements: Blockchain facilitates the sharing and storage of digital data and can also be used to ensure that important documents or contracts cannot be changed without the approval of all affected members.

  • Reduced expenses: Blockchain technology can potentially simplify the management of charities, automating parts of the process and reducing overall costs of operation by using fewer intermediaries.

  • Tax Reduction: Considering a US-based donor, if a contribution is made in Bitcoin, the charity will get the full value of the donation (no capital gains tax). Additionally, the donor could claim a higher tax deduction from government agencies.


Concerns and limitations

Despite the potential advantages, however, certain issues must be taken into account if you choose to turn to crypto-philanthropy:

  • Volatility: In addition to stable currencies, most cryptocurrencies are traded in very volatile markets and often experience significant fluctuations in value.

  • Security: If the private keys that allow access to donated funds are lost, there is no way to recover them. Likewise, if keys are not managed and secured properly, a malicious entity can end up accessing wallets and stealing funds.

  • Public Awareness and Understanding: Most people consider blockchain to be quite difficult to understand, and many potential donors do not understand the basics of cryptocurrencies well enough to be able to trust or use it in donations charitable.


Real-world use cases

Crypto-philanthropy has already been used by some high-profile charities in recent years. In 2017, for example, global charity “Fidelity Charitable” received the equivalent of $69 million in cryptocurrency donations. That same year, an anonymous donor known as “Pine” also distributed approximately $55 million in Bitcoin donations to various organizations around the world through the Pineapple Fund.

As previously discussed, the Blockchain Charity Foundation (BCF) is another notable example of crypto-philanthropy. BCF is a non-profit organization that aims to transform philanthropy using a decentralized charitable platform.


Final thoughts

Cryptophilanthropy remains a relatively new way to send, accept and distribute donations. But as blockchain technology becomes more widespread and better known, charities and donors may eventually see it as a more effective way to help people in need. It seems quite reasonable to assume that, with the adoption of this form of donation by the public, charities will expand their operations related to cryptocurrencies.