Blockchain for Charity: An Introduction to Philanthropy Using Cryptocurrencies

Charitable organizations often face barriers to success due to a lack of transparency, jurisdictional issues and limits on the ways in which donations can be accepted. Crypto-philanthropy (or using blockchain technology to facilitate charitable contributions) has become an alternative solution with direct, decentralized transactions that may help these organizations receive donations and raise funds more efficiently.


Blockchain basics

The creation of blockchain has brought many benefits in a variety of industries as it allows for increased transparency and data security. Although this concept existed long before Bitcoin was created. However, it was only recently that blockchain's potential for collective action was widely recognized.

Blockchain is an essential component of all economic digital currency networks. It was previously designed by Satoshi Nakamoto as a digital ledger powered by Bitcoin but the technology has since been applied to a variety of other scenarios and has proven to be extremely useful not only for cryptocurrencies but also for many types of digital communications and data sharing.

The Bitcoin blockchain operates as a distributed digital ledger technology that is protected by cryptography and maintained by a massive network of computers (nodes). This framework allows for limitless peer-to-peer (P2P) transactions in a trustless environment. This means that there is no need for users to trust each other because all participating nodes are required to follow a pre-defined set of rules (which are defined by the Bitcoin protocol).

The Bitcoin ledger used to complete these transactions does not exist in any single data center or server, which means that there is no authority controlling it. Instead, the blockchain is distributed and replicated across countless computer nodes around the world. This means that every time a transaction is confirmed or data is changed, each participant must update their copy of the blockchain according to those events (they must reach consensus regarding each change).

As mentioned, blockchain is often used as a distributed ledger  and the benefits offered by this unique technology serve many charitable organizations and foundations. Binance Blockchain Charity Foundation - BCF is a notable example of this.


Cryptocurrency donations

There is still a long way to go until the use of cryptocurrencies is adopted globally and this road is especially longer when it comes to charities. Currently, there is a small but growing number of charitable organizations that have already relied on cryptocurrencies as a means of donation.

Donors who intend to use cryptocurrencies to make their contributions can either limit their efforts to the few organizations they support or donate large enough amounts in an effort to convince their favorite charities to accept cryptocurrencies.

Before a charity can begin receiving donations using digital currencies, it needs to have a process in place to manage and distribute funds in a transparent and efficient manner. It also needs to understand the basics of digital currencies and blockchain technology and how these donations can be converted into fiat currency. This is crucial to an effective implementation strategy.


Potential benefits of using cryptocurrencies for charity

  • Complete transparency: Every cryptocurrency transaction is unique, which means it can be easily tracked through the blockchain. A greater level of transparency and public accountability can ease donor mindsets and encourage them to provide support while enhancing the charity's reputation for integrity.

  • Universality and Decentralization: Most blockchain networks offer high levels of decentralization  meaning they do not need to rely on a central government or other institution. So  money can move directly from donors to charities and the decentralized nature of blockchain makes it uniquely suited for international transactions.

  • Digital Agreements: Blockchain makes it easy to share and store digital data. It can also be used to ensure that important documents or contracts cannot be amended without the approval of all members involved.

  • Reduced expenses: Blockchain technology has the potential to simplify the way charities are managed and reduce overall costs by requiring fewer intermediaries.

  • Reduced taxes: Taking a US donor as an example, if a contribution is made with Bitcoin the charity will get the full value of the donation (no capital gains taxes). Moreover  the donor will be able to claim a higher tax deduction towards government agencies.


Concerns and restrictions

Despite the potential advantages,  there are some potential concerns to consider when adopting philanthropy:

  • Volatility: In addition to stable digital currencies, most cryptocurrencies are traded in highly volatile markets and often suffer from large fluctuations in value.

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

  • Public awareness and understanding: Most people find blockchain difficult to explain and many potential donors do not understand the basics of cryptocurrencies well enough to trust the system or utilize it for charitable donations.


Real world situations

In recent years, high-profile charitable organizations have embraced cryptocurrency philanthropy. For example, in 2017, the global charitable organization Fidelity Charitable received the equivalent of US$69 million in cryptocurrency donations. In the same year, an anonymous donor known as Pine distributed $55 million in donations using Bitcoin to various organizations around the world through the Pineapple Fund.

As mentioned previously,  Binance's blockchain charity is another notable example of digital philanthropy. The Blockchain Philanthropy Foundation is a non-profit organization aiming to transform philanthropy through the use of a decentralized philanthropic platform.


Final thoughts

Digital philanthropy is still a relatively new way to make, accept and distribute donations but as blockchain technology becomes more widespread and familiar  charities and donors alike may come to embrace it as a single more attractive way to help those in need. It seems reasonable to assume that as the public continues to embrace this type of giving  charitable organizations will ramp up their reciprocal operations.