Blockchain Philanthropy: An Introduction to Crypto Philanthropy

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


Blockchain Basics

The creation of blockchain systems has brought many benefits to various industries as they provide increased transparency and data security. Although the concept has existed long before the creation of Bitcoin, it is only recently that the potential of blockchain technology has begun to gain widespread acceptance on a larger scale.

Blockchain is a fundamental component of almost all cryptocurrency economic networks. It was previously developed by Satoshi Nakamoto as the digital ledger for Bitcoin, but the technology has since been applied to a number of other areas and has proven to be quite useful not only for digital currencies, but also for many other types of digital communications and data exchange.

The Bitcoin blockchain operates on distributed ledger technology (DLT), which is protected by cryptography and supported by a huge network of computers (nodes). This structure allows for peer-to-peer (P2P) transactions without borders in a trusted environment. Trustworthiness means that users do not need to trust each other, since all participating nodes must follow a predefined set of rules (described in the Bitcoin protocol).

The Bitcoin ledger used for these transactions is not located in any data center or server. Instead, the blockchain is distributed and duplicated across many computer nodes scattered around the world. This means that every time a transaction is confirmed or data has been changed, each participant will have to update their own version of the blockchain according to these events (nodes must reach consensus on each change).

As mentioned, blockchain is often used as a distributed ledger, and the benefits provided by this unique technology serve several charities and foundations. The Binance Blockchain Charitable Foundation (BCF) is one prominent example.


Cryptocurrency donations

Cryptocurrency still has a long way to go in terms of global adoption, and that road is especially long when it comes to philanthropy. There are currently a small but growing number of charities that are already using cryptocurrency to make donations.

Donors who intend to use cryptocurrency to make their contributions may have to either limit their efforts to a few organizations that support them or donate fairly large amounts as an attempt to convince their favorite charities to accept cryptocurrency.

Before a charity can begin receiving cryptocurrency donations, it must have a fully transparent process in place to effectively manage and distribute funds. Understanding the basics of cryptocurrency and blockchain technology and how donations can be converted into fiat currency is critical to effectively implementing this strategy.


Potential Benefits of Crypto Philanthropy

Crypto-philanthropy promises some notable benefits for charities and donors, which include:

  • Full transparency: Each cryptocurrency transaction is unique, meaning it is also easily traceable via the blockchain. Greater levels of transparency and accountability can help and encourage donors to give, as well as strengthen the charity's reputation for integrity.

  • Globality and decentralization: Most blockchain networks have a high level of decentralization, meaning that they do not need to rely on centralized authorities or any other institutions. In this way, funds can be transferred directly from donors to charities, and the decentralized nature of blockchain makes it uniquely suited for cross-border transactions.

  • Digital Agreements: Blockchain facilitates the exchange 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 parties involved.

  • Reduced Costs: Blockchain technology can simplify the management of charities, automate parts of the process and reduce overall costs by eliminating intermediaries.

  • Tax Reduction: Taking a US donor as an example, if a contribution is made using Bitcoin, the charity will receive the full donation (without capital gains tax). Moreover, the donor will be able to pay more taxes in relation to government agencies.


Problems and limitations

Despite the potential benefits, there are also some potential problems to consider when adopting crypto philanthropy:

  • Volatility: Apart from stablecoins, most cryptocurrencies are traded in highly volatile markets and their value often fluctuates greatly.

  • Security: If the private keys that give access to donated funds are lost, it will be impossible to recover them. Likewise, if keys are not properly secured, an attacker could end up gaining access to wallets and stealing funds.

  • Public Acceptance and Understanding: Most people find blockchain quite complex, and many potential donors do not understand its fundamentals well enough to trust the system or use it for charity.


Real Cases in the World

In recent years, crypto-philanthropy has been used by some prominent charities. For example, in 2017, global charity Fidelity Charitable received the equivalent of $69 million in cryptocurrency donations. That same year, an anonymous donor known as Pine distributed approximately $55 million in Bitcoin donations to various organizations around the world through the Pineapple Foundation.

As previously reported, the Blockchain Charitable Foundation (BCF) is another prime example of crypto-philanthropy. BCF is a non-profit organization dedicated to transforming philanthropy through a decentralized giving platform.


Conclusion

Crypto-philanthropy remains a relatively new means of giving, accepting and distributing donations. But as blockchain technology becomes more widespread and familiar to society, charities and donors may embrace it as another attractive way to help those in need. It seems reasonable to assume that the public will continue to accept this form of donation and that charities will increase their cryptocurrency transactions.