Blockchain For Non-Profits: 10 Possible Use Cases

  • 26 October 2018
  • Sam Mire

Americans broke out their pocketbooks to give over $410 billion to charity in 2017, a 5.2% increase from the previous year. However, a series of scandals have rocked the way that the public perceives the typical charity, and trust in charitable organizations recently cratered to 57%, the lowest the figure has dipped since 2005. It’s no coincidence that headline-grabbing scandals in the world of philanthropy coincided with the decline in faith toward these organizations. The recent Oxfam scandal exposed rampant sexual abuse by supposed do-gooders, shedding a perhaps unfairly harsh light on philanthropy as a whole and causing some to question whether Oxfam’s $44 million in state funding should be revoked. It seems that for every National Military Family Association, which spends 82% of donations on its causes, there is a National Veteran Services Fund, which conversely allotted less than a third of the money it took into its purported causes.

Essentially, the term charity has been used and abused, and much of the public is no longer willing to take charities’ word as bond. Blockchain technology could help resurrect the images of charities willing to adopt its services. By minimizing administrative costs through automation, providing more accountability through traceable giving milestones, and allowing donors to see more clearly where their funds are going, blockchain may help restore some of the lost credibility to charities that prove worthy of the public’s trust.

Blockchain in the Non-Profit sector - Practical Use Cases

Lower Administrative Costs

Blockchain use cases in the Non-Profit sector - Lower Administrative CostsFor charities, overhead costs have been a point of much contention. These costs denote the amount of donations that goes to administrative expenses versus an actual cause, and while many see overhead costs as necessary, exorbitant administrative expense percentages are a red flag. The charities with the highest administrative costs actually spend more than they pass along, and these include the American Tract Society (68% admin expenses), the Boys Choir of Harlem (66.3%), Union Rescue Mission (62.1%) and Cherokee National Historical Society (58.2%). As a point of reference, one survey sets the ideal philanthropic overhead expense percentage at 23%.

While there are outliers that utilize greater administrative expenses to great effect, the greater the percentage that can be passed onto the purported cause of a charity, the better. The primary administrative cost for charities is associated with fundraising and marketing, or getting the word out about the charity. Blockchain-based platforms are aiming to provide charities with a marketplace to reach a ready-to-give audience, and these platforms take far fewer fees than traditional marketing and fundraising agencies. This platform can also provide proof of need and proof of receipt to ensure that the cause is indeed a worthwhile one, and that the funds reach the intended party. And because this tech lowers administrative costs, more funds can reach the right, needy recipient.

Companies Trying to Solve This Problem

  • Airbus Their Heritage blockchain project gives charities a full-service blockchain platform that helps improve operational efficiency

Facilitating Emergency Aid

Blockchain use cases in the Non-Profit sector - Facilitating Emergency AidThere is no shortage of emergency aid-related scandals and snafus. More than eight years after relief for Haiti was completely bungled, the search for $500 million in missing donations continues. While the Red Cross claims it built 130,000 “homes” for Haitians, the number of permanent residences it was responsible for building as of 2015 stood at a meager total of six. In the wake of Hurricane Maria, FEMA was scheduled to deliver 30 million meals to starving Puerto Ricans. Instead, a mere 50,000 were provided. Hurricane Katrina, which killed 1,833 people and displaced more than a million, is bitterly remembered more for the aid that wasn’t delivered. About $1 billion in funds meant for the victims of the storm was stolen by fraudsters, and in 2006, FEMA was spending $250,000 per month to store $860 million worth of unused trailer units meant for Katrina victims.

So, yes, the administering of emergency aid could use a complete blockchain overhaul. Emergencies are when most charitable donations are made, and being able to trace those funds’ route to their destination is absolutely essential to avoid the waste and fraud that has become synonymous with emergency relief. It will also help bypass many logistical barriers that come with electronic money transfers and fragmentation in the emergency aid supply chain.

Companies Trying to Solve This Problem

  • Guard – Tokenizing emergency services & response

Giving Chain Transparency

In 2016, leadership and employees of the well-known and once well-regarded Wounded Warrior Project were outed for spending $500 on hotels for minor business meetings, upgrading to first class airplane seats, spending $3 million on conferences, and spending $7.3 million per year on travel alone. Their 40% overhead cost, equaling $124 million, was due in part to unnecessary costs and expenses, as described by employees. Even the Leo DiCaprio Foundation was accused of being part of a $3 billion Malaysian embezzlement scheme.

Lack of transparency degrades trust in charities, and can come back to bite in several ways, deserved or not. For one, donors are unlikely to give to charities implicated in wasteful or illegal practices, decreasing whatever good they are doing. Additionally, well-meaning charities can be wrapped up in scandal — say, giving to suffering groups in a country where terrorism is rife — and can face undue sanctions as a result. The ability to trace funds from their point of donation to the recipient will necessarily crack down on wasteful spending and lift a fog from the philanthropic landscape, exposing fraudulent actors and reestablishing trust for donors who rightfully expect their money to be passed along under true pretenses.

Companies Trying to Solve This Problem

  • Bitgive Giving/donation tracking on the blockchain

Cryptocurrency Donations

Blockchain use cases in the Non-Profit sector - Cryptocurrency DonationsIn 2017, charitable donations made using cryptocurrencies leapt tenfold, with nearly $70 million in cryptocurrencies used toward philanthropic ends. With a current market cap of over $203 billion, the total landscape of digital currencies means that those charities that aren’t yet accepting donations in the form of cryptocurrency are willfully missing out on a massive new revenue stream opportunity. Blockchain-based payments company Ripple donated $29 million of its own funds to support public schools, and more blockchain investment funds are becoming massive givers.

Donating in Bitcoin allows individuals to avoid capital gains taxes that arise from the sale of digital currencies, which the IRS designated as a security in 2014. By donating, those individuals can avoid hefty taxes and also write off the donation on their taxes that year as a charitable donation. The ease of transaction and transmission of cryptocurrencies, plus the tax benefits and ability to track donations, means that crypto donation platforms will continue to pop up, and crypto philanthropy will continue its exponential growth for the foreseeable future.

Auctioning Digital Collectibles

On September 4th, 2018, an individual dished out $172,625 for a CryptoKitty, a collectible digital artwork — a cat, to be specific — that is tied to a unique cryptographic identifier on the Ethereum blockchain and can be bought, sold, and even bred with other CryptoKitties to spawn new digital creations. While the value of that specific CryptoKitty currently sits at $135,600, the popularity of the game, which has been likened to digital Beanie Babies, has spawned an entirely new form of crypto charity. In early July 2018, a CryptoKitty called Honu was being auctioned at a price of over $100,000, with the proceeds of the sale set to be donated to charity. While cryptocurrency donations already have the allure of being tax exempt, the possibility of receiving a potentially appreciating asset in return for an auction-style donation could usher in a new wave of crypto-related philanthropy that injects both fun and a tit-for-tat aspect into donating.

Companies Trying to Solve This Problem

Goal-Driven Fundraising Models

Blockchain use cases in the Non-Profit sector - Goal-Driven Fundraising ModelsSites like Kickstarter, GoFundMe, and Indiegogo have laid a successful blueprint for goal-driven philanthropy, with GoFundMe having reached a point where donations exceed $1 billion over a 12-month span. However, GoFundMe sustains itself on a 5% fee of all donations plus credit card processing fees, which totals as much as $50 million in revenue in a given 12-month period. While Kickstarter reaps more modest profits — approximately $5 million–$10 million in the same period — a blockchain-tailored philanthropic platform would imitate the goal-based fundraising model while relying on the technology to reduce fees for a less revenue-dependent system. Smart contracts are a particularly useful facet of the blockchain for this purpose. Additional funds are released only as evidentiary milestones are achieved, ensuring that tangible value is being delivered and incentivizing fundraisers to adhere to their professed goals and initiatives.

Companies Trying to Solve This Problem

  • Bounties Network Pinning specific value to projects through smart contracts

Mining for Charity

Blockchain use cases in the Non-Profit sector - Mining for CharityWhen a college student can flip a $120 graphics card into $20,000 in digital cash, it’s clear that the potential to utilize spare computer power for philanthropically-aimed crypto mining exists. Some estimate that the staggering rise in computing power over the past decade is equivalent to 1.25 million CPU years — in other words, each day high-powered computers make gains that would take high-end personal computers 500 years to achieve.

Networks of high-powered computers, such as the 730,000-computer World Community Grid, hold such massive amounts of computer power that some are testing how spare computing power could be used to mine cryptocurrencies as a charitable venture. Thus far, these ventures have proven promising, with PC gamers successfully mining Ethereum to donate to Syrian children affected by violence. If more individuals can be convinced to put their spare computing assets to use as a passive form of charitable donation, it could prove a novel way to assist those in need.

Companies Trying to Solve This Problem

  • Unicef Australia – Created a page where people can mine for charity
  • CudoDonate  Download app and mine for charities

Donor Anonymity

Anonymous donorship is beneficial to those giving both large and small amounts, providing a measure of privacy that averts unspoken social stigma and peer pressure. In a study of 3,945 donations to 36 different charities from a British fundraising website, BMyCharity, the median donation was $33. And, perhaps surprisingly, the largest donors were more than twice as likely to give anonymously than median-level donors. Donors giving less than the median were also more likely than middle-of-the-road donors to choose anonymity.

With Americans alone giving over $410 billion to charity in 2017, the blockchain could normalize anonymity in philanthropy to a point that the anonymous donation could become the norm, minimizing the “look at me” nature of charity and minimizing donation shaming in both directions. Digital wallets inherently mask the identity of owners, and some have proposed that this could even allow otherwise forbidden causes — such as defending persecution of minority groups in an intolerant nation — to be awarded unprecedented levels of funding.

Companies Trying to Solve This Problem

  • NGO XchangePreventing fraud while using blockchain’s privacy benefits

Cross-Border Donation

In 2016, citizens of the United States gave approximately $22 billion to international charitable causes, an increase of 5.8% over the previous year. Even largely developing regions such as Latin America have been expected to experience a 12.3% annual growth in giving per year. Because many nations have far fewer resources to prevent and cope with the damage associated with disaster, this massive outpouring of donations across borders and oceans is unlikely to ever dip in any significant manner. While 2009 saw a higher foreign donation total than 2016 (in that year, the U.S.’s giving totaled $37.5 billion), these figures fluctuate by year, but are always substantial. For corporations supporting non-U.S. entities and other specific donors, these foreign donations can present some significant tax issues, and even result in asset freezes, financial penalties, or forfeiting 501(c)(3) status.

The distributed nature of blockchain-based transactions means that they aren’t technically tied to any geographic region, which reduces associated legal and taxation risks associated with cross-border philanthropic donations. Though regulation could emerge, several entities are working to implement more efficient, cost-effective cross-border giving with less red tape and fewer intermediaries.

Companies Trying to Solve This Problem

  • Bounties Network – Creating global incentives for donation or cause-driven activities
  • NGO Xchange – Creating a compliant layer for global donations

Greater Philanthropist Control Over Causes

Blockchain use cases in the Non-Profit sector - Philanthropist Control

The philanthropy sector has proven over the past decade that it is willing to embrace disruptive new models and concepts. The advent of impact investing, the term given to investments in companies that produce returns but also tangible social impact, is just one example of how donors are rethinking how and to whom they give. Social investors, such as Bill and Melinda Gates, are also proving that new, rarely considered causes can attract major philanthro-bucks, so long as the need for fundraising is clearly explained and well-established.

As of early 2016, socially responsible funds under investment totaled $8.72 trillion in the U.S. alone, and $23 trillion globally. And Bank of America Merrill Lynch estimates that over the next two to three decades, millennials could invest as much as $20 trillion into socially-responsible investments. But in order for this projection to be realized, charities will need to cater to millennials’ desire for their voices to be heard and causes to be funded. Using a crowdfunding-like model, this vision could be made a reality with a little help from the blockchain.

Blockchain technology has shown the capability of allowing donors greater say in which causes become eligible for funding. The communal aspect of blockchain platforms allows groups to collectively decide upon and fund worthwhile causes, as well as stay up to date on their progress through milestone completion tracking. The proliferation of these sort of donor-dictated funding models is likely to garner greater enthusiasm in the giving process, as well as allow lesser-known causes to receive the attention they require and deserve.

Companies Trying to Solve This Problem

About Sam Mire

Sam is a Market Research Analyst at Disruptor Daily. He's a trained journalist with experience in the field of disruptive technology. He’s versed in the impact that blockchain technology is having on industries of today, from healthcare to cannabis. He’s written extensively on the individuals and companies shaping the future of tech, working directly with many of them to advance their vision. Sam is known for writing work that brings value to industry professionals and the generally curious – as well as an occasional smile to the face.