One of the most talked-about 21st-century technologies is blockchain. Blockchain proponents believe that in the following years, the technology will completely transform every aspect of our lives, including charity. Unfortunately, many other interested parties, including donors, have generated irrational hopes about how blockchain may revitalize the private sector. It is evident that the main advantage of blockchain for charity is that it allows for greater accountability and transparency, which can then provide “proof of impact” for objectives attained.

Despite its potential, blockchain is still a relatively new technology, and using it poses a number of difficulties. Although many stakeholders believe that blockchain has an overly broad ability to foster trust, they are not quite certain of how the intricate algorithms that power it actually work. Blockchain skeptics claim that inaccurate data or measurements could lead to the creation of nonsensical chains.

In this article, we will discuss the advantages of blockchain in charity for both donors and beneficiaries and how it affects the entire charity and philanthropy sector.

What does it mean for donors?

The most vital entity in the philanthropic sectors are the donors themselves. Without them, charitable institutions would not be able to fully function. While some might still be hesitant in crypto donations, some are considering it due to the benefits it provides, which are:

A charity should avoid having excessive administrative costs. They should invest a significant amount of money on marketing and fundraising initiatives. Also, the customary expenses related to processing donations and banking transactions are higher. By moving away from traditional financial intermediaries like banks, blockchain-based platforms enable nonprofit organizations to harness the potential of peer-to-peer networks. As a result, both transaction costs and settlement time would drastically decrease.

Digital contracts known as “smart contracts” are managed by several nodes connected to a blockchain network and run on a computerized transaction system. Blockchain contracts may self-execute and self-maintain since they operate on a decentralized system amongst all allowed participants, without the need for middlemen like lawyers or notaries.

This kind of algorithmic generosity makes charities more accountable while also boosting trust from the public. The automation features of smart contracts are advantageous for philanthropies because they guarantee that the money may only be used for the intended purposes and will only be delivered to grant recipients after the conditions are met.

The immutability and transparency of transactions recorded on the blockchain network make it simple for all stakeholders to understand donation programs. The value chain of records linked on a blockchain network is also easily understood. Blockchain-based solutions for charity allow donors to track their donations until it reaches the intended recipient. Strong and transparent impact tracking and measuring systems would help cut down on wasteful spending, get rid of corruption, and boost confidence amongst donors.

What does it mean for beneficiaries?

Let’s clear up one thing: receiving cryptocurrency donations does not require prior knowledge of cryptocurrencies or blockchain technology. In fact, when most nonprofit fundraising teams begin, they have little to no knowledge of cryptocurrency.

Even with the lack of experience, many NGOs think that the opportunity presented by cryptocurrency fundraising is too excellent to pass up. Others view accepting cryptocurrency donations as a matter of “when” rather than “if.”

The fact that beneficiaries of funds receive more cash than they intend to is one of the main advantages of blockchain for beneficiaries and philanthropic institutions. The main explanation is that costly transfer processes are avoided, allowing more money received directly by the recipients from the donors. It also stops dishonest middlemen from keeping some of the funds intended for the organization. In the end, this puts additional pressure on nonprofit organizations to work more effectively and efficiently and transfer the greatest amount of funds to the recipient.

It can’t be denied that corruption exists everywhere, even in charity organizations. Integrating blockchain technology on fundraising events for charities eliminates this illicit act as all transactions are being recorded and can be viewed by anyone at any time and anywhere. People within the organization with ill intentions will have to think twice before performing such a criminal act as everything on the blockchain is traceable and can easily be audited.

Additionally, the use of smart contracts can ensure that the money sent by the donor will be received by the right recipient for the intended cause.

One of the challenges of any philanthropic institution is organizing a fundraising event. Aside from setting up a venue, institutions will also shell out money for the marketing of the event, PR, media invites, and in some cases, accommodation of benefactors. But times have changed specifically during the height of the pandemic where personal interactions are prohibited. To continue with their advocacies, most of the charity institutions held fundraising events online with the use of blockchain technology and cryptocurrencies.

One of these events was the 9/11 Day Event — an NFT Metaverse Fundraiser for the 20th Anniversary of the September 11 Attack in New York City.

Last year, UkraineDAO crowdfunded $6.1 million for a 1/1 Ukrainian flag NFT. Proceeds were donated to nonprofit organizations in Ukraine helping those affected by the Russian invasion.

What does it mean for the philanthropy sector

Although we would be wise not to get too swept away by the hype, NGOs and philanthropists are already learning more about blockchain’s unique capabilities and helping shape the sector. Innovative technologies like the blockchain, the Internet of Things (IoT), and artificial intelligence (AI), either used separately or in combination, may offer creative and original answers to the key societal problems of the twenty-first century.

It remains to be seen whether using blockchain (and other technologies) in philanthropy is desirable, practical, and viable as well as whether rigorous implementation of existing and proven technologies is sufficient to improve philanthropy and, as a result, address some of society’s most pressing issues.

Final Thoughts

Donations made in cryptocurrencies and blockchain-based charitable endeavors are still in their infancy. Additionally, there are certain possible issues with the use of blockchains, such as volatility, security, and public awareness. Yet as blockchain technology grows and slowly reaches mass-adoption, charitable organizations, foundations, and NGOs can use it to effectively aid those in need.