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One of these industries where blockchain technology is being used is a charity and nonprofit organizations. One of the power blocks of blockchain is what it is capable of giving: transparency in donations, security, and efficiency. Which is an increasingly key tool in the world of charitable donations and funding.
Charities have been criticized for not revealing how donations are spent for decades. For a long time, donors have sought more accountability and visibility in who and where their donations are being used. Blockchain is emerging with a solution that promises to fix these problems and transform how charity donations are tracked, verified, and disbursed.
In this article, we shall be looking at how blockchain is being deployed to enhance transparency in the charitable sector, how blockchain makes organizations accountable to both donors and recipients and the long-term impact of blockchain on charity funding models.
What is blockchain?
In essence, blockchains are a digital, decentralized ledger that records all transactions across multiple computers. It’s close to impossible to make any record change without affecting all the following blocks in the chain, and only those seeking to reach the consensus of the majority of the network. Blockchain is considered highly secure and transparent on account of its being distributed and immutable.
There is no central authority or intermediary, a bank, government, etc., to verify or allow transactions that blockchain technology pertains to. Rather than relying on consensus protocols like proof of work or proof of stake to validate a transaction, it uses these protocols to ensure that the transaction is a real one. And for that reason, blockchain is the perfect solution when transparency, traceability, and trust are critical.
Charitable Donations and Transparency
Traditionally, charitable donations used to be made through intermediaries such as banks, payment processors, and charity organizations. These entities do a lot of good work. But it is difficult to always be completely transparent about where that money goes. Many studies and reports have established that a large percentage of charities receive administrative costs, fraud, or mismanagement of money.
Donors can have faith that their money is being put to use in the right place, but with little transparency into where it is being spent, there is often more faith than fact. Making a real difference is what donors want to see happen with their contributions.
One way that blockchain can solve this is by creating a transparent and unchanging ledger of all transactions, so donors can see their money being spent as it is. The blockchain, as well as a separate ledger book, records the donation and expenditure as a block, which is in plain sight for any network user. Building real-time transparency increases trust and confidence in that charitable process.
How Blockchain Increases Transparency in donations for Charities
1. Real-Time Tracking and Visibility
The biggest advantage of blockchain for charities is being able to supply real-time tracking of donations. When a donation hits the blockchain, it is added as a block. This way, every transaction is public and can be traced to where it came from. This allows donors to know exactly when their funds are donated and when they are used, giving donors the full picture of where their money went once they gave it.
2. Real-time transaction
A donor might donate money to a disaster relief fund, for example. Blockchain gives the donor the ability to track every step of the donation process. Immutable and Secure Records
Transactional outputs on the blockchain are completely immutable. and are thus resistant to fraud and manipulation. Once a transaction is put on record, it can neither be changed nor deleted without the network’s consensus, meaning your records of donations are secure and an accurate portrayal of what was raised through your efforts. Such a level of security can, in some measure, ease some fears emanating from charity organizations that the money will be used for corruption and misappropriation purposes.
As a concrete example, if a charity receives a large donation for a specified purpose (e.g., building a school), blockchain makes sure the donation cannot be diverted for other purposes. A donor can check the blockchain to find the record of an accurate account of every transaction and disbursement that goes into the project.
3. Reduced Administrative Costs
Donations through blockchain can save a huge amount of admin work. In traditional donation processes, there are multiple intermediaries, and each takes a cut from the funds. Payment processors, banks, and third-party auditors are all intermediaries who charge fees for their work, and all serve as these intermediaries.
A blockchain allows for many of these intermediaries to be eliminated, as it works in a decentralized, peer-to-peer network. It cuts down on the cost per transaction and guarantees that more of the donated funds come directly to the cause. Maximizing the work of charities means reducing their administrative costs.
4. Smart Contracts for Accountability
Self-executing contracts are smart contracts with the terms of the agreement written in lines of code. In the context of charitable donations, smart contracts can automatically and enforceably deploy funds, depending on certain conditions. These contracts are executed automatically. When certain conditions are met and funds are only used for the given intent.
Blockchain Use Cases in Charities
There are already initiatives and organizations taking advantage of blockchain to bring transparency and accountability to charitable nonprofits. Here are a few notable examples:
1. The BitGive Foundation
It’s the first charity to use blockchain tech to track donations—the BitGive Foundation. BitGive has developed a real-time GivingTrack platform so donors can track how
giving is utilized. With GiveTrack, donors know exactly how their money is being spent>, whether it’s buying a school, medical care, or any other charitable cause. The platform updates donors by providing them with updates about how the funded projects are progressing, being both transparent and building trust with the charity and its donors.
2. Charity: Water and Bitcoin Donations
Charity: Water, a nonprofit trying to get clean water to people in developing countries, has worked with the Bitcoin payment processing platform BTCPay Server to start accepting Bitcoin donations. By using blockchain for Bitcoin donations, Charity: Water sees the allocation and use of payouts for what they are. The blockchain allows donors to see the entire donation process, from receipt to EOF.
3. Alice
Alice is a donation platform powered by a blockchain. Linking donors to social causes. Donors can follow the use of their contributions and see if particular results are being delivered via Alice. When one of the first Friendship Economy examples in a developing country is explained, say a donor funds a program to teach teachers through a program to train teachers in this country, they can see how the money is spent and if the program is delivering what it was meant to. Alice also employs smart contracts. So that if the milestone isn’t met, funds are not released.
Challenges and Limitations
While blockchain has great potential to increase transparency in charitable donations, several challenges need to be addressed:
1. Adoption and Awareness
The goal is to truly revolutionize charitable donations through blockchain, which will require educating nonprofit organizations and donors about the technology via blockchain. The lack of technical expertise and resources may make it hard for many charity organizations to adopt blockchain solutions, thereby stifling adoption. Finally, donors may also want to be educated on how blockchain works and how best to manage such donations.
2. Scalability
However, even blockchain networks can encounter scalability issues, and a large volume of transactions will take a toll on them. When there is heavy traffic on public blockchains like Bitcoin, things can be slow and expensive. To see more widespread adoption of blockchain in the charity sector, solutions will need to be developed that eliminate the time and cost of these transactions.
3. Regulatory Challenges
Blockchain technology does not have a lot of regulation. Which can put how it is treated by governments and regulatory bodies in question. Existing regulations on donations, tax deductions, and auditing may be hard to comply with for charities once blockchain systems are integrated into their work.
4. Privacy Concerns
Blockchain makes information transparent, but privacy is a concern. And donors may not want all the gory details of their dollars posted to the Internet. The solution to this will involve balancing transparency. With donor privacy in blockchain applications.
Conclusion
Blockchain technology presents great potential to alter the charity sector by providing the means to greater transparency and trust in the process of donating. Blockchain provides levels of transparency that traditional charitable donations historically did not offer, allowing donors to track their contributions in real time and record contributions in an immutable way that significantly reduces administrative costs.
But there are still hurdles to jump: technical scalability, broader adoption, regulatory clarity, and privacy protection. The hurdles may be there, but the amazing benefits that blockchain technology can provide for charitable organizations and donors are undeniable. The more the nonprofit community discovers blockchain opportunities, the more likely we will see a leap from opaque, inefficient, not-so-efficient, and not-so-accountable charity funding to transparent, efficient, and accountable forms of funding for charities and the communities in need of it the most.
One thing is for sure: as blockchain use in the charity sector evolves further afield, it is going to be interesting to watch how technologies like this affect the tracking, management, and allocation of donations for the greater good. The future of charitable giving is now clearer. Than ever before, and that’s because the future is powered by blockchain, making the stuff transparent.
