Blockchain for charities: an introduction to crypto-philanthropy
Charitable organizations often encounter barriers to success due to a lack of transparency, accountability issues, and limits to the ways they can accept donations. Crypto-philanthropy (or the use of blockchain technology to facilitate charitable contributions) offers an alternative solution, with decentralized and direct transactions that may help these organizations receive donations and raise funds more efficiently.
There is still a long way to go until cryptocurrencies get globally adopted, and this route is particularly long when it comes to charity. Currently, there is a small but growing number of charitable organizations that have already embraced cryptocurrency as a donation method.
Donors that intend to use cryptocurrency to make their contributions may have to either confine their efforts to the few organizations that support them or donate large enough amounts as an attempt to persuade their favorite charities into accepting crypto payments.
Potential benefits of crypto-philanthropy
Crypto-philanthropy promises some notable advantages for charitable organizations and donors, which include:
- Total transparency: each cryptocurrency transaction is unique, which means that it is also easily tracked through the blockchain. The higher level of transparency and public accountability can ease donors' minds and encourage them to give while also reinforcing the charity's reputation for integrity.
- Global and decentralized: most blockchain networks present high levels of decentralization, meaning that they do not need to rely on a centralized government or other institutions. Thus, funds can move directly from donors to charities, and the decentralized nature of blockchain makes it uniquely suitable for international transactions.
- Digital agreements: blockchain makes it easier to share and store digital data, and may also be used to ensure that important documents or contracts cannot be modified without the approval of all involved members.
- Reduced expenses: blockchain technology has the potential to simplify the way charities are managed, automating parts of the process and reducing the overall costs by requiring fewer intermediaries.
- Reduced taxes: considering a US-based donor as an example, if a contribution is made with Bitcoin, the charity will get the full donated value (no capital gain taxes). Moreover, the donor would be able to claim a higher tax deduction towards governmental agencies.
Concerns and limitations
Despite the potential advantages, there are some potential concerns to be considered when adopting crypto-philanthropy:
- Volatility: besides stablecoins, most cryptocurrencies are being traded on highly volatile markets, and often suffer large swings in value.
- Security: if the private keys that give access to donated funds are lost, there is no way to recover them. Likewise, if the keys are not managed and secured properly, a malicious entity may end up accessing the wallets and stealing the funds.
- Public awareness and understanding: most people find blockchain quite difficult to explain, and many potential donors don’t understand the basics of cryptocurrencies well enough to trust the system or make use of it for charitable donations.
Crypto-philanthropy remains a relatively new means of giving, accepting, and distributing donations. But as the blockchain technology grows more widespread and familiar, charities and donors alike may come to embrace it as one more attractive way to help those in need. It seems only sensible to assume that as the public continues to adopt this form of giving, charitable organizations will ramp up their cryptocurrency operations.