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How Blockchain Gives Transparency to Charity Spending

The future of the financial industry is changing rapidly. Cryptocurrency is no longer an obscure payment system but is now a mainstream economic opportunity for businesses and consumers. With this rise of cryptocurrency comes a great deal of challenges and opportunities for all manner of people, businesses and even charities. With this in mind, what are the risks and benefits that cryptocurrency and blockchain, the technology behind cryptocurrencies, for charities and aid organisations when it comes to trust and transparency?

What is blockchain?

Blockchain is the technology that supports forms of cryptocurrency such as Bitcoin. Blockchain technology creates a ledger of transactions that can be accessed and maintained by all users of the cryptocurrency system, rather than just a single entity or person.

Essentially blockchain is a decentralised public ledger. A bank or financial institution do not hold it. It is accessible by everyone. As well as recording financial transactions, it can record all manner of other information, such as members of the charity, smart contracts, processes and non-financial donations. With this decentralised public ledger, it is no longer about cryptocurrency transactions, but about making organisations, charities and businesses more transparent.

With blockchain, charities have to opportunity to accept both tangible and intangible assets. From a financial donation to intellectual property, blockchain gives charities the opportunity to receive and record all manner of assets and gifts, which could significantly change the function of charities and the way that donors support their chosen charities.

How can blockchain boost transparency and trust in charities?

One of the most significant aspects of blockchain is the fact that it enables total transparency. Blockchain is a public ledger that is accessible to all. Whilst donors remain anonymous, the system is transparent, so you can trace donations and expenditures.

No third-party involvement

One of the ways that blockchain can enhance trust in charities is the fact there is no single entity or bank who oversees and controls the finances. Everyone has access, and there is no requirement for a trusted (or untrusted) third party such as a bank to manage the finances, giving a degree of security.

Donation trail

Another way that blockchain can boost transparency is that donors can follow their donation throughout the blockchain process. This means they can see where their money goes and the end product of their contribution. Providing charities are honest about their financial system, this can give trust to donors, that their donation is actually going to a worthwhile cause and is being used in a preferred manner.

With donations being completely traceable, donors may be more inclined to give more support to charities who are doing noticeable good and spending money wisely. Conversely, this transparency may mean donors stop donating to charities whom they do not believe are spending money appropriately. This, of course, can be entirely subjective to the donor but carries implications of trustworthiness for charities.

Charity regulation

Blockchain supports systems known as smart contracts; these can be set up to ensure that certain stipulations, rules and regulations cannot be broken. This works through an algorithm, making it impossible to violate set terms that are stated in the smart contract. With this in mind, it could certainly make charity regulation much more efficient.

Governance can be conducted through algorithms with transparency always shown. This reduces lengthy and difficult audit processes, which can be both time and resource-draining. Instead, regulations are always enforced, making it impossible to break the rules and, therefore, make regulation streamlined, effective and cost-efficient.

Real-time finances

Annual financial reports for charities can be eye-opening for all interested parties. However, blockchain would allow real-time financial reporting and analysis, further adding to the transparency. Instead of a yearly review, everyone knows the state of the financial affairs at any time which can help instil trust and support. It can also help with crucial decisions for action needed by the charity.

The fact that finances are reported in real-time makes it easier to instigate changes and be adaptable to the financial situation, the level of trust between donors, the charity and suppliers can be enhanced with detailed accuracy.

Charity members

If blockchain technology were utilised to create and oversee charities, then it would be easy for everyone to access their legal entities. It would enable people to see which people are registered for the charity. Individuals could also access the documents of the charity. This can allow people to see who has an overriding interest, or works, in the charity and understand more about the goals of the charity.

Not only would blockchain technology give people a clearer idea of the charity but it can also help to streamline the registration process making it much easier, quicker and cost-effective to manage.

While there are many ways that blockchain technology can help to instil trust in charities, it is these same methods that can make people lose confidence and trust in the organisations too. It is vital that charities start to think about the implications of blockchain in their transparency so that they can be prepared for the future of the finance, regulation and transparency.

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