Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

Can financial services companies use their blockchain experiments to help charities?

7 December 2016
 
FinTech is a hot topic right now across the financial services industry, government and beyond. Policymakers recognise that the UK has taken a lead in applying technological innovation to finance, and are keen to capitalise on that advantage by nurturing the nascent UK FinTech sector. At the same time, many traditional financial services firms are working with FinTech startups or developing their own innovations in order to ensure that they stay ahead of the curve.

Blockchain, star of the FinTech revolution

One of the star turns of the FinTech revolution is blockchain. This is the decentralised, distributed public ledger technology that allows secure record-keeping without the need for traditional intermediaries. By far the best-known use case of blockchain to date is the cryptocurrency Bitcoin, but the technology has far broader potential applications, in everything from ensuring ethical supply chains in the clothing industry to creating secure mechanisms for voting in elections.

We've been exploring the opportunities and challenges that blockchain technology might bring for charities and their supporters. Many of these are also relevant to the financial services industry; which means there is a real opportunity for charities and FS business to work together on developing applications of blockchain technology that not only deliver better social outcomes, but also generate new insights and understanding that can be applied in the commercial sphere.

Top five features of blockchain for charity

So what have we found? Well, firstly, the good news is that you don’t have to understand the technical side of how blockchain works in order to grasp its potential impact on charities; you only need to understand a few of its key features and what they might mean. These are our top 5 insights:

1 Radical transparency

Assets on a blockchain are uniquely identifiable, and the ledger is public, so a given asset can be tracked all the way through a value chain. In the case of donations this means that a donor would be able to track their individual gift all the way through a charity to the end beneficiary (and beyond).

This could have major benefits in terms of reducing waste, misspending and corruption and thus boosting levels of trust. However, it will also bring significant challenges for charities in terms of ensuring that their donors understand the need for spending on core costs, and don’t wrongly fixate on things that they perceive as ‘overheads’.

2 Non-geographic assets

Blockchains are not tied to any one geographic area or jurisdiction, and neither are assets that exist on them (such as cryptocurrencies). This means that those assets can be moved anywhere around the world instantaneously, and without the usual costs associated with FX, transfer fees etc. This could revolutionise the work of international charities, and would also enable them to bypass traditional banking structures in countries where infrastructure is lacking or corruption is endemic.

3 New asset classes for donations

Assets of any kind can be recorded on blockchains, whether they be financial, digital, physical or even totally intangible. For instance, there is a great deal of interest in the music industry in using blockchain technology to record intellectual property (IP) and thus solve many of the existing problems with copyright and attribution. For charities, this opens up the possibility of a vast new range of assets that could be donated.

4 Algorithmic philanthropy

Self-executing computer protocols known as Smart Contracts can be created on the blockchain, which automatically carry out specified actions when certain trigger conditions are met. Smart contracts could be set up to stipulate that a percentage of proceeds from a given transaction are donated to charity, thus enabling truly frictionless micro-donations. In the future, algorithms could even be used to analyse data on need and social impact and decide how best to allocate philanthropic resources in order to achieve the maximum good.

5 Charities on the blockchain

Finally, charities themselves could be created as entities on the blockchain (as is already being done with companies). This would have profound implications: for instance, organisations created in this way would not have to reflect traditional models of charity governance. They could instead be set up as Distributed Autonomous Organisations (DAOs): decentralised entities consisting of a collection of supporters who take shared responsibility for decision-making. This represents a major challenge to the accepted way of doing things, but could result in radically more democratic approach to things like charity campaigning.

Potential to transform

As you can see, blockchain technology has the potential to transform the way charities work and the ways in which people are able to support them. The challenge for charities is to find ways to harness this technology before it overtakes them. This is where the FS industry can play a key role: although the applications of blockchain will eventually go much wider than FinTech, that is where much of the focus is at this early stage, so companies in the FS sector are in a uniquely strong position to develop blockchain pilots that leverage FinTech know-how to find new solutions to real-world social problems.

Might FS companies who are already investing in blockchain R&D for their commercial operations consider expanding their horizons to include charitable use cases – not only because that will offer them an innovative opportunity to bolster their Corporate Social Responsibility strategy, but because they will almost certainly learn more about the technology, and this could have wider social or even commercial applications?  

After all, the technology is so new that any good use case is worth exploring, and if that can also result in improved social outcomes, so much the better. Applying blockchain solutions to do good therefore seems like an opportunity for an innovative/particularly interesting win-win for both FS companies and the charities they work with.

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