Rhodri Davies, Programme Leader, Giving Thought

Rhodri Davies

Head of Policy

Charities Aid Foundation

The role of giving

New report - Giving a Bit(coin): cryptocurrency and philanthropy

5 June 2015

For those of you interested in technology and with the tolerance for a bit of horizon-scanning, I have just published a short discussion paper entitled Giving a Bit(coin):  cryptocurrency and philanthropy. This picks up and expands upon some of the ideas I have kicked around in previous blog posts about the challenges and opportunities that cryptocurrencies may present for philanthropy.

Significant challenges

In researching and writing this discussion paper, I came to the conclusion that the story of 'crypto-philanthropy' at this point is very much one of potential rather than actuality. Although there are a few noteworthy examples of people trying to harness the power of Bitcoin et al for charity, these do not add up to much so far in terms of overall amounts of money.

And it is not even clear that the current crop of cryptocurrencies will ever be harnessed in any meaningful way for the purposes of philanthropy, as there are some significant challenges to be overcome first.

Crucial to consider the implications

However, despite that note of caution, I also think that it is important that philanthropists and charities consider the implications of cryptocurrencies, regardless of whether they are currently thinking about using them. Even if Bitcoin and its contemporaries fall by the wayside, some of their key features are likely to be replicated by any new forms of digital currency in the future. And these features raise important questions about the future of giving.

For instance, the nature of cryptocurrencies has profound implications for the age-old tussle between anonymity and transparency in charitable giving. One the one hand, the fact that many cryptocurrencies are specifically designed to enable users to make payments anonymously exacerbates the challenge for charities of ensuring that they do not accept donations from problematic sources.

Radical transparency

But on the other hand, unlike traditional currencies, cryptocurrencies are not fungible, ie each unit is uniquely identifiable, and you can't indistinguishably substitute one unit for another of equal value.

This means that cryptocurrency payments can potentially be traced all the way through supply chains. And in terms of philanthropy, this could mean a new era of "radical transparency" in which donors would be able to identify exactly where their individual donation was being used by a charity.

Whilst there are many upsides to increased transparency, it is easy to see that this situation might also present significant challenges for charities if their ability to use donations was increasingly limited by the stipulations of donors.

Challenges of international funding

Another area in which cryptocurrencies raise important questions is in terms of international giving. Because, by their very nature, cryptocurrencies are non-geographic, they offer huge opportunities to overcome some of the challenges faced by traditional methods of payment when it comes to making donations across geopolitical borders. In particular, donors and organisations that operate in difficult areas where traditional forms of payment are sometimes impossible could use cryptocurrencies to avoid the dangers of government interference and corruption.

However, the flipside to this is that there are already significant issues for charities and donors that operate internationally in terms of things like anti-money laundering and terrorism financing legislation and regulation. New forms of payment that allow people to operate outside regulated financial structures and carry the additional implications in terms of anonymity mentioned above are unlikely to be looked on positively unless meaningful safeguards are put in place.

Valuable discussions

As you can probably tell, I have more questions than answers when it comes to cryptocurrencies and philanthropy. But I think those questions are themselves hugely valuable, because they shed new light on issues that are at the heart of many current debates about giving. Please do check out the discussion paper and get in touch if you've got any thoughts.