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Philanthropy, the Blockchain & the Internet of Things

Rhodri Davies

Head of Policy

Charities Aid Foundation

@Rhodri_H_Davies

PHILANTHROPY, BLOCKCHAIN AND THE INTERNET OF THINGS

16 December 2015

Today we launched a new discussion paper, “Giving Unchained: Philanthropy and the Blockchain”, which looks at the potential impact of new ‘blockchain technology’ on charitable giving and social action.

This follows on from our Giving a Bit(Coin) paper earlier this year, which explored the possibilities of harnessing new forms of digital ‘cryptocurrency’ for philanthropy. The blockchain is a decentralised, shared public ledger that records ownership and transactions and is best known at the moment as the technology underpinning Bitcoin. However, many experts believe that the blockchain has far wider-reaching applications that could fundamentally affect the way we all live our lives. And the question at the heart of this paper is “what does that mean for philanthropy in the future?”

I believe there are a number of intriguing possibilities, ranging from the pragmatic to the seemingly outlandish. In order to understand where these possibilities come from, it is necessary to understand a few of the key features of blockchain technology that are getting people in the technology and finance sectors so excited:

1 RADICALLY REDUCED TRANSACTION COSTS

The blockchain is decentralised. This means that it is not owned or operated by any one person or organisation, but rather shared between users, some or all of whom contribute processing power towards the calculations required to maintain the system. Likewise transactions on the blockchain do not require intermediation, as the infrastructure itself can be used to create things like 'Smart Contracts' which are computer protocols that record and enact contractual clauses between blockchain users.

The net result is that the need for third parties is effectively removed, and thus transaction costs can be dramatically cut. In areas such as law and banking, this could have huge ramifications, which is presumably why so many big name firms are putting time and effort into exploring blockchain technology so that they can be ahead of the curve rather than behind it.

From the point of view of philanthropy, a reduction in transaction costs when it comes to dealing with money and contracts could make it easier for charities to get more of the money they receive from donor’s through to the front line.

2 INCREASED TRANSPARENCY

The blockchain is by its nature entirely transparent (at least in the full-blown utopian version of the concept). This means that any user of the system can see exactly who owns what at any given time, and who has given what to whom. And when it comes to money; since cryptocurrency is non-fungible (i.e. each piece is unique so one piece cannot simple be exchanged for another), an individual donor would literally be able to track their donation right through a charity and out the other side.

3 BLURRING THE LINES BETWEEN DIGITAL AND PHYSICAL

There are ways of representing all kinds of assets, both financial and non-financial, on the blockchain. Some of these are even entirely intangible: for instance, there is a lot of interest in the music industry in whether the blockchain could revolutionise the way Intellectual Property is dealt with and people get credited for creative work. And at the other end of the spectrum from ephemeral assets like IP, physical assets might also be able to exist on the blockchain. There is a great deal of interest in whether blockchain technology can underpin the “Internet of Things”, made up of the growing number of smart, internet-enabled appliances such as energy meters, fridges and even houses.

As a result, the blockchain may lead to the line between the online and physical world become increasingly blurred.

So what will this mean for philanthropy and for charities? We explore this question in more detail in the paper, but here are three intriguing possibilities:

4 ENHANCED TRUST

Trust is one of the most important commodities for any charitable organisation, as they rely heavily on the trust and goodwill of their supporters and the wider public in order to raise funds and carry out their work. The blockchain offers real opportunities to bolster this trust.

The removal of the need for third parties means that charities and non-profits would no longer have to rely on other institutions such as banks, lawyers and government bodies in the same way. Not only would this reduce their outgoings in terms of paying for transaction costs, but it could also help to avoid contamination when those other institutions are no trusted. For example, an international development charity operating in a part of the world where governance is poor and corruption is rife would surely welcome the possibility of being able to operate without having to deal with corrupt officials and organisations, as this is a major cause for concern amongst donors and supporters who fear that their money is being lost through corruption.

The far greater degree of transparency offered by the blockchain could also play a key role in boosting trust. If people can see exactly where their donations are going, and exactly what an organisation is spending money on, then there is little room to hide. For those charities that are able to use this ‘radical transparency’ to demonstrate that they spend money relatively effectively, this could lead to increased support. However, there are also risks. As we pointed out in our report on cryptocurrency, the danger of such radical transparency is that without further efforts to educate donors about the way charities operate, it could simply lead to people making unreasonable demands about the way that their own donations are used.

5 NEW TYPES OF ASSETS FOR PHILANTHROPY

As highlighted above, the blockchain could act as a framework for a vast “Internet of Everything”, encompassing physical objects and intangible digital assets. On the assumption that any of these assets could be given away for charitable purposes, this opens up a potentially vast new array of resources for philanthropy. Coming back to the music IP example mentioned above, it might be possible to specify that a fraction of the IP for a particular piece of music could go to charity. This is a bit like the existing idea of a charity single, only the power of the blockchain in this instance is that it makes automated micro-payments on a vast scale feasible, and thus potentially overcomes the challenges presented by the rise of streaming services and the like.

When it comes to physical assets, an intriguing thought occurs: the advent of an internet of things may spell the end of traditional notions of ownership because it makes more sense simply to share objects when temporary ownership can be transferred seamlessly via the blockchain. Hence people might start owning far less stuff. Could this be a problem for philanthropy, as donations of unwanted goods continue to be an important source of income for charitable organisations. Or, more radically, will it result in a shift of focus away from donations of spare objects towards donations of spare capacity in objects. i.e. Rather than donating a property to charity, you might donate use of the property during periods when it would otherwise be empty.

6 THE BIRTH OF AI-PHILANTHROPY?

The introduction of the idea of the Internet of Things and the value of spare capacity leads us to perhaps the most science fiction-like possibility: that in the future, smart appliances could emerge as an important new donor class.

As well as physical capacity, spare processing capacity will also a valuable commodity within a blockchain-enabled Internet of Things. This means that any time your smart washing machine is not in use, for instance, it could be earning its keep by offering up its processing capacity either for the general maintenance of the system, or to other users who require extra capacity. As a result it could earn money. Some of this could be used to pay for maintenance and repair, but what if there is extra? Well, one option would be to stipulate that some or all of this money goes to charity.

At first, this would almost certainly operate along the lines of existing initiatives such as “electronic rounding” schemes, which allow donors to round up card payments to the nearest pound and give the extra to charity, although in this case the donor would probably be able to choose their own charity. In time, however, as the ecosystem developed and became more sophisticated, it might make sense to implement “philanthropy smart contracts”, which take over responsibility for choosing charities based on performance data. Initially, the donor might still specify broad cause areas, but eventually it might be possible simply to empower the AI to give to the “best” charity based on analysis of what the most pressing needs are at that time and which organisations are most effective.

This might sound far-fetched, and the technology is clearly not there yet (and perhaps more importantly, the data certainly isn’t); however the idea behind this sot of “AI Philanthropy” is already with us. Effective Altruism (or at least the pure form of it, not the increasingly-diluted form we are seeing now) argues that we should be totally agnostic about causes, and simply give to whatever is going to produce the “greatest good”. Since this has already been caricatured as philanthropy for robots, why not simply follow this to its logical conclusion and let the robots get on with it?

As you can see, the implications of blockchain technology range from quite pragmatic solutions to problems we are dealing with right now to some more outlandish predictions about how things may be in the future. And, of course, as with any new technology where there is more than a dollop of hype, this might all come to nothing. However, the level of interest from big-name banks and technology companies suggests that there is something to blockchain technology. The choice for philanthropists and charities is whether to start thinking through the challenges and opportunities now, or risk getting left behind.