Can blockchain technology help to restore trust in a third sector battered by scandal?

Profile picture for user catheverett By Cath Everett January 23, 2018
Summary:
Cath Everett talks to two start-ups whose aim it is to enable donors to see where their money is being spent, through the use of blockchain.

blockchain bitcoin
Trust is a big issue in the third sector - wherever you happen to be in the world. Not only have there been a series of high-profile scandals among some of the bigger charity players over recent years, but many donors have also expressed concern about unorthodox fundraising techniques and just how their money is being spent.

Such concerns were highlighted in a survey undertaken at the end of last year among 2,213 UK consumers by London-based start-up Giftcoin. A huge four out of five of those questioned said they had given money to charity over the last 12 months, donating on average £67 each over the course of the year.

But as many as 55% believed that nearly half of their donation went on overheads such as salaries and rent rather than the cause they were ostensibly supporting. Unsurprisingly then, most indicated they would on give on average 49% more if it were clearer where their money was being spent.

As Francesco Nazari Fusetti, chief executive of Milan-based CharityStars, an auction platform for fundraising purposes, points out:

Trust among donors in the charity sector is not just a UK or European problem – it’s a common problem worldwide. It’s something real and concrete and it’s the main reason why people don’t donate as they don’t know if their money is being spent properly.

But he believes that blockchain technology could make a big difference. As a result, the company is developing a so-called AidChain platform based on the Ethereum blockchain system.

The platform will include an AidPay payment gateway in the form of an embeddable widget. The widget enables verified charities to accept donations in different crytocurrencies via their websites. Each cryptocurrency is instantly converted into CharityStar’s own in-house version AidCoin, which makes it possible to manage all of the donations received in a single digital wallet.

The platform will also support the European Union’s (EU) new PSD2 Payment Services Directive, which means it will be able to accept credit card and PayPal payments from across the EU. Each charity will pay a monthly fee in AidCoin tokens to use the service, but a deposit fund will also be created to ensure that, unlike its volatile counterpart, bitcoin, the digital currency’s value remains stable. The aim is to make certain that charities do not lose out due to currency fluctuations.

Transparency and trust

While supporters make their donation via the AidChain website, the most important consideration from a trust perspective is that they can also use it to follow and track how their money is being spent. Fusetti says:

I don’t know if blockchain technology will be enough to completely restore trust in the third sector, but it has a huge part to play because it provides control, and donors can see what is happening with their money in a way they couldn’t before.

The aim is to release the first beta of AidChain in the first quarter of 2018 and launch the completed product in the fourth. The first charities to sign up to its platform will be announced in February.

Another organisation that is intending to use blockchain as a means of enhancing donor trust is London-based Giftcoin. It too plans to launch a website that enables supporters to track their donations in a range of cryptocurrencies, but it also plans to include support for micro-donations by rounding up payments.

These donations will be converted into the firm’s own Giftcoin cryptocurrency and donors will be issued with a notification when their contribution is spent, informing them of how their money has been used.

Social media-sharing options will also be built into the giving process. Doing so will enable donors - particularly among the Millennial generation which has to date proven fiercely difficult for charities to reach - to publicise their generosity, thereby promoting both the cause and the fact they are using a cryptocurrency at the same time. While initially donations will focus on individual projects, Alex Howard, Giftcoin’s co-founder says:

The long-term dream is to handle transactions from end-to-end, from funds coming into the charity to them being spent. But that would require the supply chain being paid using blockchain too and it’s very early days. This is an emerging market and there are significant unanswered questions in terms of the maturation of the market and technology. But it’s long-term potential is significant.

Like Charity Stars, the organisation also intends to include support for so-called ‘smart contracts’ in its Giftcoin tokens. Smart contracts make it possible to release funds once the previously agreed key milestones of a given project have been hit. This means that should an initiative falter or fail, funds that have not yet been freed up can be returned to the relevant donor for investment in a new project. Howard says:

New technologies have come along and completely disrupted how sectors work, and I believe blockchain could do that for the charity sector. I’m aware we’ll have an uphill struggle in some ways as the third sector tends to be slower moving in terms of technology adoption…therefore, as much as building the technology, a key part will be winning hearts and minds.

Taking back control

The company’s aim in creating its own cryptocurrency, meanwhile, was several-fold. On the one hand, it makes it easier to “control how payments are used and to unlock them as they hit certain milestones”. On the other, he says:

It’s about creating a recognised and trusted brand that people understand is used for charity-specific purposes. There’s a perception of cyptocurrencies being used for crime, even though it’s said that two out of three paper dollar bills are covered in cocaine. But it’s the perception that’s the issue. As we see new blockchain and cryptocurrency apps emerging and being used in positive ways, that will change, however.

As for next steps, the company’s aim is launch a token sale on 1 February to fund the development of its platform from March onwards in collaboration with a handful of charities. These include English Heritage, Enhance the UK, the Optimum Health Clinic Foundation, Grief Encounters and Scotty’s Little Soldiers. An initial version of the platform will be made available to additional charities in the summer, while a wider roll out is planned for the autumn.

As for charities themselves, the potential of the technology is evident to them too. Emily Brett, founder and chief executive of Ourmala, which helps refugees overcome trauma and integrate into society, believes that blockchain platforms offer “an opportunity for greater levels of engagement than traditional ways of giving”. She explains:

We run something called the Happy Baby Project in North London….and with the support of Giftcoin, we wanted to replicate that in South London….It gives a visual map of how much a project like this takes to run and it’s an opportunity to show it to the public by joining up the whole loop. So it’s about being fully transparent and engaging people more by showing them where their money goes and how it’s been spent. The aim is to build longer-term relationships with supporters and, while we regularly hold public events to meet and chat with people, this is something that’s been missing to date. There’s not been a way to demonstrate transparency like this until blockchain technology came along – although the proof of the pudding is always in the eating, of course.

But Brett believes that working with Giftcoin is of little risk:

There’s minimal input from our side beyond providing information – and that’s a key point as it means we can focus on delivering the Project, while Giftcoin does most of the legwork.

Alison Baum, founder and chief executive of Best Beginnings, a charity that aims to reduce inequalities in child health, is equally positive. The aim of the organisation’s Giftcoin-based fundraising activity is to further develop its Baby Buddy app, which supports mothers through pregnancy until their child is up to six months, and make it accessible to more families.

As Baum concludes:

What I really like about the idea behind the Giftcoin platform is that it’s putting philanthropy at the heart of everything. It cuts through three key barriers to charity giving: having philanthropy at the front of people's minds, providing transparency on where their donation will go, and providing feedback on the impact their donation has had.

My take

Although it will likely be another five to 10 years before blockchain and cryptocurrencies become a widespread means of donating to charity, the fact that these technologies can help make it clearer where donations are being spent does mean they have the potential to restore at least some trust in a charity sector badly battered by scandal.

But as Ourmala’s Brett points out technology can only ever go so far with such matters:

I just hope that the attitude of slightly fudging words and stories won’t end up being translated into technology. So you can say ‘if you give £5, it will be spent on lunch for this person’ or you can say ‘it will go towards lunch’ and, in that case, a chunk of it may go towards admin costs. People aren’t always as honest as they could be about what’s happening and so, while an increased use of technology may lead to an increased culture of transparency, it has to be down to individuals to take suitable action too.