Transforming the Social Sector: Bitcoin and Blockchain for Good

09/19/2017 04:21 pm ET Updated Jan 08, 2018

Beyond the hype of Bitcoin in the financial world is a growing movement in the social sector to leverage digital currencies and their underlying technology (called blockchain) for social impact.

An Overview of Bitcoin and Digital Currencies

What is Bitcoin? Bitcoin is an online currency which can be used for payments and as a store of value, but that operates outside of existing monetary and financial systems. One way to think of it is as a virtual alternative to dollars or gold which individuals, and not the banks or Federal Reserve, control. With only minimal transaction fees and complete security, the currency can be used for direct transactions between individuals, exchanged for dollars, or utilized for purchases at a growing number of companies like Overstock.com, Dell, Expedia, Dish TV, and Intuit. In some places you can buy a Burger King hamburger or Subway sandwich with Bitcoin, and there are even Bitcoin ATMs. Bitcoin is also the darling of an increasing number of individual and institutional investors. This is due to the fact that the virtual currency has risen in value by over 300% this year, and a single Bitcoin is currently valued at more than three times the price of one ounce of gold.

Not only is the interest in and demand for Bitcoin growing, but also for the other more than 2,000 digital currencies now in existence. Bitcoin’s currency cousins have allowed startups in the blockchain technology space to raise billions of dollars through Initial Coin Offerings (ICOs). An ICO is a company’s direct issuance of its own branded digital token, which can then be purchased and exchanged for the issuer’s services or for other currencies, including fiat currencies like the dollar or yen. These “cryptocurrencies” are traded through online exchanges and appreciate or depreciate in value like stocks.

Digital Currency and Fundraising

Sensing an opportunity to leverage these new currencies for fundraising, a number of nonprofits and foundations now accept Bitcoin donations, which they can later exchange for dollars. The Red Cross, United Way, Greanpeace and Save the Children all accept bitcoin donations, as do the Wikimedia and other Foundations. There is even a new crowdfunding site for social and political causes, called Bithope, which hosts fundraising campaigns that only accept donations in Bitcoin.

In addition, a handful of digital currency projects have been launched which generate their own “charity coins” to support specific nonprofits or charity work. The Clean Water Coin, for example, was created specifically to help fund the work of the NGO Charity:Water. So far Cleanwater coin, has raised over $2,000 through the “mining” and sales of the Clean Water Coin.

Another initiative, the RootPoject, is soon to launch an official Initial Coin Offering to support anti-poverty work. Their new digital currency, called Roots tokens, will be sold and exchanged for dollars to fund community projects targeting the poor. Some Roots tokens will even be reserved to support a pension fund for individual project workers. The RootsProject’s presale of Root coins alone generated well over $200,000 for the organization.

One incentive for nonprofits to accept Bitcoin is that premier digital currency payment processors and “wallets,” like Coinbase, do not charge processing fees for digital currency donations to 501(c)(3) nonprofits. If a donor wishes to donate Bitcoin, for example, the organization receives the entire donation. By comparison, Paypal, which has among the lowest transaction fees for nonprofit donations, charges 2.2% plus $.30 per donation. Also, Bitcoin donations are tax deductible and treated by the IRS in the same manner as stock and bond donations to charity.

Transparency in charity giving is another way in which Bitcoin and blockchain are being tested in the donations space. For example, the BitGive Foundation has launched an initiative called GiveTrack, which they call the “Bitcoin charity 2.0 initiative.” According to Bitgive, the system will “allow donors and the public to trace nonprofit transactions on a public platform in real time to see how funds are spent, ensure they reach their final destination, and track the results generated from contributions.”

Blockchain in the Social Sector

The technology which supports many cryptocurrencies, known as blockchain, holds even greater promise for advancing social sector work. Blockchain is being explored and experimented with by a number of international aid agencies and foundations, such as Unicef, the World Bank, and the Bill and Melinda Gates Foundation. Projects cover a variety of areas such as transparency of aid, international and local remittances, the protection of property rights, secure voting, and environmental protection. The technology itself is complex (and geeky), but at its core blockchain provides a digital mechanism for transparently recording and viewing any transaction ever. It operates through a decentralized computing network over which a record of transactions cannot be hacked or altered. While the Internet serves as an information exchange, Blockchain offers a “value exchange.”

One specific example of how blockchain is used in the social sector is a pilot recently conducted by the United Nations World Food Program (WFP) that provided Syrian refugees based in Jordan with cryptocurrency vouchers to trade at selected markets. The platform was successfully used to record and authenticate transfers for about 10,000 individuals.

Another example is a just announced “liquid democracy” experiment which allows users of an encrypted, blockchain-based app called Sovereign to vote peer-to-peer (not through governments) on any issue, or to transfer their vote to another trusted party anywhere. The creators of the tool, Democracy Earth, wish to enable a new form of global governance which transcends national borders and to fully establish democracy as a universal human right.

In the environmental arena, powerful new blockchain-supported supply chain management systems, which are transparent but cannot be tampered with, can be employed to determine if a food product is organic or fair trade - from producer to table. (see Provenance)

This May 2017 report from Mercy Corps describes many of the other innovative projects aimed at transforming international development and NGO work through digital currencies and blockchain.

Challenges and Possibilities

Digital currency and blockchain projects are still new and yet uproven in many cases, and the cryptocurrency market is still largely unregulated and extremely volatile. Blockchain is not a silver bullet for addressing social challenges, but the technology will continue revolutionize how individuals and systems interact across sectors. Financial institutions, corporations, and governments around the world are already actively utilizing or planning to adopt digital currencies and blockchain technologies in new and innovative ways.

In the social sector we can see a growing number of possible use cases, even to help address the needs of those now being effected by the devastating hurricanes in the Caribbean and southern United States. The blockchain could potentially support the immediate and direct transfer of financial support to hurricane victims for when banks are inaccessible or aid agencies and the government are too slow to respond, and for the tracking of donations to make sure they are received by the intended recipients.

Philanthropies might eventually benefit from automated “smart contracts” with their grant recipients, which only receive funds when grant conditions are met. Blockchain could also provide foundations and social impact investors with more robust and transparent impact tracking and measurement systems. Foundations could even issue their own digital currencies or operate charity-specific cryptocurrency exchanges? Some are suggesting that philanthropies and charities could be overstepped or removed altogether, leveraging blockchain’s core capability as an “intermediary killer.”

The possibilities for cryptocurrencies and blockchain for good are unlimited. As Kavita Gupta, who is managing a new $50 Million venture fund to support new companies addressing global challenges through blockchain says, “We haven’t even begun to tap the depth of its social impact potential.”

The future is now for digital currencies and blockchain in the social sector. The question is not “when will these tools transform the space?” In fact, they already are.

Note: For a listing of resources on Digital Currencies and Blockchain in the social sector see here.

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