Charity unchained – how blockchain can help rebuild trust in the charity sector

Within the atmosphere of declining public trust in charities and calls for greater levels transparency, blockchain technology has the potential to re-build confidence and reshape the charity and NFP sector for the better.
The trust deficit

A recent report by the Australian Charities and Not-for-profits Commission (ACNC) points to a steady decline in trust and confidence in charities by the Australian public over the past five years, with those having high levels of trust declining from 37% in 2013 to 30% in 2015 and down to 24% in 2017[1]. According to the same research, and contrasting the declining levels of trust in charities, trust in other institutions such as the High Court, The Australian Taxation Office (ATO) and Federal Parliament has increased since 2013. Interestingly, the declining trend in trust in charities is occurring in many other countries: with public trust in charity sector dropping to historic lows in the UK[2] and trust in NFPs falling below 50% for the first time in the U.S.

While the cause of this decline in trust is certainly multifaceted, research shows that transparency is a key diver of trust in charities and not-for-profit organisations (NFPs). As the ACNC highlights in their 2017 report “the need for transparency around how charities use resources, including monetary donations, is paramount”[3].

Likewise, the issue of trust and transparency is as much a problem for institutional funders (e.g. governments, foundations and impact investors) as it is for individual donors, particularly with the emergence of new financing models such as social impact bonds and impact investing. Indeed, the lack of access to transparent, reliable, and comparable impact data is preventing greater levels of philanthropic engagement and is impeding the growth of these new financing models[4]. Moreover, the demand for greater transparency is placing added cost pressures on charities due to the multi-faceted administrative burdens of impact management.

It is important to note that there is a difference between the meaning of trust and confidence. Trust is the belief we have in an institution to deliver on their promises where we do not require evidence. Whilst confidence in an institution requires evidence such as a contract or data on past performance[5]. Within this atmosphere of declining trust and demands for greater levels transparency, blockchain technology has the potential to build confidence and reshape the charity and NFP sector for the better.

Blockchain: The gatekeeper of trust

Simply put, blockchain is a distributed ledger that provides a way for information to be recorded and shared by a community. In this community, all members validate any updates collectively and intermediaries are replaced by the collective verification ecosystem. Entries are permanent, transparent, and immutable, which allows people who don’t know each other to have confidence in a shared record of events. Essentially, by making all records traceable, tamper proof and publicly available, and by removing the need for third parties blockchain technology acts as a trusted gatekeeper and purveyor of transparency. For example, recently launched blockchain tools for the charity and NFP sector, such as Givetrack[6] and Alice[7], allow donors to openly track the flow of funds from the point of donation to the beneficiary, providing greater transparency on how their money is being deployed and spent, as well as the impact it is having.

Smart contracts: The game-chainger

Blockchain technology also allows the development of smart contracts, computer protocols that automate the execution of specified actions (e.g. the release of donations or funds) if certain conditions are verified (e.g. the achievement of a project outcome). For instance, a smart contract could provide donors interested in education in developing countries the power to make a donation on the verifiable enrolment and/or completion of education courses. Similarly, impact investors could receive reward payments where their capital has been used to achieve verifiable outcomes. By making each donation or investment dependent on the achievement of specific project goals, and by allowing charities and NFP’s to transparently demonstrate their ‘proof of impact’, smart contracts can help build confidence and foster a greater sense of trust and transparency between NFPs and donors and investors.

Isn’t it too early to start considering blockchain?

It is not too early at all!

Organisations such as the United Nations World Food Program (WFP) are already beginning to incorporate blockchain into their funding and distribution model to foster a greater sense of legitimacy and transparency in their organisation. More recently, a network of global charities called the Start Network, which includes organisations like Oxfam, Save the Children, and World Vision, trialled the use of blockchain in humanitarian projects to help improve transparency and reduce operating costs[8].

As more charities and NFPs engage with blockchain technology the solutions offered promise to become more tailored to the visions of organisations that cater to vulnerable communities, both domestically and globally. By helping promote transparency, build trust, confidence and reputation, and enhance efficiency in transactions we believe blockchain and smart contracts have the potential to transform the charity and NFP sector for the better.

If you want to learn more about how blockchain-enabled contracts have the potential to be a “game-changer” for the sector, please contact either Les Hems or Vivian Stephens.

Supporting Footnotes









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