Lately it feels like we’re living in a golden era of technology and innovation. In the past few years we’ve seen several technologies emerge to make a major impact in our lives: the Internet of Things, artificial intelligence, and now blockchain.
Of these, blockchain is perhaps the most challenging to understand from a technical perspective, and the hype of its promise to revolutionize our tech-driven culture is nearly over-the-top.
The blockchain hype is no less fantastic in the world of philanthropy. Proponents of the technology say that blockchain will eliminate fraud and mismanagement and increase the certainty around how, when, and where philanthropic dollars are used – securing a more transparent and effective social sector ecosystem.
So what’s behind the fevered pitch of blockchain, and can it really live up to its promise? Is blockchain the future of philanthropy?
First, the technology.
Most of us have heard of blockchain thanks to Bitcoin, the cryptocurrency that rose nearly 900 percent in value in 2017. But are they the same thing? Can there be a blockchain without Bitcoin, and vice versa? And how will blockchain impact or influence philanthropy? Here’s a quick primer to help you get up to speed.
Simply put, blockchain is the software that Bitcoin is built upon. It’s essentially a database functioning as a digital ledger that is decentralized, meaning there is no one owner or administrator. Instead, a complete copy of the data is loaded to over 10,000 “nodes” or computers strewn globally across the Internet. New data is added every ten minutes in a chain-like fashion, and every node is updated at the same time.
Because the data is replicated on all those nodes, encrypted, and linked together, it’s inherently more secure and tamper resistant that a traditional database that lives on one server. And, much of the data can be open and viewable by everyone, which makes it transparent, leading to accountability among the individuals and organizations who use it.
In the case of Bitcoin, financial transactions can be made by anyone who has a simple mobile application (called a digital wallet), and has purchased a fraction of the Bitcoin currency. Each user has an assigned private and public key, with which they can exchange Bitcoin with anyone.
But blockchain goes far beyond Bitcoin. Virtually any asset can be exchanged, such as shares of stock, a title to a car, or even carbon credits. And, blockchain enables a type of computer program called a smart contract to manage terms and conditions of transactions. For example, when you pay off your car loan, the smart contract automatically releases the title to you.
So what does all of this mean for philanthropy?
Quite a lot, actually. Think back to the 2010 earthquake that devastated Haiti. Thousands of individuals rushed to contribute their own money for relief efforts, but according to a well-publicized report by NPR and ProPublica, nearly $500M went unaccounted from just one NGO. Simply put, there was no way to track the funds and ensure they were used for their intended purpose. Blockchain’s traceability and transparency helps solve this issue. Grants or donations can be tracked every time dollars (or Bitcoin) change hands, enabling donors to see exactly where their funding is going and what it’s being used for.
As a matter of fact, several organizations are building new nonprofit models for this very use case. GiveTrack, Alice.si, and others are already operational with blockchain-enabled technology that provides transparency towards where funds go, and ensuring projects achieve milestones before receiving additional funding. And, because blockchain is decentralized and not beholden to any government or corporation, funds can be transferred virtually anywhere, instantaneously, for a fraction of the cost of non-blockchain transactions.
This idea of accountability is being tackled by the IXO Foundation at scale, and foundations and nonprofits should take note. Their IXO protocol collects, measures and verifies impact delivery in pursuit of the United Nation’s 17 Sustainable Development Goals (SDGs). The technology provides “proof of impact” for work and goals achieved. This is potentially a huge shift for philanthropy. As impact becomes more data-centric and verifiable, the entire funding model may be reexamined. Nonprofits can more objectively demonstrate performance, and foundations will make an evolutionary leap by having better data for their measurement and evaluation. Best of all, the independent verification of impact provides better accountability and transparency throughout the project. We’ve taken a giant leap toward having the ability to answer the question, “Are we making systems change?”
I’ve only scratched the surface here. But I’m so intrigued with the potential of this technology that I invited Anne Connelly (CEO of the IXO Foundation) and David Goodman, Director of Impact at Fluxx to an upcoming webinar on January 23, where we’ll explore the technology behind blockchain, examples of blockchain-powered philanthropy, and how the IXO protocol may be the next major step in measuring and verifying philanthropy’s impact.