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For many years, Bitcoin has proved to be enigmatic. Is it a capitalist’s dream, a tool for criminals, or the ultimate open source creation? Cryptocurrencies have long been shrouded in controversy and deemed too risky for nonprofit organizations to touch, until recently, when many have come round to their benefits and started accepting cryptocurrencies as donations. But what potential is there for cryptocurrencies in development?
Bitcoin basics
Before we answer this question, let’s look at the difference between the Bitcoin system and a regular banking system. They are both intended to move payments from one party to another using a database, but the two main differences with Bitcoin are:
“First, the database that is used to record payments between people is public, rather than the privately held account databases of the normal banking system. Second, the intermediaries that change that database are a decentralized network of people (“miners”) running special Bitcoin software, rather than banks running their own private software systems.”
Scott (2016)
The Bitcoin system is based on a completely public, decentralized database called a Blockchain, which makes it highly transparent.
Nonprofits and cryptocurrency
So far, so good. But the system carries with it many risks, which have traditionally led nonprofit organisations to steer clear of it: Bitcoin’s value and stability depends on how many people use it, and since it is not yet mainstream, it is very volatile. This in turn puts people off using it, which in turn means it remains volatile. There have also been security concerns, with Bitcoin having been subject to various security breaches, although this has improved over the years. There are also many questions over how Bitcoin is regulated, taxed and accounted for, all of which could be an administrative nightmare for nonprofits. Added to this, the association of Bitcoin with criminals and money laundering is not something that nonprofits wanted anywhere near their brand.
Over time, however, Bitcoin and cryptocurrencies in general have matured, and their reputation softened. An industry has sprung up around them, with organisations like The Giving Block, which helps nonprofits to accept cryptocurrencies, and other products enabling nonprofits to minimize volatility, like Stablecoins. Many charities have begun accepting donations in cryptocurrencies, such as Save the Children, UNICEF and Oxfam. But what are the benefits?
Benefits of accepting cryptocurrency donations
Cryptocurrencies allow nonprofits to bypass bank fees, move money around the world quickly, and enable donors to track their donations and see where their money goes. In a pilot project by Oxfam, cryptocurrency was used to get aid to Vanuatu:
“Some 200 residents were given tap-and-pay cards which they could use to unlock the aid payments to buy food from designated local stores via a smartphone app. Previous cash-based payments were delayed and hampered by the need for ID checks and bank visits.”
Charles Hymas, The Telegraph
For nonprofits, cryptocurrency users are a niche but untapped market, and because of the appreciation of Bitcoins over the years, many of them have Bitcoins to burn. And it’s not just for altruistic reasons that they think of donating Bitcoins to charity; donating them allows donors to avoid paying capital gains tax.
Some risks are still there, but nonprofits are learning how to manage them. For example, wallets – digital tools that can store, send, receive, and sometimes exchange cryptocurrencies – have to be chosen carefully, taking into consideration factors like privacy rules, fees, vulnerability risk, and control over your money. UNICEF, which was the first organization to accept ‘crypto as crypto’ and not immediately convert it to a fiat currency, follows the Principles for Digital Development – guidelines agreed to for best practices in technology for development – in choosing which cryptocurrencies to accept. And to get around the fact that the Bitcoin wallet is anonymous, and the donor could be anyone, UNICEF has put in place rigorous checks that donors need to pass before they’re allowed to deposit Bitcoins.
Blockchains 4 development?
Cryptocurrencies like Bitcoin have often been associated with free-market capitalism and conservative libertarianism. But they also appeal to those with a more left-wing libertarian view,
“because it has features that potentially allow for non-hierarchal self-organization and peer-to-peer collaboration within a communitarian network structure”
Scott (2016).
There have therefore been attempts to build cryptocurrencies that can be used only for cooperative and collaborative enterprises, such as Faircoin.
If we consider the underlying principle of the Blockchain system by itself, however – and separate from the economic concept of a currency – in my opinion it opens up more exciting possibilities for development. The transparent nature of a public, decentralized database, could have uses, not just for tracking where donations go, but also for making a wide range of data available, from global corporate supply chain data to land registries.
More recently, since the global coronavirus pandemic began, there have been many ideas for how Blockchains could help fight the virus, such as apps for monitoring the health of individuals and communities, new approaches for simulating the spread of COVID-19, connecting health providers with suppliers of medical equipment, and validating a person’s immunity to the virus.
The use of cryptocurrencies for development has been accused of ‘techno-social solutionism’; for example, by encouraging people in developing countries to opt for an alternative banking system instead of strengthening those vulnerable countries’ regular banking systems. There may be some truth in this, but I believe the real value lies in the transparency that the underlying Blockchain has to offer, and the potential of this has only just begun to be realized.
Do you know of any other uses for Blockchains in development? Please tell us in the comments below.
This post is written by Jessica Wright. Find out more about the authors of this blog.
References
10 Common Misconceptions Nonprofits Have About Bitcoin Fundraising (2020). Retrieved October 16, 2020 from Nonprofit Tech for Good, https://www.nptechforgood.com/2020/02/06/10-common-misconceptions-nonprofits-have-about-bitcoin-fundraising/
5 Reasons Why Nonprofits Love Cryptocurrency (2019). Retrieved October 16, 2020, from Nonprofit Tech for Good, https://www.nptechforgood.com/2019/08/22/5-reasons-why-your-nonprofit-should-embrace-cryptocurrency/
Amoils, N. (2020). Innovation In Crypto Charitable Efforts For Coronavirus. Retrieved October 16, 2020, from Forbes, https://www.forbes.com/sites/nisaamoils/2020/05/05/innovation-in-crypto-charitable-efforts-for-covid-19/#53274d46f641
Castellanos, S. (2020). A Cryptocurrency Technology Finds New Use Tackling Coronavirus. Retrieved October 16, 2020, from The Wall Street Journal, https://www.wsj.com/articles/a-cryptocurrency-technology-finds-new-use-tackling-coronavirus-11587675966
Cheney, C. (2019). Nonprofits explore the newest fundraising frontier: Cryptocurrency. Retrieved October 16, 2020, from Devex, https://www.devex.com/news/nonprofits-explore-the-newest-fundraising-frontier-cryptocurrency-95789
Cryptocurrency Fundraising: A Beginner’s Guide for Nonprofits (2020). Retrieved October 16, 2020 from Nonprofit Tech for Good, https://www.nptechforgood.com/2020/07/15/cryptocurrency-fundraising-a-beginners-guide-for-nonprofits/
Hymas, C. (2020). Charities turn to cryptocurrencies to help donors see where their money has gone and speed up transfers. The Telegraph. Retrieved October 13, 2020, from NewsBank https://infoweb-newsbank-com.proxy.mau.se/apps/news/document-view?p=AWNB&docref=news/17ADFC2BA01A1BF0
Menegaldo, D. (2019). Benefits of Accepting Crypto + Bitcoin Donations on GivingTuesday. Retrieved October 16, 2020, from Giving Tuesday, https://www.givingtuesday.org/blog/2019/11/benefits-accepting-crypto-bitcoin-donations-givingtuesday
Scott, B. (2016). How can cryptocurrency and blockchain technology play a role in building social and solidarity finance? (UNRISD Working Paper, No. 2016-1) Geneva: United Nations Research Institute for Social Development (UNRISD).
Tinianow, A. (2019). Bitcoin Donations Poised To Transform Nonprofits. Retrieved October 16, 2020, from Forbes, https://www.forbes.com/sites/andreatinianow/2019/11/21/bitcoin-donations-poised-to-transform-nonprofits/#db9013b58132
Bitcoins are beneficial for almost everyone, regardless of the intended purposes (could be a tool for businesses or a tool for criminals). In my opinion, blockchain system is a very interesting topic. I think that they are very important in the international environment. As you have clearly wrote, these systems can be tools to monitor and be an aid for fighting the coronavirus. This is one of the advantages of blockchains. Still, blockchains remain to be a controversial issue as it can be a tool for criminal activities at the same time.
Thank you for your comment Aygen! Yes, both blockchains and cryptocurrencies seem to be controversial and I think that’s why there wasn’t much movement on these within the nonprofit sector for a long time. But there seems to be a shift more recently, and perhaps that’s because nonprofits have found ways (or agencies to help them find ways) to mitigate the risks.
Hi. Thank you for talking about block chain and crypto currencies on here.
Can you link to how you see that crypto currencies are a capitalist’s dream? I would think its decentralized core would deem it always the opposite, not counting non-blockchain frauds such as OneCoin of course.
Here is also an interesting use of blockchain in the Latin American context of public interest design on a city level fighting issues such as lack of citizen participation or corruption. https://os.city/experiences
Did you see the recent rise of 30% of BitCoin’s value? I have only just begun reading on it but I think it is interesting to observe and analyse the circumstances because of the currency’s volatility as you pointed out.
Hi Nina, thank you so much for your comment. I see your point about cryptocurrencies being decentralised and therefore not capitalist, but I think this is the interesting thing about cryptocurrencies – they also appeal to libertarians and free-market capitalists because of the lack of regulation.
Thank you so much for the Latin American example of the use of blockchain, I will check it out for my research!
Yes, it seems that the jury is still out in terms of the impact on Bitcoin of the coronavirus pandemic, since at the beginning of the pandemic it seemed to be impacting it negatively. Its volatility I guess means that it can also bounce back pretty quickly. It’ll be interesting to see what happens over the next year.
Thanks again for your comments!
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