Charities are making giant leap towards cryptocurrencies in corona crisis

ripple etehereum and bitcoin and micro sdhc card
Photo by Worldspectrum on

Peter Howson, Nottingham Trent University, U.K.

This year was a leap year. In normal circumstances such a thing is nothing to celebrate in England, aside from an extra February day of bad weather, and waiting a day longer for one’s pay cheque. Today, how we all miss February. I will probably never forget that day in early March. A stranger in the street asks me where I had brought my 2 pints of milk (I paid £3 cash for it in the village pub as they were locking the doors indefinitely), before joining the queue at the fish and chip shop to buy a sack of potatoes. All our plans for the year; holidays, work projects, moving house, everything that was once considered concrete has changed in a matter of weeks for almost everyone in the whole world, in different ways.

The pandemic has triggered an unprecedented government support package for UK businesses, including for charities plugging the gap in underfunded medical and social care systems, weathered by a decade of austerity measures. The UK Finance Minister admits the £750 million of extra funding to support ‘front-line’ charities will not save them all from collapse during the corona crisis, while the charity sector as a whole faces a £3.7 billion shortfall over the next 12 weeks. Many social enterprises, small and international NGOs are in dire straits, as revenue from charity shops dries up, and nothing that was expected from summer events comes in during the lockdown. Cancellation of this month’s London marathon alone is estimated to cost the sector £66m.

Global lockdowns are isolating hard-up donors. Coronavirus restrictions are also placing barriers between charities and beneficiaries, especially in the Global South. Novel fundraising strategies are called for and disruptive technologies, like blockchain, are emerging as a useful tool. Blockchain is the underlying technology behind cryptocurrencies, like Bitcoin. Charities are using it for fundraising, but it can also improve public trust and transparency in charities’ operations. The blockchain is a smart database. Unlike a traditional centrally-administered database, it’s distributed electronically to all users, immutably tracking every transaction that has ever taken place. The blockchain is almost completely hack-proof. There is no single controller or point of authority to make mistakes or allow uncontrolled changes to the system. Algorithms verify the data stored on the network and check that nothing is deleted.

For the charities that have already made the leap into crypto, the most attractive aspect of the technology is the new fundraising opportunities that arise from receiving donations using Bitcoin or ethereum. Crypto is mainstream and Bitcoin is widely used as a payment method. Its value has increased from $700 to $7,000 in just three years and the supply of Bitcoin is due to half in May, which is likely to push the price up further and attract more users. Meanwhile, economic life support measures for the pandemic means interest rates are at an all-time low, while government borrowing significantly debases fiat currencies globally.

Despite fiat currency being generally fit-for-purpose for most day-to-day fundraisers, there are multiple reasons why some charities require blockchain-based alternatives. Some face operational restrictions (think WikiLeaks having their Visa and Mastercard lines cut), others can easily send Bitcoin, but struggle to wire fiat to their beneficiaries. Oxfam, for example, have been experimenting with sending crypto to disaster-hit remote islands in the Pacific. During natural disasters, political unrest or global corona virus pandemics, cryptocurrencies are proving very useful.

Two weeks ago the Italian Red Cross were desperate to bring in funds to help support the highest concentration of Covid-19 patients in the world, with over 18,000 dead nationally. Short of cash donations, Red Cross turned to Bitcoin to fund urgent medical posts for pre-triage coronavirus patients. A target of 1.5 Bitcoin ($10,710) was needed. In a few weeks the charity brought in 3 times that, enabling additional emergency equipment to be purchased.

For regular donations towards on-going campaigns, most charities like The Red Cross, rely on traditional methods of fundraising like monthly direct debits from supporters. Bitcoin can only reliably be used for one-off donations, which is still very useful for funding emergency response projects.

As cryptocurrencies are commonly classed by regulators as ‘property’, much like bric-a-brac donations to a charity shop, those donating cryptocurrencies benefit from tax incentives. The Red Cross, UNICEF and Greenpeace among others, encourage crypto-owners to make donations in crypto rather than cash. Selling Bitcoin usually attracts a capital gains levy. Donating the after-tax proceeds is less cost effective than if charities receive the full value of contributions. Sending crypto to where it’s needed is also much cheaper than with fiat.

Many charities accepting crypto still use payment intermediaries. The Giving Block for example, helps charities accept crypto donations to the benefit of both the donors and the charities. The Giving Block is currently running the #cryptoCOVID19 campaign to connect the largest crypto stakeholders in the world to fund efforts in tackling the pandemic.

The US charity, No Kid Hungry, has started accepting crypto to ensure no vulnerable children are losing the healthy meals they depend on during school closures. Dash Text have developed a platform for sending cryptocurrency directly to groups of school children in Venezuela. The platform allows donors globally to send funds securely and transparently via the Dash network.

The cryptocurrency and blockchain development industry is growing. As it does, more innovators, creators and crypto-millionaires will emerge with a willingness to improve people’s lives in particular ways. Larger charities, with the resources to ensure regulatory compliance and market themselves to the new crypto-rich, will undoubtedly see greater benefits from blockchain technology, compared to smaller, more risk-averse and volunteer-led charities. But blockchain is problematic. Organizations working with corona virus patients need to ensure that transparency goals, designed to satisfy their donors, do not form part of a trade-off with the confidentiality needs of beneficiaries. In a year when the whole world is in crisis, what might distinguish the charities that effectively tackle the pandemic, with those that collapse, is their willingness to take a giant leap with blockchain.

Peter Howson has a full manuscript under publication consideration with NVSQ on blockchain for third sector organizations.

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