The key benefits, potential, and challenges to blockchain applications in the Philanthropic World
Whenever someone asks “Which industries do you think are likely to be disrupted by blockchain technology?”. Naturally, the first ones that come to our mind are banking or healthcare sector. But this technology has the capabilities to alter the way that people and societies interact with each other. It extends its realms as far as the philanthropic aid, NGO and welfare (of the world). Such is the power of blockchain!
Figures Don’t Lie!
Before we begin finding solutions to any problem, we must first find what the problems! Well, let’s take a look at some of these observations and figures
- According to Union Nations Trade and Development (UNTAD) developing countries face a $2.5 trillion annual investment gap in key sustainable development sectors.
- A survey done in England found that public trust in charities has declined to 57%, the lowest since 2005.
- Billions are donated to charities every year. However, according to a report by the United Nations (UN), almost 30% of the funds are lost due to corruption and fraud.
- The administrative and overhead costs for non-profits organizations have increased to an alarming 37%.
- Emergency-aid situations have become favorable for conducting activities of frauds and corruption. In 2013, in Uttarakhand (India) flood disaster, lakhs of corrupt officers utilized the funds released for relief situations.
- According to UNHCR, there are nearly 22.5 million refugees displaced in the world.
And these are just to name a few problems which are faced by the philanthropic world of aid.
Lack of Trust and Transparency
Currently, one of the most common issues is the lack of trust and transparency in the system. The donor has no effective way of tracking his funds. There are no means to know how much of the funds are used to actually benefit people. Essentially this creates a barrier and hence the lack of trust. The limited monitoring availability also affects the faster and better decision making process.
Blockchain Applications: Trustless Transparent system
Blockchain technology presents a wondrous opportunity in changing the face of the philanthropic aid industry. With blockchain, it becomes easily possible to effectively track the donations. At any point in time, the donor has an exact idea of how much of his funds are being used and in what measures. Additionally, the tracking and monitoring capabilities elevate the transparency level between the NGO organizations, governments, donors and beneficiaries.
Since each step is recorded inside the blockchain, the donor can be aware of how his funds are being transferred to the beneficiary. By tracking his donations, the donor can take better and more effective decisions.
Corruption and Fraud
Even though it is shocking, the humanitarian aid sector is vulnerable towards frauds and corruption. Most of the times, the financial aid distributed as relief funds after an earthquake or floods are lost in fraudulent activities. The scandals in facilitating emergency aids are at an all time rise. Nearly $500 million of relief funds given to Haiti after the 2010 earthquake are missing!
Haiti is not the only city though. Millions of dollars are lost due to corruption in relief funds. There is a lack of trust and transparency in our traditional method of disbursing funds at the time of need
Blockchain Applications: Accountability
One of the greatest blockchain application is accountability in operations. The ledger can track and record how each dollar, at any given point of time, is used. Anyone (with the rights) can backtrace and view the exact money spent during such times. Hence it provides accountability to the actions of people responsible.
Additionally, the information once entered on blockchain can never be modified or deleted. This prevents fraudulent activities from taking place.
Cross Border Transfer Fees
One of the most significant parts of philanthropic aid is that it is not limited to its own region/country. Funds are very often and commonly provided from one nation to another. The effective transfer and utilization of these funds are one of the key challenges that NGO organizations, as well as governments, face.
However, a portion of those funds is lost in cross border transfer fees. Another portion is lost in the exchange rates when transferred from one country to another. Up to 10% of the fund gets lost when it is a cross border transfer. Additionally, the funds are exchanged through a lot of intermediaries while being transferred. Not to mention, delays in the time period for the fund to actually reach the beneficiaries.
Blockchain Applications: Faster, cheaper Cross border Transfer
Bitcoin is the greatest example of how blockchain technology can provide instant payment transfers with negligible fees. The technology can be leveraged in reducing inefficiencies by cross border transfers with reduced costs and faster processing. Also, the technology has the potential to transform charity distribution through disintermediation. Funds can directly be transferred from donors to NGO organizations without banks and agencies taking a cut from it.
Administrative and Overhead Costs
The manner in which any charitable organization works still remains traditional. There are limited charities who leverage the benefits of technology. This remains one of the reasons for increased overhead and administrative costs. While some of these costs remain necessary, it is noted that sometimes organizations spend as much as 50% of the funds in overhead costs
This results in depreciating reputations of organizations.
Blockchain Applications: Better Models
One of the direct blockchain applications is the removal of intermediaries. This directly cuts down some of the overhead costs of organizations. The traditional fundraising mechanisms can be greatly improved through blockchain and using cryptocurrencies.
Smart contracts are also a great medium for developing new and better models for charitable organizations. Smart contracts can provide a model which focusses on incentives and goal driven objectives. The use of smart contracts enables in building a system in which funds are disbursed only after the organization has completed conditional milestones. The process is automated. This incentivizes the organization to adhere to their goals and objectives.
There are thousands of refugees being displaced on a daily basis. According to a newly published report by The UN, only about 100,000 refugees were resettled by the international commission until 2017. Meanwhile, millions are left displaced and without access to any basic services.
One of the most common concerns about the refugees is that they have no documents verifying the proof of their identity. The refugees are more likely to leave paper-based documentation such as birth certificate, license, passports, etc issued by their government while fleeing the country. Without any identification, it becomes difficult for them to access basic services or even open a bank account.
Blockchain Applications: Giving Identification to Refugees
Blockchain technology is known for hosting, tracking and transacting valuable assets on its ledger. Hosting digital identities on the distributed ledger verifies that the documents are not forged. A self-sovereign digital identity for the refugees would enable them to take control of their lives, no matter the place. Identification can help the refugee in applying for a job, loan or even education.
A platform called AID: TECH has set a wonderful example by helping Syrian refugee families through blockchain technology. Each beneficiary was assigned with a digital identity. Vouchers were given worth $20 which can be redeemed for basic services. Beneficiaries claim their entitlements simply by using a plastic card or mobile phone application
While all the ideas theoretically sound good, the implementation of these will be a little more difficult. For NGO organizations and nonprofits are a little averse to trying on new technology. Even when successful pilots have been carried out in different areas of nonprofits, executing at a much higher scale will be faced with a lot of regulations and complexities.
Budget constraints, infrastructure provisions are some of the key challenges that are to be faced. Another barrier for the technology to have a worldwide. adoption are the political forces which often impede transparency in philanthropic aid
While blockchain technology may not be able to solve all the problems, it sure is a great start for a better world!
Also, read the impact of blockchain technology on different sectors