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• Blockchain is gaining speed in the humanitarian sector
• The technology is still in its early days, yet more than half of social-good blockchain initiatives are estimated to impact beneficiaries by the end of this year

By Fatima Arkin // 04 July 2018

These concepts have the potential to impact countless people. The report, which analyzed 193 organizations, initiatives, and projects that are leveraging blockchain to drive social impact, identified 20 percent of them as providing a solution that would not otherwise have been possible without blockchain, and 86 percent as providing material improvements over existing solutions.

Still, the road for blockchain integration in philanthropy and international development is not an easy one. Development organizations, nonprofits, and governments tend to be risk averse and slow to adopt innovative and disruptive technology. And there remain a slew of unanswered questions about the potential negative implications.

“Another significant barrier to wide-scale adoption is that introducing a new technology does not solve for the local economic and political forces that often impede the effectiveness and transparency of aid or philanthropic initiatives,” adds the report. “In order for blockchain to be a transformative solution, collaboration and open dialogue is required across borders and sectors to develop a sustainable and scalable solution.”

A growing number of donors are paying attention. In just the past few months, both the United Kingdom Department for International Development and Denmark’s Ministry of Foreign Affairs released reports on the opportunities for blockchain in international development. The United States Agency for International Development also released a primer two months ago on how distributed ledger technologies including blockchain can help foreign aid agencies and their partners.

To keep development practitioners abreast of this rapidly evolving space, Devex rounds up the top five things you need to know about blockchain and its most publicized application, cryptocurrency, in 2018.

1. Charities and nonprofits are increasingly accepting cryptocurrency as donations

This ranges from the Switzerland-based World Wide Fund for Nature to the Australia-based Charitex. Perhaps the most notable example is the U.S.-based Fidelity Charitable, the largest purveyor of donor-advised funds and the country’s second largest grant-maker after the Bill & Melinda Gates Foundation. Last year, the charity received $69 million of various cryptocurrencies in donations, such as Bitcoin, representing a nearly tenfold increase from the previous year, according to a 2018 report published by the organization.

Despite outcry from high-profile development figures, such as World Bank President Jim Yong Kim who compared cryptocurrencies to “Ponzi schemes” earlier this year, Fidelity Charitable has been accepting cryptocurrencies since November 2015. The decision was spurred in part by requests from their clients to accept the digital asset and by favorable changes in tax regulations. The year before, the U.S. Internal Revenue Service classified cryptocurrencies as an asset similar to stocks, thereby making sales subject to capital gains.

“By donating these assets, the donors could eliminate the significant capital gains taxes on the appreciation while giving the full fair market value to charity,” noted the report.

In order to avoid the volatility of cryptocurrencies such as Bitcoin, which dropped to a current market value of roughly $6,600 from a record high of almost $20,000 last December, Fidelity Charitable converts the donations to dollars quickly after receiving the donation. They don’t accept Bitcoin personally, but funnel it through Coinbase, a digital asset exchange company.

Some who profited from the initial Bitcoin craze have been known to be generous. Aside from Fidelity Charitable, the most striking example is the Pineapple Fund, which was started last December by an anonymous Bitcoin donor who claims to be among the 250 largest holders of Bitcoin in the world. The person has since donated most of their share, amounting to over 5,100 Bitcoin.

The more than $55 million has been distributed to 60 charities, including the Water Project, which aims to provide reliable water projects to vulnerable communities in sub-Saharan Africa, and Watsi, which strives to build technology to finance universal health care for patients around the world. Brian Armstrong, co-founder and chief executive officer of Coinbase, wrote in a Medium post last year that we will see more examples of the Pineapple Fund as “many of the early holders of Bitcoin will want to engage in philanthropy.”

And Bitcoin-related donations have taken even more novel forms. Last April, UNICEF Australia launched The Hopepage, which allows just about anyone with a computer to easily donate some of their computer processing power to generate cryptocurrency. Bitcoin in particular is notorious for the vast amounts of energy it requires to mine the cryptocurrency, but Hopepage allows users to choose how much processing power they want to donate. The organization ensures that the practice is “perfectly safe” for computers, and, to date, over 18,000 people have chosen to contribute.

2. Payments and money transfers are the largest use of blockchain

Nearly three-quarters of blockchain initiatives in the philanthropy and aid sector are used to facilitate payments and money transfers, according to the Stanford University “Blockchain for Social Impact” study.

This is of little surprise. Ensuring the effective transfer and utilization of billions of dollars of foreign aid is a major challenge for the international development community. Up to 10 percent of funds can be lost in transaction fees and fluctuating exchange rates, on top of the potential loss through intermediaries and corruption, notes the report.

One of the many groups tackling these issues is the U.N.’s World Food Programme. Last year WFP built and implemented its own blockchain system in Jordan’s Azraq refugee camp to directly pay vendors, make cash transfers easier, and inspect beneficiary spending.

WFP has since expanded its pilot project, called Building Blocks, to all 106,000 Syrian refugees living in the Azraq and Zaatari camps, so that they can now redeem their cash transfers on the blockchain-based system. This has resulted in a monthly savings of roughly $40,000 from transaction costs alone, a WFP spokesperson told Devex.

Beyond cash savings, the spokesperson said their results show that the platform is making cash transfers much more efficient, secure, and transparent — benefitting WFP, donors, and the people they serve. The organization is looking into how blockchain solutions could help in other regions.

Aside from humanitarian organizations, nonprofits, which along with foundations account for 82 percent of blockchain initiatives in the philanthropy sector, are also exploring ways to use the technology to tackle financial sustainability. The U.S.-based RootProject aims to help ease organizations’ overdependence on external funding sources with three projects: Its new crowdfunding platform, its own cryptocurrency called ROOTS, and a “pension” fund.

Through the “laborless crowdfunding” platform, anyone can initiate a social impact project and assemble a campaign to fund it. The projects will then be finished either by RootProject itself or one of its partner nonprofits, all the while drawing on paid labor from people below the poverty line.

The project’s crowdfunded proceeds are shared between token purchases, which increases currency demand, wages for those completing the project, and the rest is deposited into a pension fund-like entity. This system enables the nonprofit to raise money to finish projects, helps those less fortunate, and creates a structure to make it all financially self-sustainable.

RootProject, like 34 percent of all the blockchain projects analyzed in the Stanford University report, was started in 2017 or later, and is still in the pilot/idea stage. But the project has high ambitions. According to its business plan, the U.S.-based nonprofit aims to complete its national expansion by next year while simultaneously piloting its concept in cities internationally.

3. Bermuda approves the first set of cryptocurrency regulations in the world

In May, Bermuda became the first country to pass cryptocurrency regulations. Spurred by blockchain, countries around the world are taking note but it may be those part of the Commonwealth, including small developing states, that are poised to benefit the most.

With certain differences, Bermuda law, similar to most of the Commonwealth, is based on English law. This means that the 30 Commonwealth members that are small states with a population usually under 1.5 million, and the 24 members that are small island developing states, can theoretically adopt the same legal regulations that Bermuda just passed. One way of doing this is by creating treatises of technology, so that the laws only have to be created once and can then be shared.

Developing countries are where blockchain and regulations have the biggest potential to take off, Loretta Joseph, who is the chair of the advisory board of the Australian Digital Commerce Association and is working with the Bermudan government on cryptocurrency regulation, told Devex: “That’s because in developing countries, especially the small ones, there’s enough room to innovate, whereas it’s very hard to change laws in developed countries.”