Blockchain Technology: A Beacon of Transparency in Charity Operations
Summary:
This article discusses the potential of blockchain technology in improving transparency and accountability within the charitable sector. Citing instances like the Australian bushfires aid distribution, it emphasizes on issues of mishandling and misuse of funds present in current charitable procedures. The piece elaborates on how blockchain can allow real-time tracking, creating a transparent and immutable record that boosts donor trust. It also highlights the function of smart contracts in automating and verifying processes, minimizing the risk of fund misusage. Several use-cases, including the United Nations World Food Programme and a Binance initiative, are also pointed out. The article wraps up by listing best practices for charities considering blockchain adoption, emphasizing security, scalability, and regular audits for increased transparency.
In the year 2021, an amount of $90 million was granted to the Australian division of the Red Cross to support those affected by the bushfires that ravaged parts of New South Wales and Victoria. However, criticism ensued when it was made known that only a fraction of the total funds would be immediately available and that it could take up to three years to distribute the complete sum. A resident whose home was destroyed in the fires expressed his frustration to the press, stating that despite numerous promises, he still received no assistance. This incident underscores a frequent issue with charitable organizations: distribution procedures are often complicated by bureaucratic red tape and prone to poor management. When accountability measures are weak, charities might mishandle or misuse funds, sometimes even engaging in outright fraud. AAG CEO, Jack Vinijtrongjit, highlighted to Cointelegraph that inefficiencies often result in wasted resources in charities, where occasionally only half of every dollar reaches the intended destination. He stated that very few manage to accomplish an efficiency in the 83% range, like Oxfam. Blockchain technology, however, could provide a solution to these issues by enhancing both accountability and transparency for donators, enabling them to track their donations and see the results of their contributions.
Blockchain technology enables the real-time tracking of donations. This level of visibility boosts trust among donors, allowing them to confirm that their funds are being put to proper use. Additionally, it permits charities to provide donors with a detailed overview of how their donations are used, highlighting how each dollar is used towards different initiatives. Vinijtrongjit pointed out that this visibility provided by blockchain can help cut down on fraudulent activity and misuse of funds.
Blockchain technology also provides the immutability feature - once a transaction is recorded, it can’t be adjusted or removed unless all nodes in the network agree. This feature ensures that the charity’s financial records and donation histories are safe from alteration. This is particularly significant for nonprofit organizations as it guarantees the permanent documentation of donations which can be easily audited by independent parties.
Smart contracts - self-automating agreements with terms embedded into code - are another valuable feature of blockchain technology for charitable organizations. They can be used to automate processes, such as fund distribution or task completion verification. Smart contracts ensure that funds are used for their designated purposes as they only release funds when pre-set conditions are met. This reduces the risk of fund misuse and eliminates the need for intermediaries, enhancing transparency.
Blockchain technology has been successfully implemented by charities like the United Nations World Food Programme (WFP) in their Building Blocks project. The WFP used blockchain to record each transaction while giving food aid to Syrian refugees in Jordan. Through blockchain, the WFP was also able to distribute aid in Yemen during the civil war, providing food aid to vulnerable populations. By using digital vouchers provided via blockchain, the WFP could ensure that aid was reaching those in need without the risk of diversion or fraud.
In 2022, Binance launched a cryptocurrency-focused crowdfunding platform called the Ukraine Emergency Relief Fund to assist refugees and children in need. This initiative aimed to deliver essential support including food, fuel and supplies for refugees.
Smaller charities like GiveDirectly have also incorporated blockchain technology, recording and verifying each transaction.
For charities incorporating blockchain technology, there are best practices to follow. Clear objectives need to be set for blockchain integration, selecting the most suitable platform, understanding the principles of the technology, and assessing if the organization is ready for innovation. Maintaining good security practices and the integrity of data is key, which could involve regular audits. Planning for scalability, ensuring long-term sustainability of the blockchain infrastructure, is also an important aspect.
While blockchain can help track funds, additional organizational processes are necessary to ensure charitable donations are effectively used. Independent audits, for example, are critical in ensuring transparency within charities. Vinijtrongjit also suggests charities provide extensive, regularly updated reports detailing their activities and financial data to increase transparency.
Published At
10/20/2023 1:01:00 PM
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