“Anything that can conceive of as a supply chain, blockchain can vastly improve its efficiency - it doesn’t matter if its people, numbers, data, money
Ginni Rometty, CEO @ IBM
10 million NGOs operate worldwide. 10 million NGOs need to process mammoth amounts of money, as governments, civil society, private actors, foundations support their activities with donations.
Despite their rapid professionalization during the 1990s, it seems that NGOs still lack the financial expertise as well as the technical resources to keep careful track of their funds’ path, from donation to beneficiary. How else to interpret the scandals that have been, in recent years, tarnishing the Charity and philanthropic sector’s credibility? Behind the turmoil of corruption, waste, and fraud, the true losers are the beneficiaries who depend on NGOs to survive or thrive as individuals.
In 2014, Greenpeace was hit by such a scandal. On Monday, the 23rd of June, the Activist organization lost €3.8 million ($5.2 million) through currency trading. As der Spiegel reported back in 2014:
“Acting independently and in violation of the organization's regulations, a finance department employee signed forward currency contracts worth €59 million to minimize Greenpeace's currency risks. But when some of the contracts came due, the European currency had -- contrary to expectations -- risen against many others.”
The misconduct of one individual ruined Greenpeace’s credibility as a defender of the environment, as the media noted with sarcasm that it now rubbed shoulders with the biggest polluters on the planet by venturing into financial markets. Yet, credibility is charities and NGOs ’ greatest asset, without it, their activities may be impacted as donations will collapse.
Since the Subprime crisis, our contemporary economies carry through the great trust depression. Centralized governments are accused of conspiracies, the moon is said to be flat, as Science is not deemed unbiased anymore, election results are decided by manipulative media which lie to honest citizens… Now a buzzword, mistrust is a priority challenge of many institutions. Yet, trust is hard to track, and decision-makers may believe that it is courted with words or publicly displayed empathy.
PRISMA believes in the necessity of concrete action, and in the opportunity of new technologies. As such, this issue of our series on the digital skills to invest in 2021 will demonstrate how blockchain can help NGOs and philanthropic actors to gain back their donors' trust so that they will achieve a positive impact.
A pitfall arises. Blockchain is complex, it requires prerequisites in mathematics or computer science. This demonstration will not detail the technology of blockchain. You will find a bibliography with additional resources at the end of the article if you wish to take a deeper dive into the cryptography of blockchain.
Blockchain is a public, permanent, append-only, distributed ledger (Mike Orcutt). It is meant to record and track the movement of assets. The information - or data - stored in a blockchain can be both tangible or intangible.
Its invention shadowed that of another innovation: Bitcoin. Still, blockchain is not a crypto-currency. However, it is the technology that enabled Satoshi Nakamoto to create Bitcoin. In 2008, he send to colleagues interested in cryptography the following message:
“I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party”.
In a white paper published the same year, Nakamoto described Bitcoin as a peer-to-peer currency. Inspired by the cyberpunk culture, which gained popularity following the world economy’s collapse in 2008, the mysterious inventor meant for his innovation to give way to a new organization of trade, supported by a political ideology: decentralization.
Blockchain empowers social resistance through decentralized peer-to-peer and autonomous networks, as Armin Jrishan coins it in an article for the Journal of Strategic Security. Such organizations “diffuses and redistributes power, often to the benefit of what may be considered weaker, smaller actors. It crosses borders and redraws the boundaries of offices and responsibilities”.
At the core of Satoshi Nakamoto’s endeavor, the issue of trust propelled the creation of Bitcoin and blockchain technology. It is an alternative to traditional answers to the dilemma of transaction: enforcement or central government. Blockchain is a solution to the problem of creating enough trust between individuals so that they may peacefully engage in transitions. Unlike enforcement, it does not threaten actors into compliance. Unlike institutions such as banks, it does not outsource trust. Blockchain recasts the way in which trust is fastened, in our societies. Trust does not trace back to a human, but to an algorithm, it is mechanized. William Mougayar asserts: "Trust can be coded up, and it can be computed to be true or false by mathematically backed certainty, that is enforced by powerful encryption to cement it ".
Yet, the structure of blockchain is not novel: it is a ledger, a record of transactions and information. As it indicates, it is indeed a chain of blocks. Each unit contains any sort of information on the transaction: a date, a place, a quantity, a value, a temperature … As each transaction occurs, a new block is added to the chain, like a pearl to a necklace. Each block, each data, is chronologically linked to both its predecessor and successor. Thus, no data can be slipped between two blocks. Blockchain is thus tamper-proof, here appears its selling strength, the feature of immutability. A malevolent actor cannot tamper with the data encoded in the chain. Moreover, no data can be deleted. Once a block is added, it is added forever.
This insurance of data security allows the actor to devote their trust to the information secured on the chain. Further, as a decentralized network, no single authority owns the chain and its data, nor can it control it. Each participant is equal and forms a node. Each node stores a copy of the blockchain, maintaining the integrity of the database.
Both advantages of greater trust and heightened data security, at a time when it is becoming more vulnerable to stealth and interest, justify the opportunity blockchain constitutes for any actor engaged in transactions, such as businesses. Nevertheless, how can it benefit NGOs, specifically?
Similarly! The technology can restore trust between the NGOs and donors with the knowledge that the money invested favors beneficiaries while allowing NGOs to better track transactions and assure their resistance to tampering.
Trust will be gained thanks to the transparency blockchain nurtures as a public network. Transparency is guaranteed by the capacity to track and trace the transactions of the donation process, as they happen, from the donation to the recipient. It will solve the riddle of NGOs’ inner financial functioning, prevent fraudulent actions and reduce administrative costs. Trust is eased by the trusting partner’s ability to hold the counterpart accountable. Blockchain allows such accountability.
The path from donation to the recipient clears up. Such capacity to link investment to outcome is crucial as donors, International Organisations or Foundations, are increasingly vigilant and made cautious by decreasing resources. Each dollar invested must finance impact.
With blockchain, NGOs become impact-driven. They reconnect with their vocation: to lead change, to better societies, to save…
Philanthropic actors and NGOs started investing in blockchain technologies, but the road is long and paved with obstacles such as lack of digital skills.
One inspiring endeavor is that of TrackMyCharity, India's first charity platform on Blockchain for tracking, trust, and transparency.
A deeper dive into blockchain’s technology
GENSLER Gary, Blockchain and Money, MIT OpenCourseWare, Fall 2018
GENSLER Gary, Blockchain Basics and Cryptography, MIT OpenCourseWare, Fall 2018
On blockchain and Bitcoin’s environmental impact
European Environment Agency, Blockchain and the environment, October 2020
LAURENT Lionel, Bitcoin is an incredibly Dirty Business, Bloomberg, January 2021
On blockchain for NGOs
BlockchainSimplified, Blockchain for Social Cause - Solving the NGO crisis, Medium, May 2020
HUNINK Yvo, Blockchain for Change, The Spindle, 2020