CAF: 100% blockchain transparency could literally be a 'killer app' for charities

Often times even blockchain maximalists find themselves smarting from the "take no prisoners" transparency of shared ledger systems. Banks, for instance, seem to have fallen in love with this technology but still require privacy – even from the other banks carapaced within their proposed private networks. This is understandable. Banks are commercial operations and aside from the efficiencies gained from co-operating, they are still in competition with one another.

At first glance, it would seem to be harder to argue the case for charities retaining a degree of opacity, for want of a better word. Surely full frontal transparency provided by blockchains is a no brainer for charities; the more transparent they are, the better donors can see where their money is going, the more they will want to donate in the long run, right?

Rhodri Davies, leader of the Giving Thought policy programme at Charities Aid Foundation (CAF) has been thinking about the opportunities and impact the world of blockchains will have on established charities and philanthropy.

He has just published this well researched report, which examines not only transparency, but looks at how smart contracts might improve existing predetermined donation models, for instance, or how blockchains can assist new areas of giving such as IP, and entirely new paradigms such as the Internet of Things and blockchain value transfer.

Davies began by telling IBTimes UK that charities are interested in any tool that can enhance their most precious commodity - trust. But they must proceed with caution.

"I suppose the interesting thing would be if you used something like blockchain technology to enable greater transparency, the idea would be that because people could see where their money was going, assuming that it is actually spent well, that they would then be satisfied and comfortable with giving more.

"The bit that I think is also interesting is where the end of that comes. Because I think when you think through how this could work on the blockchain, you realise that just saying that greater transparency is always a good thing, you actually come to a point where you think - hang on a minute - would it be?"

Follow the money

Davies pointed out that providing detail of where every penny (or Satoshi) is going could end up being detrimental. This is partly down to a failure on the part of the public to understand exactly how established charities function. For example, donors would like to know that money they give to a UK charity doing work in sub-Saharan Africa is finding its way to the front line. But this does not take into account the charity having to necessarily spend money on things like logistics, infrastructure, foreign banks; sometimes just getting aid to a place like Gaza is difficult and expensive.

"That money comes from somewhere. Charities often try to tell people what percentage overall is spent at the front line. And it's usually a pretty high percentage," said Davies.

"But the problem would be if you could see where your specific bit of money went, it might turn out that your bit of money was the bit that got spent on air fare or administration costs. In the case where absolutely everything was absolutely 100% transparent, if everybody said, I don't want my money going on administrative costs, the whole thing would come to a crashing halt and would be entirely paralysed."

Of course there is already a high degree of transparency required within registered charities. They have to report all their financial accounts annually and are required to publish the salaries of the six highest paid staffers. But in the case of some large charities, their accounts can be quite complex, comprising not only donated funds, but money from trading and investments.

Davies believes blockchain transparency is "a massive opportunity, but also might have risks inherent in it as well".

"I'm not saying that what you would do instead is find ways of not being transparent. It's just that at the same time as doing that, you might have to focus on better explaining to people, donors in particular, what it is you do and why you need to spend that money.

"That's a challenge already for charities without this stuff. A lot of the cynicism about charities and criticism of the amount they spend on administration stems from people just not really understanding what it is that charities do and how they operate and why they need to spend money on things that don't look like straightforward charitable activities.

"I think charities need to do a much better job of explaining themselves. But in a world where people could just go on the computer and see exactly what was happening with all the money that would be even more pressing."

Blockchains not borders

Davies also sees that the efficiencies associated with a blockchain model mean less of a burden in terms of admin in the future.

"One of the fascinating things about blockchain and bitcoin particularly is that because it's non-geographic you don't have the same sort of problems with moving money between jurisdictions. If you are a charity operating in a very difficult part of the world and you need to get money in, currently that's extremely difficult and as a result expensive for lots of charities to do.

"But if you were able to operate in a crypto-currency, it becomes irrelevant where you are, so there would not be any cost. So it's interesting that, as well as being able to see this stuff more, actually a lot of these traditional costs would disappear as well."

DAO or DOA

Beyond Bitcoin, public blockchains like Ethereum offer a wide array of functionality in a censorship resistant and totally transparent environment. The recent beta of the Ethereum Wallet shows how a democratic autonomous organisation (DAO) can exist in its entirety on the blockchain. IBTimes has learnt that charitable organisations are definitely looking towards DAO status on Ethereum.

Davies said: "I think that sort of thing is fascinating. And if this technology opens up new ways for smaller, nimble organisations to start up and not have to move through existing structures that is potentially very exciting.

He said that for organisations that operate around issues to do with freedom of speech or within international contexts where they deliver oppressive regimes, censorship resistance may have an added cache.

But while these types of organisations might be interested in testing out Ethereum's DAO status, he added: "I don't suppose for a second that these organisations would suddenly move their entire model to a blockchain one because it's pretty nascent tech and that's a fairly big early adopter risk to take.

"My job in all these things, coming from the charity and philanthropy background, is to ask the question – Ok, what does this mean to charities and for philanthropy and how do they make sure they don't get left behind."