Charitable organizations are always on the lookout for the latest improvements in finance and asset management, so they can accept donations using every available avenue
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Charitable organizations are always on the lookout for the latest improvements in finance and asset management, so they can accept donations using every available avenue. Blockchain-based cryptocurrencies have already revolutionized many of the industries they are used in, and they are providing the same innovations for charitable contributions.
In this article, we'll discuss the benefits and pitfalls of accepting Bitcoin and other cryptocurrencies as a method for charitable donations. Allowing such donations opens a charity up for a broader set of donors and provides perks that fiat money can't.
Charitable organizations are constantly facing challenges that come from using fiat money and traditional financial services to collect donations. The most common of these include:
● Issues of fraud or mismanagement of funds. Such problems affect future donations as well since they lower trust and, therefore, discourage others from making donations, even after the issues have been resolved.
● High administrative costs, which cut into available funds, especially with smaller donations.
● Difficult with tracking funds. Many donors feel comforted by being able to track funds from their initial donation to the final recipient, and this is hard to do with traditional finance and is labor-intensive.
All of these challenges lead to a lack of trust, especially for smaller and lesser-known charitable organizations.
Cryptocurrencies are based on blockchain technology, which means they don't require the services of any centralized bank. Blockchain also provides features that allow users to pay close attention to how donations are spent and transferred.
All of the donations are recorded on a public ledger and immutable, meaning that the donors and anyone else can have a record of each transaction, no matter how small. This basically makes fraud impossible. The transactions can also be tracked in real-time as they occur.
Smart contracts are completed automatically based on the conditions written into the contract code itself. It ensures that the donated money is used only for the purpose it was meant to be used.
The donors can also easily track the price of Bitcoin using some of the best crypto Bitcoin exchanges out there and, therefore, have a sense of how much their donation is worth after it was made.
Traditional charities rely on third parties to serve as intermediaries for charitable donations. These include banks, financial processors, and administrative staff. All of them cost money and therefore cut into the donations themselves. Using cryptos to make donations lowers most of these costs.
Blockchain-based currencies work on a decentralized network. Therefore, there are no intermediaries to pay at all, and the cost of sending funds is much lower than that of fiat money. It's an especially important feature for those who donate small sums and want most of them to go towards a cause they are supporting.
There are still transaction fees to pay when transferring cryptos, but those are much lower than with fiat money. Bitcoin transfer fees are based on the transaction size (measured in data, not amounts) and how much traffic the network is facing at the moment of transfer. Altcoins have fee structures of their own.
Dedicated platforms made for crypto donations, in particular, have also started to emerge. These platforms use smart contracts to automate donations completely and, therefore, require much less personal oversight – and, in some cases, no employees at all. This, in return, further lowers the costs of transfer.
The use of cryptos for donations has also led to the introduction of new donation models that utilize blockchain technology.
The most widely used of these are micro-donations. These refer to the small donations given frequently and with the smallest possible fees. Such an approach to donations allows the donors to constantly support their favorite charity and to follow its work, with little personal involvement and oversight. It works best for funding social initiatives, but it can also be used to support crowdfunding emergency relief.
What constitutes a micro-donation is for the donor to decide, as the fees don't change based on the amount they are donating. The donors can also manage how frequently the donations are made on their own.
Token-based charity
Some organizations also offer blockchain-based tokens for their donors. These tokens represent the contribution the donor has made. Tokens can also be used to allow donors to participate in the governance of the projects they support. It makes the involvement more personal and, therefore, more meaningful.
The two most common ways to use tokens are for:
● Impact tokens – these allow those who possess them to follow the impact their donation has made directly.
● Reward tokens – These can be used to access certain perks that are available to donors only.
Decentralized Autonomous Organizations
Blockchain has allowed for the establishment of charity-based decentralized autonomous organizations. They provide a system for community members to donate and then have governance over how their donations will be used. The members can vote, with each vote having a different level of influence based on how much they've donated.
Collective management of funds lowers the risks of corruption, makes the decision-making process more transparent, and gives donors a sense of control over the organizations they support. Similar principles are used in investing, but they are equally applicable to charity. This donation method is new, but it has already proved to produce results and increase the size of donations.
Many charitable organizations already allow for crypto donations and have had great results with drawing in a new type of donor.
The World Food Program (WFP)
The World Food Program long used to rely on cash assistance, as it's the way it provides aid as well. Recently, however, it has started to implement the use of blockchain-based donations, especially in areas where traditional finance has collapsed. As of 2018, 100,000 refugees from Jordan have received such assistance.
Alice Funding Platform
Alice's funding platform is used to fund a variety of charities, using the features of blockchain currencies to make the process fair and more transparent. The charity uses smart contracts to make the transfers once the set goals are achieved. It provides a donor with a sense of control over the project.
Amply – South Africa
Amply is an app that uses the features of blockchain but doesn't rely on cryptocurrencies to fund its services. It allows schools to automatically gather their attendance data and submit it to the Department of Social Development. This helped the schools in South Africa save 4,000 hours of work and, therefore, focus on providing education.
Blockchain and currencies based on it are having a huge impact on the charity sector. They address some of the key problems that the industry is facing in using fiat money. The use of blockchain for this purpose allows for transparency and more control over how the funds are spent.
Charitable organizations are also able to create new ways of providing donations. Those include tokens, decentralized autonomous organizations, and smart contracts that actualize once the project is actually done. Many charities have already used blockchain and crypto in this way, and it's proven to be a great success.
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