Human & Blockchain #2: What’s wrong with the current charitable donations?

Whenever making a donation to a philanthropic institution, most of us would usually expect that almost all of your money is made use of achieving certain social goals, which can be a catalyst making the world better. However, pieces of worldwide headlines about charity frauds in recent years have burst our bubbles.


As a responsible and smart citizen, we do need a tool to monitor and look into where our aids have gone to. As a distributed ledger, blockchain has the potential of helping ensure donations secure and transparent, which may ideally solve current problems in charity organizations and building trust in the society based on a trustless technology. Today, let’s focus on what dilemmas both donors and charities are confronted with first in this article.


Trust crisis

These years philanthropy has been notorious for many “scams”, since some renowned charities and foundations were reported about getting a multitude of donations lost. In 2013, the Red Cross Society of China was revealed that over 80-million-yuan-value fund donated by local artists on building an art school and reconstruction work for Sichuan earthquake had been secretly used on other projects. The Oxfam scandal in 2018 has shaken wealthy donors’ confidence in big charities, particularly owing to their lack of transparency in the sector.


We understand our faith in these centralized philanthropic institutions is fading. The situation even tends to bring about the imbalance and tightens the capital chain within an organization because its operation is inseparable from people’s caring donations. Consequently, some donors choose to bypass the charity and provide assistance directly to the recipients, which requires more time and effort. Meanwhile, as an individual, his/her power of not relying on intermediaries in aids is very limited in the traditional philanthropy. The effort only taken by individuals or minority groups have narrowed the scope of donor assistance and reduced the number of recipients. The biggest victims of this trust crisis are the recipient groups who urgently need funds to help rebuild their homes, break down barriers and pursue their own ideals.


Due to various technical and cost reasons, it is hard for the current philanthropy to transparently disclose the collection as well as how they use. The organizations can easily misuse funds in violation of regulations, which cannot be tracked or traced back. Even if the trend and use of money are recorded on the network platform, it is still difficult to prevent frauds because records can be altered and modified without permission. Since the emergence of the crowdfunding platforms, charities have become a matter for all people to participate in. However, many platforms have not been strict enough to review the information submitted by the recipients. It takes a lot of time and energy to identify donors’ personal information and donation projects. It can only be guaranteed and forwarded by relatives and friends. Its power is still very meager. These pain points make it tough for people to regain confidence in philanthropy.


However, the decentralized blockchain technology distributes every transaction under the account nodes of multiple users, which gives the donors the “supervisory” power to make the accounts fairer and more transparent.


High operation cost

This shows the percentage of private donations left after subtracting the costs of getting them. The average for all 100 charities is 89%, meaning that it cost 11 cents to raise $1.


The process of donation starts with entering central accounts of institutions, and then the institution handles the operation. In this way, the funds are distributed to the recipients layer by layer, and this kind of multi-level operations undoubtedly increase costs. These deadly and inefficient processes not only consume a huge amount of manpower but also time. Transactions on the blockchain can be done point-to-point. You can donate money directly to a designated person or institution without intermediary support of multiple banks and institutions, which will effectively reduce service fee.


At the bottom of the blockchain technology, smart contracts are introduced so that the rules for the use of funds can be standardized before donations are made, and the funds can be used exclusively. The funds donated by the public will flow directly to the events or people under the smart contract rules that meet the donation conditions. There will be no illegal activities such as unclear, undisclosed information, unauthorized misappropriation, and corruption. Blockchain technology can also streamline processes and reduce the operating costs of philanthropy.


Multiple dimensions of needs

Today, all kinds of charities have different groups of recipients and purposes. Charity gradually becomes fashionable and trendy in society, whereas more and more companies are launching creative corporate social responsibility projects to improve their reputation and reach out more ordinary people. People tend to admire and participate in those charitable campaigns more frequently.


Ant Forest” is promoted by Alipay. Users reduce carbon emissions by walking, public transportation, online shopping, etc. These actions are recorded and used to plant a virtual tree that will be “bought” by non-profit organizations and plant a physical tree somewhere. It is estimated that the number of trees planted by users exceeds 55 million. Since this market is very large and there are many choices, it is difficult to form unified management. Choosing which recipient to help is often limited for donors within a few well-known charities. In this case, it is necessary to establish an integrated platform for philanthropists and provide them with more choices.


Now we’ve pinpointed most of obstacles the philanthropic institutions are faced with. In the next article, “Human & Blockchain” will cover the way distributed ledger technology tries to cope with the bugs of philanthropy and aids in reality.  


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