Blockchain Gaining Ground

Most organizations don’t understand it. Most people can’t explain it. Then there are those who are convinced it’s going to change everything. As one observer put it: Blockchain is over-hyped in the short term but the long-term possibilities are underestimated.

Blockchain is the underlying technology behind digital currency. For most nonprofits, their first initiation into the world of blockchain technology is accepting donations of cryptocurrency, such as BitCoin, Ethereum, or Ripple. For others, it’s just the start.

A blockchain is a decentralized network of peer-to-peer databases, so there’s no one central place where data are stored, say, like a bank, thus more difficult to attack. It’s hailed for its transparency and accountability because any changes to a public blockchain can only be seen, or even authorized, by others along the chain.

“Blockchain data is ubiquitous. Because the blockchain has one complete database replicated across every node in the network, any single node can provide the data to the user,” said Sharon Burns, founder of BlockData4Good, a blockchain startup in the social good space based in Chicago. “Blockchain data is accessed like any other database, through custom software that manipulates the data on the back end and displays it to the user either on a mobile phone or desktop. Depending on how the application is developed, the user can further modify their copy of the data, create new records on the blockchain or download the file,” she said.

Blockchain is a trendy topic for nonprofits but there just aren’t that many applications that are meaningful for nonprofits, according to Sam Chenkin, director of consulting services for Tech Impact in Philadelphia, Pa.

Sharon Burns

Blockchain is ubiquitous… any single node can provide data to the user. – Sharon Burns

There is some interest in blockchain to create ledgers and public records in places where there isn’t an authority that can be trusted. “Unless you’re in a situation where there is no central authority to build the record, or don’t trust the authority, it doesn’t make sense to invest the time and energy,” Chenkin said, adding that blockchain is very technically complex and not easy to implement. “It’s a little bit of technology searching for a purpose,” Chenkin said.

Sam Chenkin

It’s a little bit of technology searching for a purpose. – Sam Chenkin

Accepting cryptocurrency donations is something of a gateway to blockchain for nonprofits, according to Connie Gallippi, executive director of the BitGive Foundation in Sacramento, Calif.

There are people, projects and companies examining many use cases for blockchain technology. Some of them are at least associated with a cryptocurrency in some manner and taking the next step, Gallippi said. Some are trying to do blockchain-related projects that are completely different use cases, such as medical health records or identification.

Connie Gallippi

Accepting cryptocurrency donations is a gateway to blockchain for nonprofits. – Connie Gallippi

In Austin, Texas, for example, the city is using a grant from Bloomberg Philanthropies Mayor’s Challenge to pilot a blockchain platform to improve identity services for the homeless population.

Nonprofits working in international aid and development are among early adopters. Heifer International helped to launch the first poultry supply-chain tracking application on the Ethereum blockchain with Grass Roots Farmers’ Cooperative in August 2017. The Little Rock, Ark.-based charity is working on building a Register of Assets and Tokenization of its Passing on the Gift process on blockchain. Passing on the Gift is a commitment that each household Heifer works with passes on what they receive to another household, such as the off-spring of an animal received, like a goat or a cow.

The Register of Assets is a platform for a smallholder farmer to record the agricultural product in blockchain, providing certification of origin, traceability, compliance and connection to the market. Heifer plans to pilot a similar program in Honduras with a Coffee Value Chain.

Oxfam is experimenting with blockchain as a poverty reduction tool to help promote small-scale farmers as primary producers of organically certified rice. The BlocRice Project deals with organic rice from Cambodia, produced by female smallholder farmers and sold through agricultural cooperatives for export to The Netherlands, where it is processed into crackers and other rice products.

The blockchain is a decentralized, distributed and public digital, open source ledger used to record transactions across computers so the record can’t be altered retroactively or without consensus of the network, according to Oxfam. It only requires basic knowledge of a smartphone, something to which most coop leaders Oxfam works with have access. The pilot, if successful, will be scaled up to other coops and commodities.

Jesus Pizarro, vice president of financial innovation at Heifer, has been working on blockchain for more than three years but sees the long game. “Smart contracts” in Ethereum likely will eventually replace the process Heifer uses today. “We’re not there but we know we can do it with the technology; the ecosystem is not there yet,” he said. He likened blockchain today to the early Internet era of the 1990s, long before online banking became mainstream.

As a former auditor for a management information system, Pizarro sees blockchain as a way to verify data in real time and at the end of the day reduce costs when it comes to third-party verification. “The way I see it, compliance in blockchain is up front. In other systems, it comes too late, it’s not available until everyone reviews the transaction,” he said.

Blockchain is moving fast but it’s still going to take time Pizarro said, likening it to the Internet only faster. It took some 15 years after the Internet was established for online banking to take hold. Just as credit cards were not universally accepted as recently as 25 years ago, Pizarro expects businesses to gradually get into blockchain during the next decade.

Mercy Corps was looking for the lowest risk and entry into the space and began accepting digital currency just before #GivingTuesday, according to Faith Danforth, senior director of resource development operations and analytics.

“When we think about digital currency, it’s just another payment gateway or channel,” Danforth said. “To me, it fell under, ‘what’s our business strategy about opening all pay pathways.’ Do I implement digital currency before I implement Venmo or other gateways where people are transacting?”

Accepting digital currency was broached after a discussion with the gift acceptance committee and the board, and part of conversations with a foundation that holds a “significant amount of cryptocurrency,” Danforth said, though she declined to identify.

She foresees digital currency as “passive, incremental revenue” and a way that a small portion of donors prefer to make a gift. While it probably will grow over time as it becomes more common, if major and corporate foundation partners that hold digital currency are part of your strategy, it makes sense to be able to accept it.

The Portland, Ore.-based charity has studied blockchain and issued two reports, including a comparative analysis of nine distributed ledger technology (DLT) platforms, offering opinions on leaders both public and private and insights into how to get about assessing a platform.

Accepting digital currency also “signals to the world that’s interested in DLT that Mercy Corps is interested in “staying current and exploring the right deployment of these tools,” Danforth said. “I don’t think digital currency is going away – some of the hype might be going down – I think it’s in the process of sorting out who uses it and for what,” she said.

In the nearly two years that it’s been accepting cryptocurrency donations, Heifer is approaching $10,000 raised.

Mercy Corps is having discussions on the program side about DLT and whether it can be used. “Knowing that DLT was a conversation on programming, there was an inquiry from a potential donor, so it made sense to do the footwork to be ready. But it’s not going to be a game changer for anyone for revenue unless have a strategy around it,” Danforth said.

Cryptocurrency accounts for a very small portion of revenue for Toronto-based Pathways to Education. Jason Shim, director of digital strategy, estimates the annual haul at less than $10,000.

Part of it was recognizing that changing technology and “kind of future proofing ourselves,” Shim said. “If it develops into something bigger, we’ll be ready at a moment’s notice,” he said. Initially, a lot of the calls Shim received were from people looking for charities to donate cryptocurrency to a charity and Pathways was one of the few that came up in web searches. “It’s those kinds of interactions that have really helped to validate it. The first couple of years, it was a challenge,” he said.

Cryptocurrency provides individuals with the ability, if they want to give, anonymously, they can do so without having to go through a foundation or lawyers,” Shim said.

One never knows when the next Pineapple Fund will come on the scene. The Pineapple Fund was created by an anonymous donor who gave away some 5,000 Bitcoin, valued at the time at about $55 million, to 60 different charities.

Shim estimates an average of about one inquiry a month from an organization looking to explore cryptocurrency. About half go on to implement it, with executive buy-in usually being the most challenging, he said.

“Like any other technology you adopt, learn more about it and see if you can identify ways to if relevant for your charity,” Shim said. While there’s a lot of buzz about blockchain and a lot of projects in the nonprofit space, for some organizations, he said a database might accomplish the same thing if there’s no viable rationale for why it must be on a blockchain. “There needs to be a reason to be on a public ledger,” Shim said.