Video: Blockchain technology: How is it changing the world?
Never have charities and NGOs been plagued by so many scandals and concerns as they are today.
With headlines ranging from sex abuse to corruption, in the UK, for instance, trust in charities has dropped six percentage points since November last year, according to a recent study by consultancy nfpSynergy.
So can blockchain-powered, radical transparency help bring back trust in the sector? Italian startup Helperbit is betting it can, and has developed an online platform that could, at least, restore donors' confidence about how their money is being spent.
Intermediation is reduced to a minimum: every transaction is handled by a peer-to-peer network, and written in the blockchain's distributed ledger. It reaches the charity without delay, except for the technical time required to confirm the transaction by the bitcoin network.
The platform's official launch in November 2017 with the first five supported projects was preceded by a long testing phase.
It was used by the La Rinascita ha il cuore giovane, or 'Rebirth has a young heart', campaign by Italian NGO Legambiente, designed to help young entrepreneurs affected by the earthquake in central Italy, raising 9.5 bitcoin (€52,000/$64,000) in the process.
See also: Quick glossary: Blockchain
An interesting feature of the platform is that charities need not be the sole beneficiaries of donations. Even single users can register to Helperbit, and get donations, if they can provide proof that they live in an area struck by a natural or man-made disaster and have been affected by it.
NGOs and individuals are also requested to document how the funds are being spent.
"In most cases, expenses have been made in local currency, after converting the bitcoins," Helperbit CTO Davide Menegaldo tells ZDNet.
"The related invoices have then been uploaded on our website, and we 'wrote' them in the blockchain, so that they are publicly available."
It is also possible now to donate by credit and debit card. The donation is automatically changed into bitcoin and immediately sent to the chosen beneficiary.
The Helperbit concept is certainly promising, and blockchain-based donating might indeed be the future of philanthropy. However, before that becomes reality, there are still a number of obstacles to be overcome. One relates to the fees paid to the 'miners' who validate transactions.
"Now, sometimes you might have to pay up to €30, €40 [$37, $49] for each transaction. When we started work on our platform, three years ago, fees were a fraction of that. So even sending micro-donations of a few euros made sense," Menegaldo says.
The very success of the bitcoin ecosystem is responsible for that price rise. Many more people want to participate, but the space available in the blocks remains the same, so you need to pay more to beat the competition.
There are also scalability and latency issues. As of today, the bitcoin network cannot handle donations with the speed and effectiveness of credit cards. Visa handles around 2,000 transactions per second; Bitcoin just seven.
"The community however is working on a solution. There's a startup building the Lightning Network, for instance, which they say could handle up to 100,000 transactions per second," Menegaldo says.
Other cryptocurrencies are also faster than bitcoin, and in February, the Helperbit platform was opened to many of them.
Related: Blockchain: An insider's guide (free PDF)
Another issue is the lack of revenues. Currently, Helperbit applies no transaction fee, nor receives a percentage on donations. It operates thanks to some initial funding, and some money received through awards.
An option the startup is considering is adding a marketplace where NGOs could sell products and pay a fee to Helperbit.
Another option is a peer-to-peer micro-insurance service. Subscribers would deposit their contributions into a single fund, which will be then redistributed in case of a disaster.
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