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Blockchain poised to topple exploitative and ineffectual charity organizations

Source: Richard Corfield

If attempting to ‘disrupt’ charitable organizations sounds ethically questionable, there’s a considerable amount of evidence to suggest it shouldn’t. Modern charities are famously ineffective at best, and opportunistic and predatory at worst. Unsurprisingly, projects have emerged to utilize public blockchains to do just that — replace modern charities and bring gains by way of both transparency and effectiveness. This article will compare two models by which an individual can contribute to international aid: via traditional donation models and charity models utilizing blockchains.

Option 1: Sign up for a direct debit order with a charitable organization

Let’s take a very common method of charity fundraising in Europe and elsewhere: signing up with a street fundraiser for a monthly direct debit to the charity in question. Most commonly this practice is called charity mugging, and the fundraisers who perform the job are the subjects of much frustration. Most of these charity muggers do not work for a particular charity, instead they work for a “face to face” outsourcing company which services a number of different charities. They are usually paid in commission and as a result they are extremely driven to collect direct debit signatures and even memorize scripts on overcoming objections.

When you sign up for one of these charities, the individual who secured your signature usually receives a commission bonus — typically between €50–100 (add about 14% to that for the dollar amount). So if you had agreed to €5 per month, you’ll pay this bonus off in one or two years. Then the money goes to the charity, right? Nope. The outsourcing company itself charges the charity in question around €100 for each signature, so in total you’re paying €5 per month for four years or so before you make any net contribution to the charity itself.

Once it gets there, charities are expected to spend at least 65% of their income on charitable missions, allowing for 35% “administrative costs”, but we know from experience that those missions are not always effective. Take the infamous Red Cross case in Haiti, an enormous fundraising drive after earthquakes devastated the island which raised half a billion dollars to help rebuild homes for those displaced. We now know how many permanent houses they built: six. $83 million dollars per house, in one of the poorest countries on earth. Needless to say, this did not re-home the displaced victims of Haiti’s earthquakes. To be fair, the Red Cross ran numerous different missions in Haiti over that timeframe, but nobody would try to claim any level of success. They are not the only ones. International emergency aid charities raised 13 billion dollars for Haiti disaster relief in total, and yet very little can be seen by way of improvements for those living in Haiti’s worst affected cities.

Option 2: Send transactions at will via blockchain-based charities

A number of charities such as GiveCrypto.org, BitGive Foundation and Alice SI facilitate charitable donations to areas in need via cryptocurrency. There is no financial institution middleman between the donation in question and the organization, but more importantly the transaction can be tracked via the public blockchain. This means that an individual can see where the funds are going and what they are used for. BitGive makes this a unique selling point, and has established a tracking platform called GiveTrack, which will utilize the blockchain’s transaction records to give users detailed feedback on what the money was used for, where and when it was used, as what the effects were after a period of time.

These are early prototypes of charities adopting the benefits of cryptocurrencies, but the potentials are far greater. Eventually there will be no need for an organization controlling the funds, and new platforms will use smart contracts to release funds to disaster areas when a number of transparent conditions are met. Under such circumstances there is no need for “administrative costs”, and no need for numerous financial intermediaries.

Of course, the problem then becomes what is done with the money when it reaches the effected area, but traditional charity models have shown that, as was the case in Haiti, “almost nothing” is the bar blockchain-based charities will need to surpass.

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