Most people are familiar with the term blockchain but don’t understand exactly what it is or how it can be used outside of cryptocurrency.
You might be surprised to learn there are quite a few uses for blockchain. What if we told you blockchain could actually be useful for nonprofits in particular? This article will explain exactly what blockchain is and how it can be useful to nonprofit organizations, charities, and foundations today.
Table of Contents
What is blockchain?
To put it simply, blockchain is like a database.
A database is a large storage of information and data that multiple users can access at a single time. A traditional database requires information to be sent to the database to be stored before other users can access it. Once the data is stored in the database, it can be requested and edited by future users.
You’ve likely heard of some of the digital currencies operating on the blockchain – like Bitcoin, Ethereum or Litecoin – but there’s more to discover.
What is a blockchain ledger and how is it different from a traditional database?
The main difference between a traditional database and a blockchain database is the way the information is stored. In a blockchain database, blocks of information (data) are filled up and then added to a chain of the previous blocks of information in what’s called a ledger (its version of a database).
Blocks are stored chronologically, with timestamps. When a new block is added to the chain, the nodes (individual computers) on the network each work to verify that the newly added block has not changed previous information in the chain. This allows the blockchain to maintain its data integrity.
Each block has a record of the blocks that came before it, and this information is stored in the form of a hash. A hash is information converted to a string of numbers and letters by a math equation designed for that specific blockchain. The complexity of the hash keeps information safe, and the information is unreadable without the corresponding hash.
Blockchain databases cut out the middleman in the equation by giving each computer on the network a full record of the database. This makes information storage and retrieval faster than traditional databases. IBM has prepared a free guide on the blockchain if you’re curious to learn more about how it all works.
The main feature of blockchain that is most desirable for businesses and nonprofits alike is that it provides valuable time and location data when the data was stored or modified. This information is provided in real-time and, for example, can be used to let a donor know exactly when and where their donation went.
Centralized vs. decentralized blockchain databases
Now that we understand what blockchain is, it’s important to cover the two types of blockchain databases quickly. Centralized and decentralized.
Centralized blockchain database
Only certain users are granted access to view and modify blocks of information in the blockchain in a centralized blockchain database. The more users you have, the more users that can verify modifications to the chain. Large companies create security for their blockchain networks by having thousands of computers on their network to verify transactions.
Decentralized blockchain database
A decentralized blockchain database is most commonly understood for its use in the cryptocurrency world. Bitcoin uses a decentralized database and relies on millions of users across the world to verify the integrity of a transaction. If most users (nodes) agree that the most recent transaction is legitimate, it will be successfully added to the chain.
To modify information in the Bitcoin blockchain in a favorable way, you would need 51% of the users verifying the information to agree with you. This is the reason that hacking bitcoin or another decentralized blockchain database is virtually impossible. You would need millions of other users also to change their record of the chain simultaneously.
How is blockchain useful for nonprofits?
Although blockchain is a newer technology and is still in the early stages of development for use in business, there are a few ways it is proving useful in the business and nonprofit world.
Most uses for nonprofits focus on allowing a simpler donation process and increasing transparency.
This is one of the most obvious ways that today’s nonprofits are incorporating the blockchain into their daily business.
As a nonprofit that is looking for donors, it’s always good to be able to accept digital donations in whatever form makes your supporters comfortable, whether that’s credit card donations, on social media or even cryptocurrency. If your nonprofit does not have the ability to accept cryptocurrency, you may be losing out on donations.
While cryptocurrency is where most of the buzz around blockchain comes from, there are other uses for nonprofits that focus on getting the most out of blockchain’s unique data storage properties.
Transparency of donations for donors
When it comes to charitable giving, the thing donors value most is transparency and outcomes of their donations.
In fact, 88% of nonprofit donors indicated they were looking for more outcome information and results in Give.org’s recent donor trust report. Being able to show a donor in real-time where their donation is going is something donors clearly want.
Well, that’s exactly what blockchain technology is doing for the nonprofit world.
Companies like GiveTrack use the blockchain to give donors the ability to track their donations in real-time. Money that is donated is tracked from the initial donation all the way to its end-use. Donors can log into the GiveTrack website, and see how and where their funds are being spent.
The donations are tracked every step of the way from the donor’s bank account to the charity’s bank account and all the way until it has been spent. This allows nonprofits to give their donors real-time updates on where their money went, which gives donors tremendous peace of mind and confidence that their donation is being used correctly. The service also allows for instant updates to be sent to donors about results and outcomes. This further engages the donors and provides total transparency into the company’s donation programs.
It’s important to note that GiveTrack and companies like them accept regular currencies, and a donation does not have to be made in cryptocurrency to be tracked and reported on.
Donating based on results
In a similar vein to GiveTrack, companies like Alice are using blockchain to increase their projects’ transparency and create incentives for charities to provide extremely up-to-date information. The progress of each project hosted on the site is publicly displayed, and all users have the ability to see exactly where their donation will go.
This allows donors to choose projects based on their current status and makes it easier to donate to programs making a difference in the world. If a nonprofit appears to be taking in a lot of money, and donors are not seeing the promised results, they can choose to donate their money to a company that is seeing results and helping people now.
Transparency and trust are paramount for nonprofit organizations
The current uses for blockchain in the nonprofit world mostly focus on increasing transparency and real-time progress updates for donors. Blockchain accomplishes this while maintaining high levels of security due to its unique database structure. Typically, donors are only given a single confirmation that their money made it to the company. They do not get specific updates on project progress outside of a quarterly newsletter.
Blockchain allows for real-time accountability of donations and helps track the donations every step of the way from your donor’s wallet to the completion of the project they’re donating to.
With this said, blockchain for nonprofits is still in its infancy. It has not been widely adopted in the nonprofit world, but we believe that its benefits for transparency and security will be hard to ignore for nonprofits in the coming years. When these technologies mature, we expect them to impact donation best practices for nonprofits significantly. Once a majority of donors are exposed to the blockchain-based projects we discussed above and see that real-time donation tracking is possible, it will be hard to return to having no real idea of when and where their money was spent.