Confused by all the blockchain jargon?
Clear things up with our glossary for beginners which covers all the buzzwords we’ll be talking about throughout this blog.
By the end of 2017, 300 million transactions had gone through the blockchain. Its potential is undeniable. To such an extent that, at the International Fundraising Congress 2017, 3 SIDED CUBE led a session about it to inform charities about the opportunities they’ll miss out on if they don’t implement this technology.
Having grown from $7 billion to $17B in just one year’s time, the value of the currencies traded on the blockchain is predicted to reach a dizzying $245 billion by 2027.
What is blockchain technology?
Spoiler alert. It’s not Bitcoin.
What it is, is a decentralised record of transactions – meaning that everyone can see anyone else’s transaction. It’s basically the opposite of banks, which hold everyone’s transaction records privately, so you can see your own but no one else’s. Got it? If you don’t, here’s a video explaining how the islanders of Yap used decentralised transaction records… back in 500AD:
1. Moving money: eliminating the need for banks.
Moving money is expensive. You’ve got processing fees and exchange fees, plus the added hassle of waiting for the money to go through various banks or middle-men before it arrives at its intended destination. Not only does this mean that charities lose money sending donors’ money abroad, but it also means that those who desperately need it are left waiting.
But there’s a solution.
Ripple claims that it can cut banks’ global settlement costs by up to 60%. A great example of using blockchain technology to reduce transaction fees and move money more efficiently.
2. Charity tokens: control the money you donate.
Imagine you could create your own currency. Well, guess what: you can on the Blockchain. And that’s exactly what charities are doing. By doing this, they know exactly who has the money, and how it’s being spent. What does this mean? No one is spending funds on things they were never meant to be spent on.
The World Food Programme (WFP) has been making the most of the Blockchain by transferring over $1.4 million in food vouchers to Jordan’s Azraq refugee camp since May (Quartz).
Introducing the refugee camp supermarket that’s more high-tech than any supermarket you’ve ever been in.
Using biometric registration data, the refugees can shop and pay using their eyes to make transactions. How does it work? Each refugee has an account with the WFP to buy food, linked to their eyes.
Whenever they want to pay for something, the supermarket employee scans their eye, and the funds are automatically deducted from the person’s account. Seems more efficient right? It even makes you wonder why we can’t do that at our local supermarkets.
3. Smart contracts: self-executing agreements.
Now you probably just want to leave after reading that title, but bear with me for just a second. It’s actually not as complicated as it sounds.
Put simply, they’re like contracts, except that when the conditions of the contract are met, the agreed-upon terms are automatically executed.
This means that people can make donations to charities who will only see that money once certain objectives have been achieved.
It’s an automated way of making sure that everyone keeps their side of the deal.
Alice is a prime example of this. Charities can outline their goals in a step-by-step manner, and donors can choose which goals to invest in. If the charity is unable to complete its goals, then it never sees the rest of the funds dedicated to the other objectives.
4. ICO: Initial Coin Offering.
ICO’s are a new way of crowdfunding. Instead of offering shares in a venture, investors are offered cryptocurrency with the promise that if the company is successful, the value of said cryptocurrency will increase (just like shares would).
ICO’s make it possible to raise millions in a matter of minutes.
Pinkcoin claims to be the first blockchain based, donation fundraising platform. David Siegel (CEO and Co-founder) stated that the open-source platform Pillar, which used an ICO when starting up, had a token pre-sale which managed to raise $4 million worth of Ether (Ethereum currency) in 34 minutes (Wired).
5. Proof of stake: validating block miners.
Traditional cyptocurrency mining, called Proof of Work, uses a huge amount of electricity and computing power to solve the algorithms required to validate transactions in the Blockchain.
In 2015, it was estimated that one Bitcoin transaction required the amount of electricity needed to power up 1.57 American households per day. Imagine your electricity bill at the end of the month!
As a solution, Proof of Stake was introduced. This lets miners only mine as much as his/her ownership stake is.
So if they own 3% of all Bitcoin currency, they can only mine 3% of the blocks. That way, those who have an insane amount of computing power or don’t care about the electricity bill can’t hog all the cryptocurrency for themselves.
Proof of stake is currently only being used by some smaller coins. But several of the larger players are considering its implementation.
Risks, flaws or Loopholes?
For now, all this is extremely theoretical. Although some organisations are ahead of the game, a vast majority of them are only just beginning to consider its implementation into their own digital strategies.
Due to its infancy, a lot of organisations still don’t fully understand how it works and are therefore afraid of implementing it into their own strategy.
It is such a versatile piece of technology that trying to learn about it can just end up leaving you more confused than you were at the start (and we can’t blame you).
As previously mentioned, Blockchain technology also uses a huge amount of electricity. In fact, an index by Digiconomist states that the entire Bitcoin market now produces more energy than a number of small countries! Don’t believe us? See below:
The future of blockchain technology.
At the moment, the blockchain is still seen as a risky investment. But with a little experimentation and curiosity, we believe that organisations will quickly see the huge amount of benefits this disruptive technology can provide. Especially charities.
In a few years’ time, we expect the blockchain to become the norm for all transactions made in the third sector and other sectors alike.
Testing different methods in different contexts is critical. Only then will we be able to clearly define its benefits and advantages for different organisations.