Blockchain technology could modernise the way charities are registered and overseen – creating unprecedented transparency that could revolutionise the work of regulators, according to a new report from the Charities Aid Foundation (CAF).
The technology, which currently underpins the cryptocurrency Bitcoin, could be used to verify trustees, register and govern charities and make administrative requirements, like annual reporting, extinct.
CAF’s latest discussion paper, published today, comes as some of the world’s biggest banks and most prominent financiers commit significant resources to exploring the possible effects of developing the decentralised, distributed public register.
Beyond its beginnings at the heart of Bitcoin and other cryptocurrencies, the blockchain has the potential for far broader applications.
Block and Tackle: Using blockchain technology to create and regulate civil society organisations, explores the potential future impact of blockchain on charity and philanthropy and argues that the technology could make existing regulators more effective and efficient.
The three core elements of regulation, registration, reporting and enforcement, would benefit from reduced costs, streamlined validation systems and a boost in levels of trust as organisations become more transparent.
The report suggests that ultimately, almost all the functions of charity regulators could be automated. The key ways these changes would occur include:
- Verifying Trustees: The blockchain could enable a new model of highly secure, user-controlled online ID, which would make it possible to automate all the relevant background checks needed to confirm an individual is a suitable trustee.
- Charities as blockchain entities: Charities could be registered on the blockchain using smart contracts, where computers can make, verify and enforce an agreement, linking all relevant documents with the IDs of trustees.
- Real-time reporting: Annual reporting would no longer be necessary if transactions were conducted or recorded on the blockchain, as accurate, real-time information on spending would be available to everyone.
- Proactive enforcement: Smart contracts could be used to provide an early-warning system for breaches, allowing problems to be dealt with before they escalate.
- Governance-by-algorithm: Laws and regulations could be embedded in the very smart contracts governing how charities operate, so that it would not be possible to break them and hence enforcement would become unnecessary
- Consensus-based regulation: The smart contracts in the system of governance-by algorithm could be agreed by consensus among the users of the system, with some appropriate oversight from the judicial system.
Rhodri Davies, author of the report and leader of the Giving Thought policy programme at CAF said: “Today, charity and not-for-profit regulators around the world play a vital role. Here in the UK, registering with the appropriate regulator confers a status that helps organisations raise funds, bid for contracts, access gift aid, tax reliefs and other exemptions.
“But as blockchain possibilities expand, the traditional role of the regulator is likely to shrink, bringing with it operational efficiencies which would benefit the not-for-profit sector.
“Blockchain technology is big news right now, but regardless of the specific technology that ends up being used, the future for charities is likely to see a move towards radical transparency, decentralised governance and greater automation of functions.”
CAF’s latest discussion paper is the third in a series looking at the potential impact of blockchain on charitable giving and social action. It is produced by Giving Thought, CAF’s in-house think tank which looks at key issues affecting civil society, philanthropy, social investment and the use of new technologies for social good.
CAF promotes charitable giving and provides financial services and social finance to not-for-profit organisations.
The full report can be viewed and downloaded here.
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