The Role of Blockchain for Nonprofits in 2024

In your day-to-day work overseeing nonprofit operations, you may not think too much about technology or cryptocurrency.

But the nonprofit sector is increasingly looking toward technologies like blockchain to support their work.

You might have no idea what blockchain is—and that’s ok!

As we go through this article, we will explain to you what blockchain technology is, how nonprofits across the globe are using it, and the benefits and risks you need to know about before you leverage it in your own nonprofit.

Ready? Let’s go!

You’re probably wondering: “What exactly is blockchain, and how is it relevant to my nonprofit?”

According to Investopedia, blockchain is a “digital database or ledger that is distributed among the nodes of a peer-to-peer network”.

Perhaps the most well-known use of blockchain is in cryptocurrency. Cryptocurrencies, a form of digital currency, are often built using blockchain technology.

Put simply, blockchain is a database technology that is used to track data and information securely and transparently.

For example, IBM has created a Food Trust blockchain to trace the journey food products take to reach their final location.

Using blockchain technology for food products allows companies to see the product’s route from origin to destination. In case of an outbreak, such as E.coli, companies would be able to trace the food product’s route and identify other products it may have come into contact with.

Makes sense, right? But you still might be wondering—what makes blockchain so special?

Blockchain gets its name from the fact that all transactions and recorded information occur in blocks; each block is tied to the next in a linear fashion. So because the data within these blocks are linked together in a chain, they can’t be modified or deleted. This results in an immutable ledger that sets itself apart from competing technologies that are vulnerable to human error or even hackers.

Now that you know what blockchain is, let’s talk about how your nonprofit can use it!

Let’s dive into a few ways that nonprofits can use blockchain technology. There are more reasons to adopt this technology than you might think!

Not only can blockchain potentially increase the number of donations you receive, but it also provides an incredible amount of security around financial transactions and can even save you money!

Keep reading!

Support Fundraising Efforts & Increase Donations

Cryptocurrencies like bitcoin use blockchain technology to quickly and securely transfer funds from one individual or entity to another.

This means that by using blockchain technology, a donation can be sent directly from a donor to your nonprofit almost instantly, for a very low transaction fee. This exchange does not require use of a payment processor like many traditional online donation platforms.

This means that receiving donations can be more affordable, fast, and incredibly secure—it’s a win, win win!

Another selling point for using blockchain technology to support fundraising efforts is that, as we mentioned above, the records are immutable. Donors are more likely to donate if they know that their donor information and donation history is secure.

Since blockchain ledgers can’t be altered, your donors can rest assured that their information is protected!

Increase Transparency & Accountability

Another reason donors may be more inclined to donate using blockchain is its transparency advantage.

As mentioned earlier, one of the advantages of blockchain technology is that it facilitates the creation of an immutable ledger. This then allows nonprofits to keep an accurate track of every dollar that goes in and out of their organization.

Because the ledger of transactions is immutable, it reduces risk related to human error, both intentional and unintentional. Since the information can’t be changed, you can count on the records always being accurate. This allows nonprofits to be transparent and accountable to donors about all of their financial transactions.

When a nonprofit is transparent about its financial transactions, donors feel as though they can trust that the nonprofit will utilize their donation wisely. Why is trust so important?

In 2022, 59% of donors surveyed by One Cause listed trust as the number one motivating factor in choosing which nonprofits to donate to. Increased trust often leads to increased donations. It’s a win-win!

Increase Global Efficiency & Effectiveness

Blockchain technology can be especially powerful for global nonprofits that operate in different currencies across country borders, especially in terms of security.

For example, Doctors Without Borders has had success using cryptocurrency in some very remote locations, like the Democratic Republic of Congo, so that their staff and volunteers don’t have to carry large amounts of cash on them. It’s a functional financial system that doesn’t carry the same amount of risk as carrying a backpack full of US dollars through the jungle.

Blockchain technology also allows funds to move faster so that they can reach the people who need them quicker.

In the scenario above, it could potentially take days for US-based staff to travel to the Democratic Republic of Congo with cash or even to navigate cross-border payment transactions. The use of cryptocurrency and blockchain technology removes that time delay, which greatly benefits nonprofits that work in humanitarian response, disaster relief, or any other global cause.

Increase Cost-savings

Administrative activities can be a huge burden for nonprofit organizations, especially small or medium-sized ones. These tasks and activities take up valuable staff time, which prevents them from focusing on work that advances their mission.

This is a place where blockchain technology can assist!

Blockchain allows nonprofit workers to focus their time and energy on the on-the-ground work by streamlining workflows and removing tedious record-keeping or data-related tasks.

For example, the smart contracts function in blockchain can help conduct financial transaction audits in real time. This means your Chief Financial Officer does not need to spend time reviewing and auditing transactions since blockchain ledgers are immutable. This means that they are not at risk of human error and cannot be changed.

So, it saves time AND increases accuracy. Win-win!

Also, many donation processing platforms charge nonprofits administrative fees, processing fees, or transaction fees. Over time, these fees add up and can be significant.

Blockchain provides cost savings by allowing nonprofits to avoid these administrative costs and other expenses when processing donations. This is huge! By removing those costs, not only are you saving money for your organization, but you’re providing a better return on investment to your donors as well.

It’s easy to see the many ways that blockchain technology could benefit your nonprofit organization. Cost savings, increased donations, better donor security, and faster workflows are all very compelling reasons to consider adopting this technology.

We’ve talked about the benefits of blockchain technology, but we’d be remiss if we didn’t share with you some challenges and barriers nonprofits face when adopting this technology.

First and foremost, it is important to know that donors can make blockchain donations anonymously.

This can make it difficult for nonprofits to cultivate relationships with their supporters, steward gifts properly, and provide public transparency about nonprofit financials.

Donor anonymity can also potentially expose a nonprofit organization to risk if the donor turns out to be of questionable character; an organization’s reputation could be damaged or even face legal jeopardy if the money used to make the donation came through illegal means, such as money laundering.

Another challenge in adopting blockchain technology specifically related to accepting cryptocurrency donations is that the cryptocurrency market is largely unregulated and highly volatile.

What does this mean?

Put simply, the value of cryptocurrency fluctuates rapidly. This means that if you ever want to convert your blockchain assets to dollars, you need to make sure that you will receive the amount of money you were expecting at the time of the donation.

Further, a crash in the crypto market could have a huge impact on nonprofit blockchain currency holders. Tax laws, federal guidelines, and regulations around this market still lag behind those for other assets. This poses financial risk to nonprofit organizations.

So, what does this mean for your nonprofit?

If you are seriously considering dabbling in blockchain technology, it is always a good idea to consult with a third-party agency that specializes in this type of technology. Luckily, there is no shortage of these kinds of organizations; companies like Engiven and BitPay are experts in crypto fundraising solutions, and can help provide tools and products to protect your organization.

Blockchain technology is poised to reshape the nonprofit sector—from day-to-day transactions, fundraising, relationship management, and streamlining essential functions, the possibilities are endless.

With the increases in transparency and accountability that blockchain provides through its immutable ledger, it could have a potentially huge impact on how nonprofits report on their financials year over year.

Reducing risk from human error, more accurate financial reports will generate more trust between donors and nonprofits.

Additionally, with the availability of blockchain technology, it is quite possible that in the future, funders will begin to offer grant awards and other donations via cryptocurrency rather than traditional cash dollars.

This could be impactful to nonprofits because of the ability to receive cryptocurrency donations in real time, as opposed to waiting for a check to arrive in the mail. If money moves into nonprofits at a faster rate, it will lead to increased programmatic efficiency in organizations as well, as there will be less waiting time for new programs to get launched and running.

Additionally, with so many big-name philanthropists and billionaires pledging to give away huge sums of money, blockchain and other cryptocurrencies provide a way to do that with efficiency and transparency. Many of these philanthropists have begun to leverage blockchain as a means to positively impact the causes they support.

Undoubtedly, blockchain technology will be in the news making waves across the nonprofit sector in the years to come. It’s important to get familiar with this technology now so that you can be at the forefront of this trend and the benefits it may bring to your nonprofit organization.

In summary, blockchain captures financial transactions between donors, nonprofits, banks, and corporations, and stores them in one, uneditable record.

Because of the way it is built and distributed, blockchain is incredibly secure. Financial records can’t be edited internally, nor can they be hacked or accessed by outside parties.

Because of this, blockchain is being utilized more and more by nonprofit organizations all over the world. Whether it’s to streamline processes, accept donations, increase donor security, or reduce costs, many organizations are finding benefits to adopting this technology.

For more of the latest nonprofit resources and insights, check out Instrumentl’s blog!