Non-profits exist to serve others, or social causes beyond the means of one single person. The ethos of every organization should hold this as their mantra, mission statement, and practically breathe this notion of altruism. Many, many individuals dedicate their entire lives towards these types of goals and it is admirable work that’s being carried out by high net worth and common people alike.
Many organizations rely on this type of funding to meet their goals, mainly in 3 areas:
- Program/Operational Costs — These costs are absorbed to carry out the mission statement. Salaries, investments, delivery of goods/services, research, etc.
- Administrative — Record keeping, regulatory compliance for 501(C) statuses, accounting, etc.
- Fundraising — Costs to accessing donors, marketing, outreach, etc.
So in practice, you can see that a lot of costs can go into the typical Non-profit org, and typically groups of individuals are coordinating these efforts, in an enclosed setting. In the domestic United States, these organizations are defined as existing to, “..conduct business for the general public without shareholders and without a profit motive.”
In the United States, civil society has always played a large role in politics with the idea that individuals can fund social goods through local and private institutions, rather than being subservient to a government. This is not necessarily a bad thing. Individuals funding public goods that create social safety nets for others alleviates social and environmental pressures with time. To give a sense of scale, Florida’s 2020 non-profit stats according to Council of Non-Profits are shown below:
All of this points to a serious moral and financial pain point if anything above $0.01 is lost to graft and greed. And in reality this loss is estimated to be as much as 5% of annual revenue. In the US alone, 2016 figures estimate are as much as $390 billion dollars of revenue from the entire industry, that’s 1.95 billion USD lost in fraud!
Unfortunately, large institutions are at the core of this problem because scale brings oversight difficulty, and humans are imperfect in the Hobbesian sense. Those who dedicate their entire lives to a passionate mission are being compromised by a few bad actors who exploit the system. Even worse, intended recipients of funds who need it the most are losing out.
It’s clear that we need to redefine access to public goods because current business models just aren’t working. There are political calls to action to replace a lot of this activity with publicly funded social safety nets, but these come with opportunity costs:
- Trust switches to public officials, special interests & graft could result in unknown amounts of fraud
- Elements of civil society are replaced with impersonal governance
- Overly-complex rules from bureaucratic writing and management
This is not to say that there couldn’t be some benefits from a publicly funded alternative — I do think that public funding could pool funds easier with more efficacy — , but it remains to be seen whether there is the political will or feasibility in doing this effectively. My overarching opinion is this technology will fix the woes in the fraud-based non-profit sector.
BUIDL — Using Blockchain Technology to Improve the Non-Profit Sector
The aim, for strong public goods are all about (1) transparency, (2) building equality, and (3) efficiency, regardless of fund sourcing. So in building this you currently need deep layers of trust, internal mechanisms to check funds being leaked to fraud, and confident, perpetual donors. Keeping these donors is a lifeline for most, if not all non-profits and fraud presents a risk to that. Like we have with plenty of other sectors let’s let technology present solutions.
Blockchain technology has several important properties that are beneficial for non-profit business workflows. These are due to (1) immutability, blockchains cannot be altered, (2) transparency, transactions are fully viewable by anyone, anywhere and are recorded in real-time, and (3) decentralization, robust networks have created secure environments for doing financial transactions with no authority over what gets sent.
Incorporating this into the average non-profit becomes a god-send. Imagine having all your donations come in the form of a stablecoin — a digital version of a US Dollar, and being able to disperse these funds to others in a way that is verifiable, public knowledge. Say hello to 0 waste, and I mean 0. In a system designed as such, it would be increasingly difficult to break donation flows from their intended recipients.
Wallet Supply Chains (WSCs)
This doesn’t come without a ton of heavy lifting though. Investments into infrastructure on the business side of things would need to be done with creating “Wallet Supply Chains” (WSCs), where the supply chain becomes a series of wallets all the way from large non-profits down to individual beneficiaries. This is an ideal situation of course, but even fragmented WSCs can deliver value as downstream movements of funds become smaller and have less opportunity to siphon money from.
Of course, this is more from an institutional perspective. Lots of these donating 501(c) companies surely have many actors to interact with from point of donation to actual benefit. What about individual donations, and pooling together wide forms of funding?
From bake sales, PTA donations, city-wide campaigns for poverty reduction, or park restoration campaigns these are all subject to some need of oversight, right? Like, every point of transaction will require that the collector, or collection method isn’t compromised. These social efforts are all valid, and help make communities stronger, more resilient. When someone breaks this social order the goal in mind fails, or partially fails. We will never be able to remove trust from the equation of human generosity & giving, but we can use blockchain technology to alleviate this.
Imagine being able to scan a QR code on something, say taped to a city street light, a bake sale table, or an educational fundraising event. You scan the code like you normally would, but this takes you to a portal. The MetaMask app (in the app store!!) will open up, Face ID you in, and send you to a prompt to send X USDC to the destination address. Funds are sent once the transaction is confirmed on the blockchain, and its history is recorded for immediate view.
What happens next is where things get interesting. Imagine an interface that gets built to (a) log your individual WSC (donation) project, (b) register your relevant fund recipient addresses (this could be anything from individual homeless people, teachers, a tennis court resurfacer), and (c) show a UI of recorded transactions that were involved in the process, and (d) a multi-signature process to initate processes or fix some unforeseen trust problems (ones that I can’t think of right now).
A small example:
Let’s say I’m a local food bank who has trouble collecting funds in a major urban area, and I want to connect with individuals more to collect regular donations to run my food drives. Finding individuals is never easy. But let’s imagine that I use blockchain technology to implement my novel solution. I simply put a QR code on a bunch of street lights for others to scan with a small description “I’m verifiable, scan me! Help feed the homeless in a fraud-preventative way. [Link here]”.
A QR code zips you into MetaMask (a mobile cryptocurrency wallet), and prompts you to send some USDC to a pre-defined address in the WSC. Funds are sent at discretion of the user, and wants confirmed is viewable and verifiable. If the user cares further he can watch the 2nd transaction occur in real-time with a description of that wallet, etc. The idea is that eventually the user will be updated with an overview of how his/her money was spent, where it went to, and how it ended up benefitting the social cause. And all of this is done in a verifiable way, free of fraud.
In conclusion, blockchain technologies will be highly important for ESG building in the coming decade. On a larger the technology will generate multitudes of value that can be used to fund ESGs, but it can also play an important part in facilitating ground-work in fundraising, and keeping sensitive processes transparent.