Blockchain charitable donations: Giving credibility to nonprofits

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  Quantumrun Foresight
• December 29, 2023

Insight summary

Blockchain technology is transforming the nonprofit sector by enhancing transparency and accountability in charitable donations. It addresses issues like fraud and misallocation, evident in various global cases. This decentralized approach enables real-time tracking of donations, strict adherence to anti-money laundering regulations, and donor anonymity through smart contracts. Its implementation in charities could boost donor confidence, reduce fraudulent activities, and encourage collaborations with tech providers, potentially introducing novel incentives like NFTs.

Blockchain charitable donations context

In 2019, the UK Charities Commission investigated eight charities connected to a money-laundering scheme. The Commission found that very few payments were confirmed as legitimate donations. Instead, many other transactions came from overseas accounts related to a website offering weight loss aids to customers in Austria, Germany, Switzerland, and France. 

According to consulting company Lysis Group, many Chinese charities have been accused of being corrupt and laundering money. Furthermore, these organizations have been failing to provide access to the people that the donations were meant for. On top of all this, some NPOs route their funds to different causes entirely. For example, charities established supposedly to support young girls ended up giving money to young boys instead. One of these organizations even used duplicate photos to persuade people to donate money to impoverished children.

These examples demonstrate why a transparent system like blockchain can ensure an organization's legitimacy and legal compliance. A publicly distributed ledger can help stakeholders in these NPOs, particularly donors, to track where their contributions are going. Blockchain technology comprises a decentralized platform that can automate identity verification and financial transactions through a consensus method that can’t be altered or tampered with. These characteristics make blockchain platforms ideal for legitimate NPOs that want to provide transparency and accountability.

Disruptive impact

Crypto-philanthropy refers to the use of blockchain technology to process charitable donations. This technology enables many organizations to raise funds and receive donations through direct, decentralized transactions. Donors can track their transactions from beginning to end and verify where the funds went. Recipients receive a maximum amount of money donated in real time since expensive transfer mechanisms are bypassed. Additionally, using smart contracts to release donations ensures that the recipients fulfill all the requirements before the money is released. 

Blockchain platforms are also regulated. The European 5th Money Laundering Directive (5MLD) designates cryptocurrency exchanges as 'obliged entities,' which means they are subject to the same anti-money laundering/anti-terrorist financing measures that govern financial institutions. These policies include conducting know-your-customer (KYC) checks, transaction monitoring, and filing Suspicious Activity Reports when potentially illicit transactions are identified. By going through these regulated channels, NPOs can establish authenticity and compliance.

One of the standard practices in donating is preserving anonymity. To ensure privacy, a system based on both blockchain and smart contracts can be used to safeguard donors' personal information. This platform uses a one-time account address mechanism, thereby preventing other parties' identification of donors or recipients on a blockchain network like Ethereum. Blockchain can also enable regulators and other government agencies to accurately audit all donations and payments without NPOs having to reveal unnecessary information about their donors.

Implications of blockchain charitable donations

Wider implications of blockchain charitable donations may include: 

• Donors preferring to send their donations through blockchain platforms that they can track on mobile apps.


• Fewer incidents of fake nonprofits being established for money laundering and tax evasion.


• Legitimate charities partnering with blockchain tech providers to create customized apps specific to their respective causes. 


• Audit firms being able to accurately track NPO transactions by referring to a public ledger.


• Charities incentivizing donors by offering collectible digital assets like non-fungible tokens (NFTs).

Questions to comment on

• What are the criteria you use when selecting which charities to donate to?


• How can legitimate NPOs promote better transparency using technology?