How Crypto Disrupted the Philanthropy Economy
In early May of this year, Ethereum co-founder Vitalik Buterin, who became the world’s youngest known crypto billionaire a few weeks previously, donated more than $1 billion to the India Covid Relief Fund and a range of other charities.
He also gave notable donations to GiveWell, a non-profit charity research company, Methuselah Foundation, which focuses on extending the human lifespan, and Machine Intelligence Research Institute, an AI development company. The month before, Buterin donated about $600,000 in ether and Maker (MKR) tokens to the Covid Relief Fund. He’s not the only one.
Crypto philanthropy is a fast-emerging industry that looks and behaves differently from traditional philanthropic ventures. While the present market downturn has seen fortunes wiped out, there is an increasing number of voices suggesting that crypto’s wealth-creating potential - and its ability to share that wealth - is only just starting.
If the price of Bitcoin were to reach $200,000, Coinbase CEO Brian Armstrong observed recently, half of the world’s billionaires would be crypto billionaires. Even if Bitcoin never hits that number, crypto’s heady mix of rapid wealth creation, the cult-like status of some of its wealthiest citizens, and an obsession with data is already reshaping philanthropy as we know it.
The rise of crypto philanthropy
Charitable giving and crypto have been going on for years. In 2018, Pine, an anonymous crypto user gave 5,104 bitcoin to 60 charities entirely anonymously, equating to roughly $86 million at the time.
Crypto trading platform FTX donates 1% of its net fees to the “world’s most effective charities” leading to more than $10 million worth of cash flowing out of the company. Nonprofit Noora Health issued an NFT promising the purchaser a digital claim to the impact achieved through the NFT’s purchase price. But crypto luminaries haven’t been content with giving generously. Other NFT projects are donating proceeds to carbon offsetting charities.
Many have been actively building new funding mechanisms to raise money for good causes. Projects like Gitcoin - which raises and allocates funds to work on open-source software - uses a technique called quadratic funding to decide which money should go where. This is an algorithmic model used to decide which projects should be awarded funding based on how popular it is among smaller donors.
AidChain, meanwhile, provides what researchers at Northumbria University have called “surveillance philanthropy”. By using blockchain as a way of tracking where and how money is being spent, it gives donors the opportunity to observe whether their donations have been spent in a way donors deem acceptable. WWF Italy and several smaller charities have signed up.
Promise, another crypto‐giving platform applies techniques commonly found in software companies to measure the success of a charitable campaign. It relies on any project signing up to the platform to publish a series of verifiable project milestones, ensuring funds are only released when key targets have been met. So far, it has partnered with more than 2,000 registered charities including English Heritage, one of the largest charities in the UK.
Not only that, but cryptocurrencies themselves are being used as a way to give to charities more directly. People like Jack Dorsey, and Elon Musk have joined thousands of others in sending more than $25 million in cryptocurrencies to people in need through GiveDirectly, a charity that distributes cash directly to those who have signed up to receive funding.
Cryptocurrencies have also been used to circumvent restrictions and blocks on charities or causes. In 2010, Visa, Mastercard, PayPal and Bank of America would freeze cash donations to Wikileaks, the non-profit that shares confidential information provided by anonymous sources. As a result, cryptocurrencies have been used to send donations.
WikiLeaks founder Julian Assange accumulated $1 million worth of crypto since his arrest in April 2020. It’s even led charities themselves to accept cryptocurrencies as a form of payment. The Red Cross, UNICEF and Greenpeace, all allow donors to send crypto directly.
This system offers non-profit organizations the advantage of bypassing expensive fees and middlemen traditionally required to move large amounts of cash overseas quickly. It’s those middlemen that have been contributing to a decline in trust in charities globally. According to new figures published by the Charity Commission, the regulator’s report found trust in charities had sunk to its lowest levels in more than a decade.
A flurry of articles published in international newspapers highlighted how some charities used significant amounts of money to pay executives instead of funneling cash to the causes they were designed to help. Other scandals have rocked the industry, most notably, Oxfam after it was embroiled in accusations staff working for the charity paid vulnerable people for sex. Crypto has been stepping in to fill the void with offers of more control, transparency, and security when it comes to fundraising. But there are some that argue crypto’s influence is having adverse effects on the giving industry.
Crypto Concerns
Academic Peter Howson has argued that crypto’s enthusiasm for giving is taking away power from experts on the ground who become beholden to performance metrics instilled in platforms like Promise and Humanity Token.
Donors have the power to restrict those in need from buying anything the donor doesn’t want them to have. On Humanity Token, for example, eligible goods and services include food, shelter, health care, and professional courses. However, Humanity Token does not allow alcohol, drugs, and other “health-damaging factors” to be bought with the token to ensure the recipients of aid are acting in the interests of the donor.
By giving all the power to the donors, who will unlikely be familiar with the nuances of what’s happening in the areas their crypto is going to, creates a narrow vision of what success or failure looks like.
In Promise's white paper, for example, it says if “a project falters or fails, the funds not yet released can be returned to you as the donor to be donated to a new project”.
While crypto donors have important decisions to make about how and where to give, the wealth creation that has given them that power raises a number of different questions, such as tackling carbon footprints, finding better ways to root out scams, collaborating with regulators and tax authorities, or ensuring tomorrow’s financial system includes more diverse perspectives than today’s.
As Teddy Roosevelt remarked about the industrialists’ impact on democracy, “No amount of charity in spending such fortunes can compensate in any way for the misconduct in acquiring them.”
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