The purveyors of blockchain may not have the charity sector’s best interests at heart. Why am I not surprised?

A glut of new cryptocurrencies and blockchain products has emerged that are being marketed to charities and donors as the answer to all of our problems. I’ve explained in my first post why I don’t think they are a silver bullet.

Moreover, I don’t believe that donor trust is indeed at the heart of these products. There are other agendas behind this recent push, and they’re not difficult to find if you’re prepared to delve into the detail.

Here are some details from two products that I think are worth sharing more widely.

Alice.si openly promises to “punish”charities

Alice is a “decentralised social impact network built on the Ethereum blockchain”. Its white paper begins with a very convincing argument about the global decline in donor trust. Alice is, obviously, the solution to this problem.

The white paper goes on to explain how blockchain technology will increase transparency and improve trust. It includes a mechanism to ensure charities only receive their next payment after meeting the reporting deadline. There’s nothing wrong with that, and I’ve seen similar conditions in countless grant agreements.

What I haven’t seen before is this particular wording:

“[social organisations] are paid for each update report submitted, and punished if they miss deadlines.”

“Progress reports may also engender punishments

Now, the only type of genuine trusting relationship I can think of that makes use of “punishment” is a niche that is beyond the remit of this blog.

Punishment certainly does not belong in a healthy donor/charity relationship. I think this choice of words says a great deal about how Alice views charities.  Is this really the type of relationship that we want to encourage?

Alice wants to parcel up charity impacts as “tokens” and sell them to speculators

Alice claims that its “​raison d’être is to help social organisations produce transparent , publicly accessible and reliable impact data.” The first few pages of the white paper explain how this will solve all problems that donors and charities have.

On page 19, we begin to understand why this reliable impact data is so important to Alice. The white paper acknowledges that some impact takes years to realise, before going on to explain that:

“Alice solves this issue by tokenising impact investments and making them tradable as securities on a secondary market. This means that impact investors no longer have to worry about fitting deals with their investment horizon, as the secondary market allows them to exit investments before they have run their course. As this is run within the Alice platform, potential acquirers have perfect visibility on how these investments have performed, and how likely they are likely to continue performing, before buying them, which facilitates price discovery. The automatic re-routing of interest payments to the new owner of an impact investment security further reduces​ ​transaction​ ​costs.​”

Social impact bonds and impact investing already exist, but are we comfortable with taking this concept a step further? Would a secondary market for trading impact really benefit the charity sector? This is probably an area that is ripe for debate – but we should consider it properly, rather than dive into partnerships where we may not have realised that it’s part of the agenda.

Giftcoin doesn’t want us to convert our cryptocurrency into cash

Giftcoin is “the world’s first charitable cryptocurrency for charitable giving and good causes.” Similarly to Alice, it is about “creating transparency and trust in the giving process”.

The white paper has an attractive diagram showing how a donor pays in Giftcoin. This is transferred to the charity, which then spends it on goods and services. The blockchain technology enables all transactions to be accurately tracked.

I saw one glaring omission: how does the charity exchange Giftcoin for goods and services? As a charity worker, I’m not prepared to receive my salary in Giftcoin, and I don’t know any who would be.

I asked Giftcoin this question via Twitter and received no response. However, their response to another Twitter user was revealing:

giftcoin.png

So Giftcoin wants charities to keep their cryptocurrency and not convert it into pounds or dollars.

Why? I can’t think of any reasons that benefit the charity sector. If there were compelling reasons, I’m sure Giftcoin would have covered these in the white paper, or at least taken the time to respond to my tweet.

What is the charity sector for? What is your charity for?

Charities exist to improve the world. Personally, I don’t believe that charities exist to make money for investors. Nor do I agree that they should gamble their money on high-risk investments. If a charity accepts cryptocurrency donations, it’s in their best interest to convert them to fiat immediately.

I’m sure others may disagree with me, but let’s have an open debate and consider these issues carefully. I’m not sure how feasible the above goals are (probably not very) but we need to ensure that charities are entering these types of partnerships with their eyes open.

Charities need to read the small print

There’s nothing wrong with having your own agenda: everyone has one. However, where the agenda is at odds with the charitable interests that the cryptocurrency is claiming to support, I suggest proceeding with extreme caution.

At least they’re being upfront about it. In the small print.

3 thoughts on “The purveyors of blockchain may not have the charity sector’s best interests at heart. Why am I not surprised?

  1. Hi Hayley,

    I’m the CEO of Alice and co-author of our whitepaper. I wanted to respond to a few of the points you make in this post.

    First, I’d like to thank you for having read our whitepaper. We welcome your feedback on it. We have always been very open about our plans, and you will have noticed that the paper is still in draft form – we have published it precisely to collect comments from the community, and to iterate it in a fully transparent way. This is the same approach we take for our code which is open source (cf. our github repo: https://github.com/alice-si, which is also where we store the whitepaper). In that sense, we do not consider this to be “small print”, but an integral part of our plans. We hope that it will be read, shared and commented on as widely as possible.

    Regarding your first point: you argue that Alice promises, openly, to punish charities, and that this demonstrates we do not have the sector’s best interests at heart. This is a fundamental misunderstanding. The incentive mechanisms that Alice has in place are designed to reward transparent charities and make it very difficult for those that aren’t to receive funds. Perhaps from that perspective, “punishment” is a poor use of words. But this kind of “cryptoeconomics” is integral to how blockchain ecosystems work: good actors win, bad actors lose, with the hope being that bad actors don’t participate in the first place given the risks. In our view, Alice helps protect good charities – it’s enraging for example that one scandal can tar the entire sector with the same brush. With Alice, transparent and effective charities stand out, regardless of controversies elsewhere.

    It’s also really important to note that Alice aims to help smaller charities with network funded grants (through what the whitepaper calls the DAF), and that one of our goals is to change the debate on charity transparency which focuses too much, in our view, on the toxic issue of overhead costs, instead of impact. We believe that these goals are very much in the interest of the sector as a whole.

    Regarding your second point: Alice does not “want to parcel up charity impacts as ‘tokens’ and sell them to speculators”. This is also a very fundamental misreading of the paper. Our aim is to make it easier for charities to tap into both donations and impact investments. Impact investment is not speculation, it’s a growing form of responsible social funding that aims to generate social or environmental impact while also making a profit. Many charities benefit from it. Impact investments are indeed tokenised on Alice, to provide more liquidity for investors, but it’s crucial to understand 1) that any trades on the secondary market do not affect the charity’s project, and 2) charities are in no way obliged to seek or accept impact investment in the first place: it’s simply a way to avoid working on a pure payment by results basis. We recently published a blog post that explains this mechanism in more detail: https://medium.com/alice-si/alice-introducing-impact-investing-1d040f4cb427.

    Finally, I totally agree with your point about silver bullets. We’re very careful to not claim that Alice “will solve all problems that donors and charities have.” This is just one platform that uses blockchain technology to solve the very precise problems that we lay out in the whitepaper.

    It seems that we need to clarify some of the mechanisms in the whitepaper to avoid misunderstandings, and will look to do this in the next published iteration. In the meantime, I’d be very happy to discuss your comments in more detail, in person or via this comment section.

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    1. Thank you for your comments Raphael. I’m not interested in discussing this further as I think we will disagree so fundamentally that there is really no point! But I’m happy to leave your comment so that readers can make up their own minds.

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      1. If you ever change your mind, I’d be happy to engage and discuss this further Hayley. I believe that we’d find many areas in which we agree, and I’m very interested, in general, to get more in-depth feedback. I’ve been speaking to, and working with, many of your peers in the fundraising space over the last 2+ years, and those interactions have fed a lot of our thinking. Please consider this a standing invitation to help iterate the Alice protocol.

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