Jerome Tennille, MSL, CVA
Will Crypto Disrupt Philanthropy? I Say Yes, It Already Is, Here’s What You Need To Know
On June 3rd I'll be co-presenting at Benevity's Goodness Matters Conference in San Diego, California. What will I be sharing with corporate responsibility and social impact professionals you ask? If the title to this post is any indication then you've likely already guessed correctly. I'll be presentation and facilitating a discussion about the implications of Web3, crypto currencies, non-fungible tokens (NFT) and decentralized finance on strategic philanthropy and the social impact space more broadly. Before I continue let's level-set. I want to manage expectations. This post is not about whether crypto is here to stay (news flash, it is), it's not about investing or associated risks due to volatility, it's not about crypto's usefulness as a hedge against inflation or the environmental impact of crypto mining.
Those are all conversations for a different time and day, all of which deserving dedicated time and undivided attention.
Instead, this post is about what social impact professionals (namely those in corporate responsibility) need to contemplate as Web3 applications and crypto currency becomes more commonplace. To me there are two sides of this coin; the opportunities, but also the potential risks for those exploring crypto-philanthropy. It's important those of us in the broader ESG (Environmental, Social & Governance) space understand the tools we're being given to further advance our work, the associated risks, and what this means for grantees on the receiving end. This is a topic that's only being discussed at the furthest reaches of the social impact space, and I'm not sure why. Is it because the social impact community doesn't understand Web3 or crypto? Or is it largely because the field doesn't quite take it seriously?
Regardless, the wider adoption and use of crypto is something we all need to pay attention to. But where do we start this conversation? It's a broad topic, and I'll only be scratching the surface with this post simply because there are unknown unknowns, avenues I can't even begin to fathom. However, I'll touch on the following topics;
The transparency of crypto on a public ledger and what this means for upholding public trust.
The potential for crypto to shift the focus from supporting formalized institutions themselves to supporting the "cause" or the "movement".
The near real-time speed of crypto transactions and the usefulness during times of crisis and great need.
And finally, how the more advanced nature of NFT utility can create limitless opportunities for fundraising.
Are you ready? Great, here we go.
Let's start with transparency. There's a great deal of transparency when using crypto. How much you ask? Pretty close to 100 percent. You can see where it's coming from, where it's being sent, the time in which the transaction took place and even the amount gifted. I'll use myself as an example (so to not out someone without their consent). Let me show you how public my crypto transactions are.
The double-edged sword of transparency.
Let me remind you, all of my crypto transactions using Ethereum (ETH) is public knowledge. You can find all of my goofball transactions on EtherScan.io. EtherScan is a public domain where you can view all the transactions placed on the ETH blockchain. On this website you can search based on blockchain transaction, contracts and even the various crypto wallet addresses in use.
In the image above, you can see my public crypto wallet address 0x23add49aaf1dd4187cc79adf034d5ea594bcbb81. And while I won't go into detail about all the different tabs or all the different transactions themselves, I share all of this to showcase how transparent these transactions are.
If we're getting into specifics, you can actually see when I transferred crypto into my wallet (from Coinbase, which is a crypto currency exchange), and even the timestamp on when I sent ETH to various recipients. Some of these recipients included the Rainforest Foundation US, and even Team Rubicon (through The Giving Block). And if you look closely you can even see when I wrapped my ETH prior to purchasing a few NFTs which can be viewed on my OpenSea account.
What's fascinating to me is that on EtherScan, when you take Rainforest Foundation US’s crypto wallet address 0x338326660F32319E2B0Ad165fcF4a528c1994aCb and do a search, you can see the precise moment in which they received my ETH. You can see that it was from my wallet address 0x23add49aaf1dd4187cc79adf034d5ea594bcbb81, and the precise moment when it was available in the foundation’s wallet. And then if you look through their follow-on transactions, you can even see that they immediately took that ETH donation and transferred it into their "Miscellaneous Coinbase" account where I presume they hold their crypto assets.
Why do I share this? I’ll tell you.
The level of transparency provided on a public ledger may solve for some of the criticism around the lack of transparency in philanthropy in general. To me there are some immediate opportunities I see here that cuts in two different directions. For example, from the perspective of someone working in corporate responsibility, you can clearly share with stakeholders where crypto is donated through a public ledger. With this level of transparency there's no question about when you made a donation, to whom it went, and the amount given.
Additionally, donors can then track (to varying degrees) where the crypto is being sent and exchanged. This can be a tool that supports a donor's ability to track and report their giving, thus aiding in that donor's data collection and reporting capability, and ultimately upholding the public and stakeholder trust.
Having said that, there are certainly some tradeoffs which is why I say it's a double-edged sword. The downside for the recipient (the grantee) is that crypto donors can remain 100 percent anonymous if they so choose. Using my example, there’s nothing that links my wallet with my identity. As an individual donor or company making a major gift, this is something to think about because it will without a doubt disrupt the grantee's ability to cultivate new donors that are gifting crypto.
What this means for nonprofits and foundations is that major donors can gift anonymously, and in many cases may change the donor cultivation process for those receiving crypto. And of course, there are intermediary solutions and services that can support this like The Giving Block. However, even when placing a donation through The Giving Block, as a donor I can choose to not share any contact information, the wallet-to-wallet transactions completely circumvents the recipients ability to collect contact information. This was most certainly the case when placing my donation to Team Rubicon. I didn't have to share my name, email, phone number or credit card information. All they have is my wallet address which isn't tied to my identity or any way to contact me.
As a result, this may also shift the power dynamics in a way that gives greater "voice and choice" to the individual, but in some instances (especially for major donors) may also over-index or amplify the power dynamics in an unbalanced way... especially in favor of those who have an expectation in where their funds go and how they’re spent. And I think about this in respect to large donors placing a major gift as "restricted funding" instead of "general operating funds".
Due to the level of transparency provided by blockchain through a public ledger, reporting on where crypto is gifted or received can't be faked, it can't be fudged or falsified. What this means is that individual and institutional donors will always have some insight to where the crypto ends up. I also think that it may even possibly change donor behaviors in a way that elevates "causes" and "movements" over that of support that's directly sent to an “institution” like a 501c3.
I am of the opinion that over the last two years there's been a recognition that the mechanisms of change that got us here today are no longer effective enough to create the change we want to see moving forward. Adding to this, I suspect there are some individuals who have lost faith or confidence in large institutions being effective in making this change. I will even go on a limb and say that some individuals may actually see large institutions as a part of the problem. Crypto allows these individuals to bypass the mechanisms they believe are no longer effective.
Shift in power dynamics, and the focus to "cause" from "institution".
We’ve already seen this in recent years, and even more specifically around critical issues that are still unfolding. There are a few things to cover here. Crypto gives an ability to donate to anyone who has a crypto wallet, even grassroots movements that operate without a tax exempt status. In these instances people can make donations directly to movement makers. They can even make donations to organizations that may be blacklisted or banned, and even those that are facing government interventions. Not only does this potentially syphon funds from large institutions, but it also presents a potential risk for companies exploring crypto. Here's why. Literally anyone and any institution can set up a crypto wallet and receive crypto from anyone anywhere. Yes, even nonprofits that have been blacklisted, can receive direct crypto donations.
Here's an example of what I mean, let's take WikiLeaks as one organization. You may recall they're the nonprofit institution which was best known for their conspiring to hack into a Department of Defense computer network (namely the Pentagon's) back in 2010. Well, it won't come as a surprise to learn that they've been banned by many financial institutions as a result. Companies like Visa and Mastercard won't do business with them. Having said that, WikiLeaks is still receiving funding by way of crypto donations from individuals, circumventing these formal institutions. And there's nothing to stop them from doing so.
The bottom line is this... crypto can completely bypass federal regulations where banks may actually be prohibited from providing banking services. Think about the restrictions placed on banks that prevent them from conducting some transactions related to the cannabis industry (due to the federal Controlled Substances Act). Crypto can bypass this completely and the federal government can't keep up.
Why am I sharing this? Because the ability to gift crypto to anybody may actually shift dynamics to being “cause” focused, instead of “institution” focused. And we're already seeing this in part through the conflict in Ukraine. Individual donors who want to see that their money go directly to support Ukraine can do just that. Since the start of the conflict, the Ukrainian government has been accepting Crypto, which has been spent on humanitarian aid. The catch is that it's also been spent on other military equipment. Never in a million years did I think I'd see the day where independent citizens can fund a government's war and humanitarian relief efforts.
No longer do people need to fund through a 501c3, or a specific organization to get their money directly to the source. And this gives “voice and choice” back to individual donor. But this also brings up the potential risk to brand reputation for companies that explore crypto-philanthropy, where employees might be funding unethical or banned organizations.
This opens the possibility for money being donated to causes that may be deemed violent, hateful, racist or that support terrorism.
And as “voice and choice” becomes more regular for individual donors, it may actually syphon the amount of institutional giving or support through a corporate foundation. In some ways while it may level the playing-field for small organizations and movements at the grassroots level, it could expose companies to greater risk if unchecked or allowed without oversight.
Because of that, companies using crypto as a social impact tool will need to create some sense of process or oversight that gives them the reassurance that donations are going to the correct crypto wallet or that the crypto is being used in an ethical way. Companies will need to have a due diligence process to ensure crypto is not funding bad-actors or unethical (or un-vetted) organizations. And I suspect that’s a role that tech solutions will play in the future, similar to how they screen organizations for clients using their platforms now. I suspect nobody has all the answers on this yet, but it’s something to be aware of given the fact that anybody can create a wallet, and once that crypto is sent, it in many cases it can’t be retrieved.
Having said that, another aspect of conducting crypto transactions from one wallet to another is how little time it takes. No longer are the days where money has to "hit" your account and sit there for days before you can access it. Nope, crypto takes seconds or mere minutes to shift from one person to another. Yes, even cross boarder to other nations.
Lightspeed transaction times.
I see an immediate use case for disaster response in times of crisis. Here's why. Disaster relief often needs funding in that same moment a disaster strikes. This is often the case for those that are natural, but even those that are man-made. The interesting thing about crypto is the timeliness and quickness of crypto transactions themselves which allows funding disaster relief projects in near real-time without delay.
Because these transactions can take seconds, even cross-boarder (compared to large financial transactions that need to be wired from one bank to another, from one country to another taking hours or even days), the ability to influx cash to disaster sites in minutes exists.
While a much longer conversation that would require the correct process design and oversight, I do think crypto can be a valuable tool that can be used for companies that often find themselves responding to disasters for both the community where they do business, but also for their employees that have been greatly effected in their respective markets.
This presents an opportunity for companies to think about the role that crypto can play when funding disaster relief efforts. Especially in times where financial institutions themselves (or the economic infrastructure) may be out of operation or disrupted.
NFT utility opens up opportunities for raising funds in secondary market.
Now lets walk through the opportunity that exists when trading and gifting NFTs that have "utility". And what I mean by utility is the usefulness of an NFT that someone might hold. Utility can come in the form of discounts, royalties, access to exclusive communities, and other incentives for the NFT owner. And what I'm about to suggest (as it relates to philanthropy) is different than I think we’ve seen. Let's call it crypto-philanthropy 2.0. But to understand these differences, let me share two examples to draw a distinction between both.
The first example here is of an action that's been done over and over before and is a much more traditional model of fundraising. I'll use myself as an example again, I recently purchased an NFT from the creator Boss Beauties. Boss Beauties is a women-led global initiative that creates opportunities for girls and women through collaborations with major brands. They recently partnered in a collaboration with world-renowned fashion brand, HUGO BOSS, with the goal to support women and girls with mentorship and career success opportunities.
As part of what they call a historic collaboration, both brands co-created the "Dream Like A BOSS" mentorship program which will be funded by the proceeds collected from the sale of this collaboration's special NFT collection. To me, while this is great, this is a very traditional model of fundraising for a cause. This is really just scratching the surface on the possibilities that exist.
What I'm about to suggest is a “yes, and” approach. Here's what I mean. Crypto users that are more advanced in how they write blockchain can actually create NFTs with built in utility which (to me) can creates opportunities for nonprofits to receive profits from NFTs in the secondary market. So, let's take a look at the second example of the power of an NFT.
Just recently, the group The Chainsmokers dropped a token (in the form of an Album), that when owned by a fan, the fan (owning the token) will receive 0.0002% royalty on songs played on that album. So the fan is essentially getting an incentive for their loyalty as a fan and NFT holder. In addition to the royalty, the holders of that particular NFT will have additional opportunities for prizes, giveaways and discounts and other exclusives moving forward. It's a loyalty program. And the more successful the artist is, the more the fans get, so the fan is incentivized to remain loyal, thus feeding into the cycle of the artist's success.
That second example (while not philanthropic in nature) underscores the power of NFTs that have utility, and also showcase how skillful and advanced NFT creators can write code so that revenue can be shared, or even continually earned in the secondary market. Now, imagine how that same type of utility could be applied by a company or person minting an NFT where a portion of the proceeds always go back to a nonprofit. The possibilities for continued fundraising for a nonprofit become endless. That’s a theoretical scenario, but I believe that’s 100 percent possible for those who have the will. To me, that opens so many creative doors.
So, that's a lot of information to digest for some. But, what if I said there's so much more to think about and discuss? We've not even talked about the potential for nonprofits and community organizations to attract a new base of donors. The demographic makeup of a crypto donor is a different segment of the population. We didn't discuss the risks to grantees receiving crypto given the volatility. Nonprofits that may have been holding hundreds of thousands (or millions) of dollars in crypto assets since December of 2021 saw their gains cut in half over the span of just the first weeks of January 2022 with a crash in crypto value across the board. For major grant makers gifting crypto, they'll have to think about how they make these gifts in such a volatile market. And on the flipside, the grantee will have to determine whether they hold, immediately sell or exchange the crypto they receive to avoid massive dips in value.
This is fairly new territory for corporate responsibility and social impact professionals. And while we can all debate the merits of crypto, to me one thing is certain, and it's that we need to at the very least have these discussions. While it remains volatile (some people even calling this era the "crypto bubble") with uncertainty, at least for the immediate future while it's here it'll be a disruptor. And while I suspect we can turn that in impact, we'll first need to start thinking about this more critically.