A few days ago we talked about Barclays’ confirmation that they were working with some of their charity clients to look at how Bitcoin* could help them collect and disburse funds. But we didn’t really go into how Bitcoin can help. If you’re familiar with Bitcoin, the advantages are obvious. But if you (like most people) are not, then talking about these advantages will give you a good idea of how Bitcoin can make payments and money transfers easier, faster and cheaper. Which, when it comes to the use of charity funds, we can all agree is a good thing.
Bitcoin is a digital currency that cannot be counterfeited or duplicated. It is not controlled by a bank or an organisation, so no one has control over how many there should be, nor what value it should have. No one can decide tomorrow that it doesn’t exist anymore, or that we’re suddenly going to issue lots more and dilute the market. While the original idea was thought up and initially programmed by a pseudonymous person or group called Satoshi Nakamoto, bitcoins are not created by anyone. They create themselves, according to a pre-programmed steady-release algorithm. A certain number of bitcoins are created as a reward every time a node (a powerful computer or group of computers) verifies a transaction, specifically that I have the bitcoin that I want to send to you, and that I haven’t already sent it to someone else. The process of verification is complicated, very mathematical and requires significant computing power, but is what gives Bitcoin its innovative qualities of being unhackable. Bitcoins have been “hacked” before, but only through incorrect application of the program, or through the theft of account keys.
The beauty of Bitcoin is that it can be sent anywhere in the world with almost no delay (10 minutes) and almost no cost (minimal transaction fees). It would be a huge advantage for most global charities to be able to receive funds from anywhere, and be sure that the funds are actually reaching you without the subtraction of hefty transfer fees, commissions, etc. If someone wants to donate $100, say, it would be nice to know that you’re getting $99 instead of $79. Those figures are approximate, of course: bitcoin transaction fees are not fixed, and at the moment are very low or even non-existent. The nodes that maintain the system get their reward for verification through additional bitcoin, but the amount awarded is programmed to decline over time to 0. Transaction fees will become more important, but they will remain much lower than with traditional methods (lower overheads, fewer people involved, and if they don’t, bitcoin users will switch to another system that is).
The low transaction fees broaden the potential pool of donors to those who can only spare a few dollars. Up until now, transfer fees would have made it uneconomic to donate small amounts. With Bitcoin, the collective weight of micro-donations could well equal or even surpass that of more substantial amounts.
Another huge advantage for charities, especially those working in parts of the world with unstable or corrupt governments, is that the funds go directly to you. They do not pass through any middleman. No-one can take an arbitrary cut. The charities have much more control over the donations. They will probably need to use an exchange to convert the bitcoin into the local currency, and these will take their commission, but the dent in the funds received is more transparent and more reasonable.
Personally, I think that one of the biggest impacts will come from ease of use. Sending bitcoin can be as easy as three taps on your smartphone. Or you can donate directly in the comments section of any webpage or via email using ChangeTip. Bitcoin is not limited by physical or political boundaries. It is true that it can be difficult to convert Bitcoin into local currency in certain places. But exchanges will become more efficient, and work-arounds will help overcome regulatory obstacles. The end result will be a more efficient funding for good causes. And if something is easier to do, more people tend to do it.
*You’ll notice how sometimes Bitcoin is written with a capital B and sometimes lower case. The convention is that when you’re talking about the system of Bitcoin, the protocol and the concept, you capitalize it, because it’s a name. But if you’re referring to the currency, as in “I’m sending you two bitcoin”, then it is lower case because it’s a thing. In another post we’ll go into the craziness of this naming system. Because, as you will see, even I get confused sometimes often.