Charities are currently facing something of a crisis of trust. For so long among the most trusted organisations in our society, there are now worrying signs that public trust in charities is starting to erode. Recent CAF research found that the percentage of the public who believe that “charities are trustworthy and act in the public interest” had fallen from 71 per cent to 57 per cent between 2014 and 2015.

Some of this erosion of trust can be put down to short term factors like recent revelations about fundraising malpractice. However, there are also longer-term challenges, such as growing cynicism about the salaries that charities pay their staff and the amount they spend on administrative costs.

Overcoming these challenges will require addressing the underlying issues but also attempting to combat some of the widespread misconceptions people hold about the work of charities.

It may be that a new technology that is already making waves in the financial sector can help with both of these aims.

The “blockchain” is a shared, decentralised public ledger that provides a transparent and secure record of ownership and transactions. It has come to prominence as the mechanism that makes the digital cryptocurrency Bitcoin work, but many experts now believe that it has far wider-reaching applications. If these experts are to be believed, blockchain technology is going to fundamentally change the way we interact with each other and with machines. This will have profound implications for charities and donors, which we explore in our new CAF discussion paper Giving Unchained: philanthropy and the blockchain.

One of the defining characteristics of the blockchain is that it is entirely open and transparent, because anyone using the system can view the whole of the ledger at any time and thus see precisely what transactions have taken place. Charities could potentially harness blockchain applications to open up their operational work, or use blockchain-based cryptocurrencies to make their finances more transparent to donors.

This sort of “radical transparency” could help to bolster levels of trust among donors and supporters, who would be able to see for the first time exactly how their money was being used. This would prove particularly valuable to international aid organisations operating in difficult parts of the world where infrastructure is non-existent and corruption is rife, as it would provide a means of getting funds to those who need them whilst still giving donors confidence that their money was not being wasted or falling into the wrong hands.

There might be a downside to radical transparency, however, if it led to donors making unreasonable demands about how their donations are used. Charities already struggle to raise money to cover core costs, because a growing number of funders want to give to specific projects or only to “frontline” work. It would be a concern if new technologies made this problem worse. A balance would have to be struck that gave donors sufficient confidence whilst enabling charities to operate effectively.

Another major advantage of blockchain technology is that by offering a secure way for users to make payments or agree contracts directly with one another, it removes the need for third parties. This can vastly reduce or even eliminate many of the costs usually associated with transactions, and could help to answer the criticisms of those who complain that charities spend too much money on “overheads” or “administration”. Given that these sorts of complaints are often cited as reasons not to trust charities, answering them could have a hugely positive effect on levels of trust.

The blockchain, like any other technology, is not necessarily a solution in itself – it is merely another tool that we can apply to all sorts of different problems. For charities, it may offer a powerful new approach to ensuring high levels of trust among supporters and the public. Since trust will always remain one of the most valuable commodities for any charity, this should be a compelling reason to consider whether they can find ways of harnessing the power of the blockchain as this new technology creeps into the mainstream.

Rhodri Davies is Head of the Giving Thought programme at Charities Aid Foundation.

Image: Bitcoin logo by Mom91 on Shutterstock.com

Head of Giving Thought programme at CAFHead of Giving Thought programme at CAF