At its core, blockchain technology is a way of creating trust in a community that doesn’t rely on a central actor. there is no one person or organization in charge of ensuring everything happens correctly. Rather, the trust is distributed across the entire community, which makes it impossible for a single actor to compromise the system’s integrity.

Financial transactions are simplest way that blockchain technology is being used in the social sector so far. With the explosion in value of bitcoin, the first and most famous implementation of a blockchain, many organizations are starting to accept donations in blockchain-based formats (also known as cryptocurrencies).

Blockchains can also make it easier for people to digitally prove their identity. Transparency is another area where blockchain has the potential to make a major impact. Blockchains could be used to trace how aid funds change hands in a public and reproducible way, minimizing the chances for corrupt intermediaries diverting resources away from their intended destinations.

Like any new technology, it’s important to consider the social implications of blockchain before rushing to build new social services around it.  In these situations, careful consideration of participants’ privacy, identity, and agency is an absolute requirement.Finally, we should be wary of blockchain implementations where the incentives of the participants are different from the incentives of the maintainers. For example, an organization that implements a blockchain-based tool to create digital identities for refugees might be offering a useful and important service.

Read the full article about the risks and opportunities of blockchain for philanthropy by Nick Hamlin at the National Center for Family Philanthropy. 

To read more by NCFP, check out their Family Philanthropy magazine on Giving Compass.