Blockchain technology could eventually be used to carry out many of the functions of a traditional regulator, according to a new paper by the Charities Aid Foundation.
CAF today published its latest discussion paper on blockchain technology, Block and Tackle: Using blockchain technology to create and regulate civil society organisations.
Blockchain technology is the basis for cryptocurrencies such as Bitcoin, and CAF previously published a paper looking at how it could be used for philanthropy.
The latest paper suggests that the transparent nature of blockchain technology could change how charities are registered and overseen by regulators, including the Charity Commission.
CAF has highlighted six ways this could happen:
- Verifying trustees: Blockchain technology could enable a new model of highly secure, user-controlled online ID, which would make it possible to automate all the relevant background checks needed to confirm an individual is a suitable trustee.
- Charities as blockchain entities: Charities could be registered on blockchain using smart contracts, where computers can make, verify and enforce an agreement, linking all relevant documents with the IDs of trustees.
- Real-time reporting: Annual reporting would no longer be necessary if transactions were conducted or recorded on blockchain, as accurate, real-time information on spending would be available to everyone.
- Proactive enforcement: Smart contracts could be used to provide an early-warning system for breaches, allowing problems to be dealt with before they escalate.
- Governance-by-algorithm: Laws and regulations could be embedded in the smart contracts governing how charities operate, so that it would not be possible to break them and hence enforcement would become unnecessary
- Consensus-based regulation: The smart contracts in the system of governance-by-algorithm could be agreed by consensus among the users of the system, with some appropriate oversight from the judicial system.
Rhodri Davies, CAF’s Giving Thought policy lead and author of the report, said: “Today, charity and not-for-profit regulators around the world play a vital role. Here in the UK, registering with the appropriate regulator confers a status that helps organisations raise funds, bid for contracts, access gift aid, tax reliefs and other exemptions.
“But as blockchain possibilities expand, the traditional role of the regulator is likely to shrink, bringing with it operational efficiencies which would benefit the not-for-profit sector.
“Blockchain technology is big news right now, but regardless of the specific technology that ends up being used, the future for charities is likely to see a move towards radical transparency, decentralised governance and greater automation of functions.
“As some of the world’s biggest companies look towards blockchain to expand their horizons, and many governments and public bodies are exploring the ways in which the technology could improve their work, the charity sector has an opportunity to revolutionise regulation and transform how not-for-profit organisations are governed.”