Cryptocurrencies such as Bitcoin could help charities become more transparent about how donations are spent because each coin can be traced through the system, according to a discussion paper from the Charities Aid Foundation.

The paper Giving a Bit(coin): cryptocurrency and philanthropy considers the potential philanthropic uses for online-only currencies that are not localised nor controlled by a central authority. Because coins can be traced through system people can follow a specific donation.

Rhodri Davies, leader of the Giving Thought policy programme at the Charities Aid Foundation and author of the report, said: “The possibilities for charities really being able to tackle the age-old problem of transparency, helping donors see exactly how their money is being spent and the impact it’s making is profound.”

However the report warns that transparency taken to the extreme could result in donors making unreasonable demands about their donations being used for running costs, which “might end up having an unhealthy stifling effect on the work of charities”.

CAF also suggests that cryptocurrencies could be useful for international aid charities which want to circumvent the “limitations and restrictions placed on currencies and banking services in some countries” and could also be a way to transfer money abroad more cost-effectively.

The report notes that the volatile nature of cryptocurrencies “makes them high risk as investments and limits their usefulness as stores of value”.

CAF concludes that while cryptocurrencies are not “game-changing” as they stand, “there are features of the way they work that are very likely to be replicated in other technologies in the future and which have potentially significant ramifications for charities”.

Last year RNLI became the first major UK charity to accept Bitcoin donations. By February it had received around £2,500.