Blockchain rose to fame as a result of bitcoin and its ilk. Because of its transparency, the technology would make a good choice for nonprofit purposes.
The prospect of fast, easy money and the general air of mystery surrounding cryptocurrencies could, perhaps, account for their allure. Whatever the reason, the blockchain technology behind bitcoin, Ether, etc. is attracting a great deal of attention. Beyond its use as a currency, the technology holds potential for the nonprofit sector. Hallmarks of blockchain include encryption and decentralised storage: each new transaction is linked to a previous data block. An encrypted copy of this new data block is then saved on all computers in the selected system. As such, the information in the system is public. Even if there are private blockchains where the available data is only public for a handful of participants, Roger Wattenhofer sees blockchain as an interesting technology for civil society and for nonprofit purposes. The ETH professor, whose research focuses on distributed systems and networks, explains, ‘With blockchains, data is explicitly stored publicly. However, the data is often encrypted and anonymised, ensuring that private information stays private.’ He mentions that there have already been several initiatives in the nonprofit sector, including blockchain-based social networks. At the same time, however, he points out the obstacles that are likely to arise when attempting to compete with existing organisations. ‘Private companies will not give up their data monopoly so easily,’ he stresses. The state will be reluctant to make its data public too. The technological development is, of course, challenging for the state. ‘In the past, the state was not able to work transparently because that wasn’t technically feasible. Today, that is no longer an excuse,’ he asserts. He feels that, in a democracy, the technology could be used to support governmental processes and could help re-establish trust in the public sector. ‘Ballots can be verified and monitored using a blockchain. We wouldn’t need to rely on enumerators and ballot organisers getting it right any more,’ he comments. ‘Greater transparency in elections and ballots would not go amiss even in a model democracy like Switzerland. In countries where there’s a suspicion of electoral fraud, it would, of course, be even more welcome.’ The traceability afforded by the data recorded in the blockchain should be of interest to the charity sector: ‘Blockchains could be used to bring about greater transparency, pinpointing, for example, how the donated money is actually spent,’ comments the ETH professor.
‘Private companies will not give up their data monopolies just like that.’
Roger Wattenhofer, ETH Professor
Ideal entity for independent development
In Switzerland, those looking to build and publish a blockchain protocol often choose to do so through the legal entity of a foundation. This allows the technology to be developed and deployed without being subject to the individual interests of shareholders or members of an association. ‘It is useful for non-commercial projects in particular,’ comments Thomas Linder, a tax expert at consultancy MME who specialises in blockchain and fintech. He adds, ‘The foundation is ideal for funding open-source blockchain projects if they are looking to develop a decentralised infrastructure and make it available to the general public free of charge.’ The requirements during the development phase and during the subsequent deployment of the blockchain differ. Primarily, it is important for the foundation’s mission to focus on research and development. ‘But in the longer term, the aspects of decentralisation and the ecosystems and networks formed on the infrastructure become more relevant. The foundation needs to transition from a development role to a network governance role,’ he explains. When setting up the foundation, it is crucial to bear in mind the different requirements that it will need to meet at different stages. Thomas Linder comments, ‘The disadvantages of a foundation are its rigid legal structure and its immutability. That makes it inflexible.’ The administrative costs are also relatively high. Nevertheless, he sees the foundation as a legal entity that is suitable for further digitalisation projects in addition to blockchain. ‘Across the board, “crowd research and development” is set to play a major role in future,’ he maintains. ‘The community’s trust in the chosen legal structure is of key importance here.’
‘Community confidence in the chosen legal structure is paramount.’
Thomas Linder, tax expert, Consulting firm MME
Risk of technological elitism
Even if the foundation as an entity brings significant independence from individual interests – making it the ideal orchestrator in a decentralised ecosystem – at the end of the day, it remains a centralised structure. Roger Wattenhofer comments, ‘A foundation represents a centralised organisation that many crypto purists would probably reject on principle.’ He cites the bitcoin network, organised without a foundation, as a prime example here, though points out that this set-up has led to bitcoin being so decentralised that technological developments are difficult to implement, because no one has direct responsibility for them. This illustrates that the question of how developments are controlled is important for many of today’s crypto projects. ‘Some have built-in governance. The participants in a Decentralised Autonomous Organisation (DAO) like this can contribute suggestions for change and then vote on them,’ explains Roger Wattenhofer. To enable blockchain technology to play a relevant role for civil society, however, it is crucial that people are able to understand and use it. There is a risk of ‘technological elitism’. Knowledge of the technology and the ability to use it can affect social standing. If the technology is to be applied, for example, in democratic processes, the ability to use it effectively is crucial. ‘By the same token, it’s important for schools to teach the principles of cryptography,’ adds Roger Wattenhofer. ‘Yes, plenty of people have no problem getting on a plane without understanding aviation technology. But when a new technology has a direct impact on society, it is important that the broader public is educated and informed.’