Nonprofit Financial Management and Blockchain: How Blockchain Is Impacting the Nonprofit Sector

You may wonder what nonprofit financial management and blockchain have to do with each other. After all, isn’t blockchain part of that new-fangled thing called cryptocurrency that everyone is talking about— bitcoin, ethereum, and all that jazz?

Blockchain is indeed the technology undergirding the new economy fueled by cryptocurrency but it is also a powerful method of creating a transparent, secure, and permanent record. Blockchains can be built to create new currencies but they can also be used to securely transfer records, demonstrate transfer of ownership, and many other applications.

Forbes reports 35 uses of blockchain as examples of how blockchain is reshaping such disparate industries as healthcare, banking and finance, and even nonprofit. The Israeli government, for example, is collaborating with Microsoft to create a blockchain for managing bank securities. And, lest you think that the nonprofit sector isn’t interested in blockchain, Bitgive is a new blockchain that seeks to give donors greater transparency around how their donations affect outcomes.

Just as the invention of the combustion engine forever changed transportation so, too, will blockchain forever change how transactions are made. Nonprofit financial management is just one area that will eventually adapt to the new model of transparency, security, and authenticity fueled by the blockchain.

What Is Blockchain?

Blockchain is an open, distributed ledger. Anyone can see transactions on a blockchain. Transactions must be accepted by consensus, distributing the authentication of transactions across multiple parties. No one person can alter the blockchain; once a transaction is recorded and authenticated, it is permanently recorded.

What’s the Appeal?

If you’re still scratching your head trying to figure out how blockchain impacts nonprofit financial management, we don’t blame you. It’s one thing to conceptually understand an unalterable, immutable chain of transactions, and another to understand how it applies to your daily world in the nonprofit sector.

The main appeal of blockchain is trust. The security and transparency inherent in the blockchain bring a level of trust to transactions unheard of in the past. Because every transaction on a blockchain must be verified through a process called consensus, transactions cannot be forged.

Transactions are also time and date stamped so all parties involved in the transaction can quickly and easily see when it was made and confirmed.

Enhanced Trust Is a Plus for the Nonprofit Sector

The area where blockchain has the best potential to make a splash in the world of nonprofit financial management is in donor relations.

Millennials now make up the largest demographic—larger, even, than the Baby Boomers. They are also very interested in supporting the causes championed by their favorite nonprofits.

This is also a demographic which values trust and transparency. Public trust in nonprofits is currently on shaky ground with 49% of donors complaining that they don’t know how nonprofits spend their money.

The transparency and traceability inherent in the blockchain model appeal to millennials. Many are already familiar with blockchain and are open to new technology. Using the blockchain, nonprofits can demonstrate a permanent, immutable record of how donations were received and used.

Reporting Time Saved

Another advantage of using blockchain to track donations in nonprofit financial management is the time that can potentially be saved with government or grant reporting. Many nonprofits receive funds from entities that require frequent reports.

The blockchain model saves the need for reports by providing an open yet secure record. Entities can immediately check the blockchain’s time and date stamps to see transactions. They do not need to wait for reports to be filed. That saves time and effort on both your side and theirs.

Clearly, blockchain is in its infancy. There’s a lot more to it than one article can cover, but now you’ve got an idea of how blockchain may impact the nonprofit segment. It’s worth following as it develops into a more fully fleshed out model for the nonprofit world.

Beck & Company

Beck & Company is an independent certified accounting firm specializing in nonprofit organizations. Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.

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