What is token based fundraising for NGOs?
In the age of digital transformation, non-profit organizations (NGOs) are also looking for innovative ways to master the challenges of fundraising. A promising method is the introduction of tokenized business models. Tokens can be used as a digital representation of ownership or value.
What is a token? A token refers to an asset or commodity in the blockchain. They are elementary building blocks for actions with crypto values.
Tokens can have far more than just symbolic meaning. They could represent concrete project phases such as research, implementation, and monitoring. Through smart contracts on the blockchain, donations can be automatically released when certain, predefined milestones are reached — this is the theory I conducted as part of my Master’s Thesis at Bern University of Applied Sciences (BFH).
The idea behind it: Through token-based business models, transparency and efficiency are maximized, which is beneficial for both donors and NGOs.
Because in the long term, the question arises as to how NGOs can utilize the increasingly challenging possibilities for fundraising by possibly using new technologies such as blockchain-based tokenized business models.
New Fundraising: How NGOs can revolutionize their fundraising with tokens.
NGOs can use token-based fundraising to improve their fundraising efforts in a constantly changing and competitive donation environment.
Tokens are actually like Panini stickers of famous football players, which not only have collector’s value but also tell a story — imagine you have the Panini picture of Roberto Baggio from the World Cup in Italy. Tokens are the virtual counterpart to Panini pictures.
They represent a financial mapping for specific projects or milestones within NGO projects. One could imagine a token representing the value of a specific donation for an environmental protection project or that of a phase like the construction of a hospital or the launch of a school network.
The interesting thing is the possibility to increase the value of these “digital Panini pictures” the more the respective NGO achieves. For example, the value of a token originally acquired for the protection of a specific forest area could rise if the NGO successfully prevents deforestation.
Utility Tokens and Security Tokens are the two main types of tokens used in the context of this fundraising model. Utility Tokens grant access to a specific service or product, while Security Tokens represent a type of financial participation in a company or project.
Digitizing fundraising through tokens is particularly attractive because it is often faster and more flexible. However, it is important to understand the regulatory framework precisely, as the field is still new and limitedly regulated.
How does token-based fundraising work specifically?
There are various ways in which NGOs can use token-based fundraising. Here are some examples:
- Tokenization of project donations: NGOs can convert their donations into tokens (tokens as ownership in the project).
- Tokenization of assets: NGOs can convert their assets such as real estate or artwork into tokens and can then use the tokens as ownership of the asset.
- Tokenization of services: NGOs can convert their services into tokens and then use the tokens as a right of use for the NGO’s digital service.
How can blockchain improve the work of NGOs?
The blockchain technology can help NGOs in various ways to improve their work. The following list is intended to give only a small insight:
- Transparency: Blockchain technology can help NGOs create transparency in their operations. By using blockchain technology, NGOs can record all donations, expenditures, and other financial transactions and give all interested parties a clear and verifiable insight into their operations. This can increase donors’ trust and help collect more donations.
- Efficiency: NGOs can also benefit from the efficiency that blockchain technology can offer. By using smart contracts, NGOs can automate certain processes and reduce administrative tasks. For example, they can automate the distribution of relief goods and ensure that funds are only released when certain conditions are met.
- Trust: Blockchain technology can also help strengthen trust in NGOs. Donors can track their donations at any time and verify that their money is being used for the intended purpose. This can increase trust in NGOs and help collect more donations.
- Scalability: One of the challenges in using blockchain technology for NGOs is scalability. The current infrastructure of most blockchains is only able to process a limited number of transactions per second. NGOs must therefore cooperate to develop blockchain solutions that are scalable and tailored to their specific needs.
Overall, blockchain technology can help NGOs improve their work by creating transparency, efficiency, and trust. However, NGOs must also consider the challenges associated with the use of blockchain technology.
The implementation of blockchain technology in NGOs can bring some challenges. Here are some of the challenges that NGOs should consider when implementing blockchain technology:
- Complexity: Blockchain technology can also be very complex and requires special knowledge and skills to implement and use it effectively. NGOs must be able to find or train qualified employees to use the technology effectively.
- Regulation: The regulation of blockchain technology is not yet fully clarified, which can be a problem for NGOs wishing to use the technology. NGOs must ensure that they comply with the applicable regulations and inform themselves about the legal implications of using blockchain technology.
- Communication: Many technical terms and much non-existent knowledge can make communication rather difficult. NGOs must therefore invest in appropriate communication and educational measures to make the use of blockchain technology understandable to donors, stakeholders, and employees.
