If you don’t know what the heck Bitcoin is, it might be time to figure it out.
Not only has cryptocurrency – Bitcoin being the original and best known – taken off in the last year, much to the delight of speculative investors and counter-cultural diehards, but social justice advocates herald it as a way to make the world a better place.
“The mission behind a lot of this is to help the unbanked population attain a greater level of financial freedom,” says Nick Runyon, author of Crypto for Good: Demystifying Cryptocurrencies for Nonprofits. “A lot of the world is unable to access financial services or the financial stability that we enjoy in the west. Cryptocurrency represents security that doesn’t otherwise exist.”
The crypto world operates on a blockchain. Put simply, a blockchain is a chain of data held by its user community. Think of an old-school cheque book, but in a digital space where a huge network of computers records, verifies and stores all transactions. Most importantly, it brings transparency and traceability to money exchange (or other online activities) that was never before possible. It also operates independently of central banks and governments, and data cannot be changed or tampered with.
If widely adopted, it could “potentially reduce the power banks and governments have over monetary policy,” states CoinDesk.com.
And while it is indeed a place where early investors can make an enormous profit (big business is taking note, with PayPal, Shopify and Square all getting on board, and there are reports that Facebook is developing its own coin), at the same time defying the way the current economic system works, blockchain goes further than that.
“Blockchain is the foundation for the second era of the internet – an internet of value, where anything of value, including money, our identities, cultural assets like music, and even a vote can be stored, managed, transacted and moved in a secure, private way,” states the Toronto-based Blockchain Research Institute. “Blockchain is poised to transform every industry and managerial function – redefining the way we make transactions, share ideas, and manage workflow.”
With places like China and India developing their own cryptocurrencies, and the Bank of Canada reporting that they’re in the midst of plans for their own coin as a “contingency,” it’s difficult to ignore the growing importance of tech in all aspects of our lives.
The techie stuff
Bitcoin was created in 2009, when its value was about $0.0008 for one coin. As of mid-January, that same coin was going for more than $36,000 U.S.
Ethereum, a blockchain-based software platform, came along in 2015, building on Bitcoin’s basics. While Bitcoin is used most commonly to store value (and therefore, as a means of payment), ethereum, via its native token, ether, allows for greater applications of the technology. It is the hub of decentralized finance, with an aim to give users more control over their personal information, mainly through dApps (decentralized apps) with no third party to share, tamper with or control data. “Smart contracts,” immediate, online agreements that don’t need an intermediary, are also possible, making loans, insurance and start-up funding accessible (in theory) to anyone on the blockchain. Because of all this, ethereum is often referred to as a “world computer.”
“It’s only been in the last four or five years when blockchain became mature enough to develop applications on top of it, with ethereum and others,” says Robby Greenfield, CEO of Emerging Impact, an organization helping NGOs and governments reimagine humanitarian aid. “Suddenly it became possible for you to start to realize the ways in which you could affect positive change.”
Greenfield says he first got involved in the crypto world in 2011, believing in the original ethos of blockchain. “Decentralization, fairness, and all the things that come with that.
“Its characteristics beg for socially impactful outcomes,” he continues. “By emphasizing its transparency, decentralization and security, hopefully that incites people to use it for good.”
Blockchain for social impact
So amidst all the speculation, promises and idealism, how exactly might cryptocurrencies make this planet a better place?
Much like traditional socially responsible investing, which considers things like environmental responsibility, social impact and corporate ethics, it’s possible to invest digitally in companies that are doing good things for the world.
Moeda, for example, was created by a Brazilian woman at a UN-sponsored hackathon. They grant seed funding to small-scale farmers and other agricultural businesses who otherwise wouldn’t be able to secure financial support. With blockchain technology, a farmer struggling for funds no longer has to use a credit card with high interest rates, pay banking fees, wait lengthy times before being approved for bank loans, and there’s a trail of exactly where the money goes. Donors can support these projects through the Moeda app – where they can also learn about the projects and see what their money is doing – by sending cryptocurrency through the blockchain.
“Currency is made of partnerships. This is the model that enables a more balanced world,” states Moeda’s website.
Other initiatives range from ethical and transparent supply chains (one project tracks the health and wellbeing of garment factory workers), to clean energy, to tamper-proof e-voting systems, to digital identity (remote communities may not have birth certificates or other identification, preventing them from accessing social services), to humanitarian aid distribution. In 2020, the blockchain was used to help streamline and deliver needed medical equipment during COVID-19, to track the spread of the virus, and to share information. Big-time players like Oxfam, the World Food Programme, UNICEF, and the World Wildlife Fund are all involved in initiatives that use blockchain technology to carry out their work and vision.
So how do churches participate?
Runyon, who wrote his book in 2018 with friend Nils Smith, thinks the Church needs to be involved for several reasons.
“In a mission context, it’s very exciting,” says Runyon, noting that churches will be able to send money immediately overseas to relief and development projects, and can track where that money goes on the blockchain.
“A church can send $100 to a person on the ground doing the work that they’re supporting in a foreign location, and know that the transfer is made immediately, that I can track it on the blockchain. I can see who it went to, if it was received, if it was liquidated. The person on the ground should be able to say, your $100 was put to use here, and here’s the proof.”
He noted the Red Cross scandal during the hurricane disaster in Haiti back in 2010, when half a billion donation dollars were lost or questionably spent. “If that had been given on the blockchain, you could track where it went. Everything would have been open.
“It takes misappropriation out of the equation.”
Greenfield has several ideas for how congregations can get into the crypto space. Apps like Giveth and The Giving Block (which reports that $300 million is donated in cryptocurrencies each year) make it possible to give and receive donations in cryptocurrency. He also suggests starting a savings account on the blockchain, where interest rates are several times higher than traditional bank accounts. People could donate to the congregation’s account on the blockchain, interest would accrue, and then the church could either donate to a project or use it for their operating expenses. He says tech companies are working on innovative funding models that will figure out “how to do more with less and make giving easier,” as well as making donations more transparent – all things churches should look forward to.
Above all, Runyon believes it’s important for Christians to be involved to influence the development of the new technology. He told a story about being at “one of the largest social networks” for a meeting of Christian employees. “They let me know that there was a team onsite working on building AI morality which would govern how their artificial intelligence would make moral decisions. And that group of believers recognized the need to make sure that people with a Christian worldview and perspective were involved in that team in order to influence the conversation.”
Investing in digital companies gives “hodlers” (i.e., coin holders or share holders) a vote and some say in how the company operates.
“It’s going to happen whether we participate in it or not, and that struck me as the same type of approach we should take with cryptocurrency and blockchain technology. You can’t do that by remaining separate. I think engagement here is the right move.”
Runyon likens it to when the internet became mainstream back in the ‘90s, when some held back, unaware and a little afraid of the new phenomenon. “Blockchain and cryptocurrency represent the next great opportunity for NGOs to take advantage of,” he continues. “The internet was the advancement of tech that changed the world. And the non-profit world was slow to adapt. We should not make that mistake again.”
Levelling the economic playing field
“The biggest plus is the ability to grant access to funds for people who otherwise can’t,” says Adam Graber, director of the FaithTech Institute, an initiative dedicated to changing the way the global faith community talks about tech.
Blockchain’s ability to break down economic barriers for the “unbanked” and under-banked is encouraging. According to the World Bank, 1.7 billion adults globally do not have a bank account. In Canada, three percent (close to one million people) are unbanked, with nearly five million more being underbanked.
Bank fees, interest rates and overdraft penalties make many accounts and daily transactions inaccessible to many. People with no fixed address or even ID aren’t eligible for bank accounts at all. Loans would never be granted; ditto for credit cards. Payday lenders capitalize on the vacuum, offering payday loans at exorbitant interest rates. According to Acorn Canada, a national advocacy organization of low and moderate-income families, “in most provinces, payday lenders are legally allowed to charge fees and interest rates ranging from 442 percent – 600 percent on loans of up to $1,500.”
International money transfers can also be expensive. When someone in a developing country moves elsewhere for work, sending money back home, they often do so using wire transfers – but pay high fees to do so. When someone is already making very little, losing a portion in fees can be a big blow. And sending an e-transfer without a bank account isn’t possible.
Something like Bitcoin offers another option. Peers sending peers cryptocurrency, immediately, in a transparent, traceable way, with little to no fees. It can’t be laundered, filtered, or intercepted. People can even secure loans via smart contracts in the crypto space, or have a savings account with “stablecoins,” pegged to the U.S. dollar and therefore their value remains stable. Interest rates paid to holders run about 12 percent, compared to the less than one percent that banks often offer.
By loaning, lending or donating digital currency to individuals (or organizations) who need it, “I now have the ability to directly benefit the end user,” says Runyon. “From a biblical standpoint, that’s an idea that a lot of believers can get behind.”
There is, however, an “innovation gap,” between the possibilities of the technology and regular people (particularly people on the margins) being able to actually figure out how to use it. “The interface is currently private keys and hardware wallets and all these confusing things,” says Greenfield. “Just like how everybody doesn’t know about databases to use Facebook, or how the engine works when they get on a plane, churches and NGOs shouldn’t have to worry about these things.”
Many start-ups are working on closing the gap, making it more accessible to everyone.
Some words of caution
As with any emerging technology, there are drawbacks. Here’s a short list: While the potential for hacking and fraud isn’t quite as high as it once was, the risk still exists; Bitcoin’s value is highly volatile, making it tricky to use for everyday purchases; energy use is extremely high (coins are “mined” by people using high-powered computers, often on huge data farms in China. For people concerned about energy conservation, the “proof-of-work” model currently used in mining, is cause for reflection); “gas fees” for ethereum (ie., fees paid when making digital transactions) are extremely high, making it prohibitive for many. Many coins are unstable, making the potential for loss relatively high; and, lastly, securing your funds is 100 percent your responsibility, and requires knowing how the complicated system works, owning and storing data on a hardware “wallet,” and creating, remembering and safe-keeping a password (or “key”). If you forget your key, you’re out of luck. There’s no “reset password” button in the crypto space. If you lose your key, you lose your crypto.
Despite weaknesses, the potential benefits are exciting.
“Leadership of these organizations should dip their toes in, read a few articles, get familiar,” says Greenfield. “I do think there’s a great advantage toward organizations doing that. Even if it’s just accepting donations in cryptocurrency. That might open up opportunities that give your organization an innovation edge that make people want to donate.”
“It’s appropriate to be cautious,” says Runyon, “but it’s also important to educate one’s self on the possibilities. The faster we get up to speed with the language of cryptocurrency and blockchain, the faster we can start to apply some of these things and understand how this can be used to advance the kingdom mission.”
We know the desire for social purpose is a powerful driver of change. “Disruptive technologies” like Bitcoin might be the new way to get there.
The world of cryptocurrency can be daunting, with its own language and insider lingo. This should help you understand the basics.
Blockchain: A collection or record (“chain”) of transactions (“blocks”). It’s totally transparent, as all users/owners can see each transaction. Once a transaction is made, it can’t be undone or changed. Blockchain is best known for handling financial transactions, but it can be used to manage, facilitate and store a limitless amount of activities or information.
Cryptocurrency: “A medium of exchange that is digital, encrypted and decentralized. Unlike the U.S. Dollar or the Euro, there is no central authority that manages and maintains the value of a cryptocurrency. Instead, these tasks are broadly distributed among a cryptocurrency’s users via the internet.” (forbes.com)
Bitcoin: The first-ever implementation of cryptocurrency, created anonymously by Satoshi Nakamoto, and outlined in a 2008 paper entitled, “Bitcoin: A Peer-to-Peer Electronic Cash System.” Technically, it is “a consensus network that enables a new payment system and a completely digital money. It is the first decentralized peer-to-peer payment network that is powered by its users with no central authority or middlemen,” according to bitcoin.org. “Bitcoin is open-source; its design is public, nobody owns or controls Bitcoin and everyone can take part.”
Satoshi: The smallest unit of a Bitcoin (1 Bitcoin = 100 million satoshis). Most individuals buy bitcoin this way (since as of late-February, one bitcoin cost approximately $46,000 USD).
Ethereum: A world computer that never turns off and everyone has access to. According to ethereum.org, “It’s a marketplace of financial services, games and apps (or “dApps” – decentralized apps) that can’t steal your data or censor you.” It’s infinitely programmable, meaning anyone who can code, can build other things onto the ethereal blockchain. Its versatility is its major selling point.
The crypto world likens Bitcoin to digital gold (as in, it holds value, but isn’t super convenient for daily use), while ethereum is like digital oil (a raw material that comes out of the ground, i.e., the blockchain, and can be refined into other things). According to CoinDesk, “It acts as a fuel that allows smart contracts to run.”
Cold storage: An offline way of storing your currency, and protected by a “key” or password. A hardware wallet is an example of cold storage. Storing your crypto in this way is less convenient than its counterpart, “hot storage” but keeps it safe from hackers. Think of putting your valuables into a safety deposit box. That’s cold storage.
Hot storage: A type of storage for your cryptocurrency that is stored online (mobile, desktop or through a service provider). It’s convenient, but much less secure. For that reason, it is advised to only store small amounts on a hot wallet, in case of fraud, hackers or theft.
Custodial vs Non-custodial wallets: A non-custodial wallet means you are the only one with the key or seed phrase to access your currency. Custodial means someone else (likely an investment company) keeps control of the wallet, and therefore, your money. For someone who doesn’t want the worry of managing their own funds and key, the trade-off is worth it. However, the main thrust behind crypto is that the owner is in control of their money; and, in the words of the crypto community: “Not your keys, not your crypto.”
Mining: Unlike a centralized bank or government printing money, individuals are generating new coins from the network. There is a finite number of Bitcoin available, and once they’re all mined, that’s it. Miners receive a portion of the coins for their work.
DeFi: Short for “decentralized finance.” Ethereum, (the DeFi standard), for example, is controlled by a large network of computers, rather than a central bank or government. The main perk of DeFi is providing banking services for the underbanked or unbanked.
Halving: Roughly every four years, the amount of Bitcoin that is created/mined is cut in half. It also effectively cuts inflation rate in half. So, the amount available is 50 percent less, but the demand remains the same (or even increases), driving up the price. This process will end with a total of 21 million coins, probably in the year 2140, according to CoinDesk.