Charities Aid Foundation has released a new paper that explores how blockchain technology could impact the regulation of civil society organizations (CSOs).

The latest in the ‘Giving Thought’ paper series, titled “Block and Tackle: Using blockchain technology to create and regulate civil society organizations”, says that blockchain technology is here to stay and likely to play an ever-increasing role in many facets of our lives. The paper lists three main elements of regulation of CSOs:

Registration (getting charitable or approved non-for-profit status): Registering a CSO on the blockchain has the potential to reduce costs, remove the need for third parties to create and maintain registers of organizations, reduce administrative burden of undertaking checks prior to registering an organization as all the necessary information would be linked to an individual’s online ID which would streamline the process of validation, as well as make it easier to update information. In addition, registering organizations on the blockchain could also boost levels of trust as it would remove the reliance on third parties.

Reporting (information required to be provided to justify their continued charitable or not-for-profit status): The paper says that blockchain could have “transformational” effect in this area. Real-time reporting as part of a blockchain-based system of regulation could provide a rich source of information. It says that while in theory, a blockchain-based system would provide a 100% accurate and unvarnished view of the work of CSOs, in practice there will be a huge onus on finding ways to interpret that information which provide donors with the insight they need to make good choices.

Enforcement (steps the regulatory body can take if rules are breached): According to the paper, a blockchain-based system would make it easier to spot issues early. It explains that it would facilitate real-time reporting which would ensure that there is no time lag in receiving information that currently exists, and would also automate an early warning system to flag issues as soon as they emerge.

“Since CSOs would exist as entities on the blockchain, whose status was governed by smart contracts, functions could be built into those smart contracts which ensured that an organization was referred to the regulator if certain triggers were set off”, it said.

In addition, it might be possible to use smart contracts to help prevent organizations contravening rules and regulations. Also, the technology could address the concerns around money laundering and counter-terrorism financing by preventing donations being accepted from questionable sources or grants going out to organizations on proscribed lists.

The paper also describes ‘governance-by-algorithm’, in which laws and regulations could be embedded in the smart contracts governing how charities operate, making it impossible to break them, and making enforcement unnecessary. It also speaks of a consensus-based regulation, in which the smart contracts in the system of governance-by-algorithm could be agreed by consensus among users of the system, with representatives of the judicial system retaining an appropriate arbitration role as expert “oracles”.

The recent paper follows “Giving a Bit(coin): Cryptocurrency and Philanthropy” published in May 2015 and “Giving Unchained: Philanthropy and the Blockchain” published last December.