Slow, bureaucratic processes often hamper traditional charities’ efficiency in addressing their causes. At the same time, budget mismanagement and manipulation have resulted from a lack of transparency in allocating donor funds.
BeInCrypto spoke with Sandeep Nailwal, co-founder of Polygon Labs and founder of Blockchain for Impact, about how blockchain technology can decentralize philanthropy, enhance speed and transparency, and remove the need for intermediaries.
Fund Mismanagement in Traditional Charity Structures
Several events in recent years have highlighted the shortcomings of traditional charitable giving models. A lack of transparency in the donation process has created an environment where some nonprofit organizations have misused funds and spent budgets inadequately, leading to public scrutiny.
In 2016, for example, a CBS investigation revealed that the Wounded Warrier Project, a charity meant to connect American war veterans with mental health resources, has been mishandling user funds.
Leaders misused tens of millions of dollars from the $300 million in annual donations on extravagant spending. Former employees revealed that donations were spent on lavish dinner parties and stays at expensive hotels.
Only 60% of funds were spent on veteran services. This reality emerged after journalists obtained the charity’s tax forms and sifted through stacks of public records.
The Wounded Warrior Project is one of several organizations subject to allegations of fund misallocation. Other recent examples include the Cancer Fund of America, the Trump Foundation, the American Red Cross, and the Kids Wish Network.
“The challenge in traditional philanthropy is that donors often rely on organizations’ reports rather than having direct visibility into how funds are used.” Nailwal told BeInCrypto.
According to a 2024 charity fraud survey conducted by UK-based firm BDO, 42% of the 139 individual respondents reported instances of fraud. Individuals within the charity committed 50% of the fraudulent activity. At the same time, the most frequently reported type of fraud was the misappropriation of cash or assets.
Misappropriation of cash or assets is a leading cause of charity fraud. Source: BDO UK.
Given these weaknesses, charity organizations and nonprofits have turned to other mechanisms to ensure that donor funds successfully reach their destined causes.
Enhancing Trust and Efficiency Through Blockchain
In addition to his role as Polygon Labs co-founder and executive chairman, Nailwal has launched several initiatives exploring decentralized philanthropy. Nailwal effectively applied blockchain technology to streamline the donation process through projects like Blockchain for Impact, previously known as the Crypto Relief Fund.
“Blockchain has the potential to improve philanthropy in two major ways: increasing trust and enhancing efficiency. Today, when you donate, you typically rely on an institution’s assurances that funds will be used effectively. With blockchain, in theory, every transaction could be recorded, traceable, and immutable—from donation to deployment—eliminating the need for blind trust,” Nailwal said.
Blockchain can make the donation process more efficient by reducing the time between receiving and spending funds. This is particularly important in charities that dedicate themselves to time-sensitive causes.
“Speed is another key factor. In crisis response situations, such as natural disasters or pandemics, delays in fund distribution can have life-threatening consequences. Blockchain has been explored as a way to address this challenge by enabling faster and more transparent fund flows,” Nailwal added.
Administrative hurdles often reduce the efficiency of fund management in traditional charities. In times of crisis, these bureaucratic delays can slow down aid delivery. According to Nailwal, smart contracts can automate several mechanisms that contribute to these delays.
“In theory, smart contracts could enable automatic disbursement of funds based on real-world triggers—such as verified disaster reports or health emergencies—ensuring that aid reaches those in need faster,” he said.
Some major charities have already started to implement these tools.
Traditional Charities Embrace Blockchain
Since 2015, the Bill and Melinda Gates Foundation’s Level One Project has been applying blockchain’s decentralized ledger technology, building on over a decade of exploration into the technology’s potential.
The Bill and Melinda Gates Foundation also launched Mojaloop in 2017 to serve the unbanked. This open-source payment platform fosters interoperability between financial institutions, payment providers, and other businesses, extending financial services worldwide.
In 2022, the UNHCR launched a blockchain-based payment solution for displaced Ukrainians following the Russian invasion.
This system delivers aid money directly to displaced Ukrainians via digital wallets, allowing them to access funds quickly and securely. The pilot program uses USDC stablecoin and enables cash withdrawals at MoneyGram locations. According to UNHCR’s initial press release, this effort aims to improve aid delivery speed, transparency, and accountability.
Despite these promising solutions, Nailwal notes several issues must be addressed before fully decentralized philanthropy can be achieved.
Building a More Resilient Philanthropic System
Nailwal, a native of India, launched the COVID-Crypto Relief Fund in 2021 during the second wave of the pandemic in India.
“During India’s COVID-19 crisis, we funded 160 million syringes for India’s vaccination program through UNICEF, completing in days what typically takes months of international banking procedures,” Nailwal told BeInCrypto.
Leading that initiative also showed Nailwal the barriers to implementing Web3 technology within charitable organizations.
“While we are already implementing some principles of decentralized giving—such as working with partners to deliver aid efficiently—full decentralization remains an aspirational goal. There are regulatory, technical, and operational challenges that need to be addressed before blockchain-driven philanthropy can become mainstream,” he explained.
During the syringe campaign in India, the lengthy setup of legal and financial frameworks for fund disbursement through traditional aid mechanisms became clear to Nailwal. Though blockchain could have streamlined the process, certain traditional steps were unavoidable.
“While blockchain-based solutions were explored, regulatory and compliance requirements meant that a hybrid approach—leveraging traditional banking mechanisms with rapid response partnerships—was necessary,” Nailwal said.
Though blockchain can streamline philanthropic transactions with greater speed and transparency, scaling these solutions compliantly remains a challenge.
As regulations for blockchain technology continue to develop, the most proactive approach to integrating these tools into philanthropic organizations will require a blend of traditional and emerging frameworks.
