Definitions
Blockchain technology
Blockchain is a public distributed ledger which is managed by a peer-to-peer network of computers referred to as ‘nodes’. Its technology allows for decentralisation, and is owned by no one, with a copy of the public ledger being stored on many personal computers around the world.
Once a data record is made, it is very difficult to change as it requires agreement from everyone on the network, and stays in the ledger forever. The immutable ledger makes the data trustworthy without relying on a third party.
The ledger is secured with advanced cryptography and as well as being incorruptible and enforcing transparency, it is censorship resistant.
Blockchain is not bitcoin. Blockchain is the technology that enables cryptocurrencies like bitcoin, a virtual currency that was the first successful blockchain product.
Cryptocurrencies
Cryptocurrency is an intangible asset, in the sense that it can be traded for goods and services. The biggest difference is that these tokens are completely digital and their transactions are logged in a blockchain.
Decentralization
Many, but not all, cryptocurrencies are decentralized, as there is no central controlling authority; This lack of central control is a key selling point for many cryptocurrency advocates. Their value is calculated by the number of people using it and the price people are prepared to invest in it. In many but not all cases the more useful a cryptocurrency is at solving real-world problems, the more valuable it is to end-users.
Web3
The internet is built on trust. When we send an email, we trust that it will reach its recipient. When we buy something online, we trust that we will receive the product we purchased. When we use social media, we trust that the content we post won’t be altered. Another way of thinking about trust: how do we ensure the validity of the data that underpins our lives online? Today, we primarily rely on large companies to do this.
Today’s centralized internet is often called Web2.
Web3 potentially represents a fundamental change in this dynamic, especially as regards the question of control. The number “3” implies a specific historical view of how the web evolved, from an initial “open” state in the 1990s and early 2000s (web1) towards ever greater corporate centralization and power, leading to the dominance of a handful of Big Tech corporations today (web2). It posits web3 as the next step in this evolution, towards a more decentralized future, in which our online experience is not shaped (or not only shaped) by these companies.
Web3 proposes a new approach to this question of trust. It is built around the idea of decentralization and is built on distributed ledgers. A distributed ledger does not rely on a single actor to validate the data. Instead, it creates a system in which anyone using the ledger can validate the data
FIAT Currencies
FIAT Currencies are a type of currency that is not backed by any commodity (such as gold or silver), but is declared by governments as legal tender. Fiat currencies are issued and controlled by central government authorities, and their value derives from the laws and regulations governing them and the balance of supply and demand (rather than from the inherent value of some commodity that forms the basis of the currency, as would be the case for something like gold coins). The currencies that Amnesty has so far used to fundraise and transact in are all FIAT currencies.
NFTs (Non Fungible Token)
NFTs can certify the digital ownership of real world objects such as art, music, gaming components, however they can also function to represent individuals’ identities, property rights and more.
The biggest difference between bitcoin and other cryptocurrencies on the one hand and NFTs on the other hand is that NFT can have a different value/size, whereas cryptocurrencies are specific units and can be swapped (fungible).
The value depends on the specific marketplace created for this type of transaction. Therefore, NFTs are ideal for large charities, or high-profile donors who are already involved in non-fungible tokens.
Wallet
A cryptocurrency wallet is a device, physical medium, program or a service which stores the public and/or private keys for cryptocurrency transactions. In addition to this basic function of storing the keys, a cryptocurrency wallet more often also offers the functionality of encrypting and/or signing information.
So, the term ‘wallet’ is a bit of a misnomer as crypto wallets do not store cryptocurrency in the same way as a physical wallet holds cash.
Anyone can create a wallet and this will include:
A public key: the equivalent of bank account details. This has to be accessible to everyone.
A private key: to prove ownership of the wallet. This has to be kept to yourself unless you want other people to use your money.
A blockchain has a list of all active wallets (wallets which had transactions) but it doesn’t include wallets that have not had any transaction. So if a wallet is newly created, it doesn’t exist for the outside world. Picture this as an empty vs edited excel sheet containing a list of unique transactions.
The benefits for Fundraising
– Transparency and cost-efficiency: because it runs on a publicly owned ledger, the flow of this currency is transparent and is not subject to transaction fees normally charged by banks.
– Cryptocurrency is becoming more secure with time as tech experts move into this space and develop secure storage systems, dispute resolution and regulation.
– Engaging different audiences from traditional Fundraising channels and methods.
– Diversifying our ways of receiving donations could also act as a way to attract more supporters and members and from different demographics or locations.
– Cryptocurrency is appealing to donors as in many cases it’s a tax efficient way to donate. If appreciated cryptocurrency is donated directly to Amnesty International’s crypto platform rather than selling the cryptocurrency, paying capital gains tax and donating the remainder.
Please note that Amnesty International will always use one of its preferred crypto platforms – we currently work with The Giving Block at the International Secretariat and most of the country entities receiving crypto – to receive funds through cryptocurrency so Amnesty International IS will not receive cryptocurrency directly. This means Amnesty International IS can treat cryptocurrency as a cash grant as the platform converts the cryptocurrency into FIAT immediately and Amnesty International receives the FIAT currency.
Partners
Amnesty International entities sometimes work with third party organizations and consultants to support us with a variety of elements linked to blockchain fundraising activities.
We work with agencies, financial institutions, fundraising platform providers and expert organizations to:
– Rely on external expertise in web3 technologies.
– Set up wallets and payment systems in compliance with governing regulations.
– Host crypto donation pages where technical support is needed.
– Plan and launch NFT initiatives, particularly around promotion and NFT sale hosting. This activity is currently not happening at Amnesty IS.
– Add an extra layer of screening for ‘ethical’ donations and donation sources.
The decision to work with third party organizations or consultants is taken at section-level and is based on a variety of factors:
– Level of support needed by the fundraising teams.
– Popularity and market access provided by the organisation (for example when choosing Fundraising platforms such as The Giving Block).
– Safety and compliance with Amnesty internal policies, ethical best practices and governing legislation.
Due Diligence and data storage
With the currencies mentioned, the complete history of a digital asset, i.e. via which wallets it has been booked since its creation, is traceable. In contrast, the wallets are in principle pseudonymous, i.e. the physical owner of a wallet is not necessarily known.
Please note that, while the owners of wallets and cryptocurrencies are often anonymous, someone buying crypto currency with solutions such as Paypal or through a bank transfer, this is not anonymous to such solutions providers.
Pseudonymity is different from anonymity. In most cases there is a link between someone’s wallet and their bank account that can be traced by law enforcement authorities of intelligence agencies. Potential crypto donors should be aware of this, so they can make the right risk assessment for their personal situation.
Gemini, the technology behind our wallet, has multiple blockchain screening solutions that it uses to screen all transactions that cross their platform, just like any global bank, except they can do this in real time as transactions occur. These crypto transactions are occurring on public blockchains which are also viewable in real time to every global law enforcement, intelligence, and government agency. It is one of the most secure ways to transact and one of the riskiest to use if you are a ‘bad actor’.
For sums over $10,000, the knowledge of the donor is a prerequisite for the acceptance of the donation according to Amnesty’s due diligence requirements. Donations above this amount will therefore not be anonymous and our due diligence process will ask them to share their personal details with us.
In addition to these screening mechanisms, some of the countries where we work require additional donor’s details to comply with local requirements and laws (for example: anti-money laundering (AML), know-your-customer (KYC) regulations etc..)
Where shared in the donation form, your personal details will be stored in our database systems, in compliance with Amnesty’s PRIVACY POLICY.
Tax deductions
Countries currently taxing crypto donations, will generally do so at the point of conversion into FIAT. Please see local laws with regards to tax relief and rates.
It is fundamental for Amnesty that all donations are compliant with countries’ tax regulations.
Environmental impact
Cryptocurrencies are believed to consume high levels of energy. However it’s important to know that:
1. Miners are incentivised in shifting to cheaper forms of energy, which in most cases are clean and renewable (and not fossil fuel).
2. Our cryptocurrency donation partner The Giving Block aims to become the leader in environmentally friendly crypto donations by purchasing 2x carbon offsets on the donations going through their platform, each year.
3. The back end exchange Gemini also runs a carbon offset programme for all transactions running through the platform.
4. We are witnessing a rapid shift to less energy-intensive processes such as the move from Proof-of-Work to Proof-of-Stake in the case of Ethereum, which is 99% more energy efficient.
Learn more by visiting our Crypto and the Environment page.
Value fluctuations
Cryptocurrencies are not linked to any FIAT currency and their values depend on trading. This is why many of them are exposed to value fluctuations. At Amnesty International we treat this currency as a separate financial product and our forecasting and planning does not commit any FIAT spend based on cryptocurrencies.
Amnesty national and international entities treat received donations in crypto differently, depending on their Financial strategy:
1. Convert immediately into USD or stable-coins* (linked to USD fluctuations) at time of donation
2. Dollar cost averaging – this is a strategy to mitigate the impact of a volatile market with respect to price. It involves breaking the donation into smaller parts and converting it across a longer and pre-defined time period. Eg a donation of 1 bitcoin is received, instead of converting it immediately to fiat, you break it up into 10 smaller bits and convert 1 piece each week. During this time price will go up and down
3. Keep the donations in crypto wallets and innovate from donation to programme stage. We are currently developing a range of programmes and funds to support human rights defenders and other supporters
4. A mix of the two where a percentage of donations is kept in crypto to support crypto-programmes and the rest is converted into local FIAT currency
*Stablecoins – are cryptocurrencies the value of which is tied to that of a fiat currency or commodity such as gold, in theory this gives them more price stability than volatile cryptocurrencies and hence are considered more useful as a medium of exchange. Price stability is pursued through maintaining a reserve asset as collateral (so the stable coin issuer has 100 million dollars in reserve, hence they can create and circulate 100 million dollars of Stablecoin) The other method is through algorithmic formulas that are supposed to control supply, however using this type of stablecoin is not recommend as they are not backed by a real world assets and have been known to collapse. For further reading google “UST or Terra Luna Collapse”
Transparency
Because of the decentralized nature of Bitcoin’s blockchain, all transactions can be transparently viewed by either having a personal node or using blockchain explorers that allow anyone to see transactions occurring live. Each node has its own copy of the chain that gets updated as fresh blocks are confirmed and added. This means that if you wanted to, you could track Bitcoin wherever it goes.
For example, exchanges have been hacked in the past, where those who kept Bitcoin on the exchange lost everything. While the hacker may be entirely anonymous, the Bitcoins that they extracted are easily traceable. If the Bitcoins stolen in some of these hacks were to be moved or spent somewhere, it would be known.
Of course, the records stored in the Bitcoin blockchain (as well as most others) are encrypted. This means that only the owner of a record can decrypt it to reveal their identity (using a public–private key pair). As a result, users of blockchains can remain anonymous while preserving transparency.
Other challenges and concerns
Cryptocurrencies are believed to often be subject to high fluctuation. This is one of the reasons why, at this stage, we don’t ‘keep’ any cryptocurrencies in our accounts. Instead we only receive the donations converted into FIAT from The Giving Block at the time of donation (The GB converts crypto donations into FIAT currency immediately and transfers the amounts on a weekly basis). We might be looking into holding cryptocurrencies in their original form once priority challenges, including extreme volatility, are addressed.
For any significant account changes, such as altering the bank account where donations are sent, change-makers require 2-party authorization (Amnesty and GB), so that no one person can make any unilateral decisions or be a single point of failure.