As big business, finance and tech industries continue to absorb themselves in the whole Blockchain technology debate, it has become increasingly apparent that even charitable organisations can significantly benefit from this new and somewhat confusing breakthrough.

Blockchain technology is essentially a ledger of information that can be used to carry out transactions. Data and assets are recorded on the Blockchain itself, and are not recorded by one single user. The information stored on the Distributed Ledger Technology (DLT) such as Blockchain is not stored on one person's computer, but uses a system of 'nodes'. These nodes contain all the information stored on the Blockchain, meaning that if one person's computer goes down, the information does not go down with it. The term 'distributed' comes into play because the nodes replicate themselves, replicating all the information contained to make it more sturdy and secure.

People often give money to charity in the belief that the money will be used for charitable purposes. In the international arena, charitable entities are often accused of the mismanagement of funds, and sometimes the funds that reach developing countries end up in the wrong hands.

In countries such as the USA, people who are against giving financial aid to developing countries often complain that such donations end up in the bank accounts of corrupt politicians instead of being used for the building of schools and hospitals. These are legitimate concerns, and journalists uncovering high-profile abuse by international charities prompt countries or individuals to think twice about donating, while vulnerable people continue to suffer.

One idea being floated around within Blockchain debates is to introduce a platform for charitable organisations. This would work by asking people wishing to donate to convert their money into 'tokens' and then transfer those tokens onto the charitable Blockchain platform. Once the necessary criteria have been met, the money is transferred to - for example - an organisation building wells in Africa. The tokens are tracked every step of the way and when the information has been provided - say that X tokens are to be paid to a particular well-digger in Africa, and when that same well-digger confirms that he or she has been engaged to carry out the work, payment is effected. If a greedy politician tried to intervene and snatch those 'tokens', his e-ID would not match the criteria, and no payment would be made.

This essentially works through the use of a 'smart contract', ensuring higher accountability and transparency.

What is a smart contract?

If you want to ship cargo from one place to another, how do you know that it has reached its destination? How do you even know if it has been loaded? Rather than getting a bill of lading - the document confirming that something has been loaded on a ship - you will have someone to confirm that the cargo has been loaded on to the Blockchain platform. A person will go into the system and input that the cargo has been loaded, on their responsibility. How do you know the ship has started its journey? Because someone from the crew will input this into the system, so you - as the recipient of the cargo - will see everything that happens at every step of the way.

You do not pay before the cargo arrives. In the current system, people will usually pay when the order is made. If the shipment does not reach its destination, you have to chase someone for your money. Using the smart contract system reverses this process. From the moment the order was placed, you can see the logistics of the asset moving through every step. You can even calculate when it will arrive because you are seeing it on the system. When a member of the ship's crew confirms that it has arrived, the money is paid out - being debited from the buyer's account.

Looking at it from the buyer's point of view, when an order is placed, it isn't paid for because the buyer is waiting for it to arrive, but money is placed in a dedicated account. So the seller knows that, once the goods have arrived, he or she will definitely be paid. This is what is called a 'smart contract'. In other words, a contract is made around the sale and purchase of an asset, and when that transaction has been completed, payment is affected. A contract is made which instructs the release of the money upon delivery. The ship will say it has been delivered at a verification point, possibly the Port's Department, and verification is followed in the smart contract as agreed, the blockchain smart contract will then release the money, and both parties are protected.

This information was assisted by senior partner at Ganado Advocates, Max Ganado. See the full interview in tomorrows' edition of The Malta Independent.