The trust crisis of public welfare and charity organizations has repeatedly led to serious consequences and a vicious circle. In this paper, we discuss how to use the consensus mechanism and token mechanism of blockchain to solve this problem. In this scheme, restrictive relationship is introduced to protect the interests of all parties involved (including institutions and the public), token mechanism is used to isolate asset management and operation management, and multi signature and token exchange are used to ensure the safe and effective use of donations.
Current situation of charity market in China
In recent years, China’s charity organizations have developed rapidly. According to the data in the charity blue book released in 2019, by the end of 2018, the total number of social organizations in China was 816000, an increase of 7.1% over 2017, and the total value of social welfare reached 326.52 billion yuan. However, due to the difficulties of high entry threshold and low management efficiency in China’s charity units. Some charitable organizations have problems such as lax management and improper operation of funds. Especially in recent years, especially in recent days, the negative information of charitable organizations is constantly emerging, which makes the public widely question charitable organizations. And lead to the charity organization into an unprecedented crisis of trust.
In 2016, the actual amount of social donation was 145.8 billion yuan, and in 2017, the total amount of social donation was 152.6 billion yuan. The total amount of social donations in 2018 is estimated to be about 112.8 billion yuan, down 26.1% from 2017. Although the amount of social donation has increased significantly, 43.5% of volunteer organizations are still faced with insufficient funds for voluntary services.
With the continuous growth of philanthropy, the existing laws and regulations on charitable organizations in China show a variety of deficiencies. It was not until September 1, 2016 that China officially issued the charity law. Compared with the United Kingdom and the United States, which enacted the charitable trust act and entertainment charity act in 1954 and 1958 and continuously improved the charity act in the 21st century, Japan, which promulgated the specific non-profit activities promotion act in 1998 and implemented the new public welfare legal person system in 2008, has lagged behind for more than ten years.
In the current charity management in China, problems such as inadequate external supervision and imperfect internal governance mechanism can be seen everywhere. Charity organizations show many defects in information disclosure. As the main way for the public to understand the operation and management process of charitable organizations, information disclosure is difficult to meet the regulatory needs and voices of the society, which eventually leads to the loss of public confidence in public charities, leading to the problem that the public “want to donate but fear to be cheated”.
Current situation of charitable organizations
According to the current situation of domestic charitable organizations, the existing non-profit organizations in China can be divided into grass-roots non-profit organizations, non-profit organizations and statutory non-profit organizations. The so-called grass-roots non-profit organizations refer to some non-governmental non-profit organizations that are not formally accepted and recognized. They do not have a certain legal status, and their activities are spontaneous, and they are not registered. Non profit organizations refer to some new or other types of social organizations in the process of transformation, and the more classic ones are network groups and institutions in the process of transformation. Statutory non-profit organizations are social organizations registered by normal means and carrying out various activities according to laws and regulations, including some organizations with legal status that can be exempted from civil registration.
By the end of 2018, the total number of social organizations in China was 816000, an increase of 7.1% over 2017, and the growth rate had declined; among them, there were 7027 foundations, 366000 social groups, and 443000 social service institutions, an increase of 11.4%, 3.1%, and 10.8% over 2017, respectively. According to the statistics of the Foundation Center network, as of December 31, 2018, the total number of foundations in China was 7015, an increase of 631 compared with 6384 in 2017, with an annual growth rate of 9.8%.
Trust crisis is the key and leads to further deterioration
With the rapid development of China’s economy and society, the difficulty of public governance is also increasing. Charitable organizations have unique and important advantages in participating in social governance and extending government functions, and can even play a role in filling the “vacuum” of government functions in a specific period. In China, the administration of charitable organizations once had the problem of double centralized management. The registration management belongs to the Civil Affairs Department, but the business management does not belong to the Civil Affairs Department, but is undertaken by other government functional departments. As a result, the regulatory responsibility can not be clear in practice. At the same time, due to the absence of law, information disclosure does not belong to the legal obligation of government supervision.
The lack of effective supervision of charitable organizations, the lack of legal status of non-governmental charitable organizations, and the opacity of information are the important problems faced by domestic charitable organizations, which together lead to the trust crisis of charitable organizations.
How serious is distrust? We use various data after the “Guo * * incident” in 2011 to explain. According to the core data of 2011 China Charity Donation report. Among the institutions most seriously affected by Guo Meimei, the system received about 2.867 billion yuan of social donations in 2011, about 59% less than that in 2010. In contrast to the sharp drop in donations, the total amount of social donations in 2011 was about 84.5 billion yuan, 18.1% lower than that in 2010. The chain reaction formed by this incident has not ended. Let’s continue to look at 2012. According to the blue book on the development of China’s charitable donations in 2012, the total amount of social donations across the country is about 70 billion yuan, a decrease of about 17% compared with 84.5 billion yuan in 2011. When you look at the data in the public annual audit report of the most affected organization, the numbers tell. The donation income is as follows:
People’s daily news in 2011
2012 China Economic Net News
What’s more dangerous is that the crisis of trust begins to aggravate
Starting from mistrust, a series of logical evolution will lead to a more vicious cycle. Distrust – > ->More distrust. For example: distrust, dealing with more doubts, paying less attention to donations, less effective in solving events, less trust and distrust, less donation amount, less help for difficult areas, slower development of areas, more people in need of help, less influence on overall economic development, less donation amount, more distrust, and many other similar logical evolutions
Charity organizations lack effective supervision
The “Guo * * incident”, “China Africa Greece * project”, “fraudulent donation”, “Song * Ling stone statue”, “4 * Jin girl” and other events have been questioned by the public. It seems that collecting management fees and issuing invoices has become a profit-making behavior. Every year, the high management fee goes into the pocket of the managers. Because of their official background, the external supervision of them is nominal, and the public supervision of them can only stay in the appeal to public opinion, but often this kind of article can not survive for too long. As an external supervisor, the government fails to implement effective supervision, but directly participates in the daily operation of charitable organizations in an administrative way.
We can see from the measures taken by the government after various recent events. This way of “being both an athlete and a referee” increases the difficulty of supervision. Charitable organizations with official background obtain resources and carry out operation activities by virtue of the authority and credibility of the government, but administrative supervision can not effectively manage them. Finally, when the trust crisis occurs, what they lose is the credibility of the government.
Non governmental charitable organizations lack legal status
The most important component of the credibility of charitable organizations is legitimacy. The endorsement of law is the most effective way to gain public trust quickly. Legitimacy means public support in accordance with recognized traditions and norms. Charitable organizations must obtain a certain legal status in order to obtain public recognition, which is the main way to obtain social resources. In this consensus, the non-governmental charitable organizations have a natural demand for legal status. But in fact, the vague relationship between non-governmental charitable organizations and private non enterprise units and foundations, the uncertainty of regulators, and the ambiguity of nature can not win public trust. Statistics show that more than 80% of China’s non-governmental charitable organizations belong to “illegal existence”.
One foundation is a typical example. The private equity fund, which was officially operated in Beijing in 2007, is affiliated with other institutions and can raise money to the public in the name of other institutions. However, due to legal reasons, it once faced the danger of interruption. One foundation, which is affiliated to the red foundation, has no legal personality and official seal, so it has great restrictions on deep cooperation with enterprises and fund mobilization. After the Wenchuan earthquake, one foundation tried to allocate 4 million yuan from the donation for post disaster reconstruction. However, due to a series of complicated approval procedures, the 4 million yuan still could not be used after it was allocated from Beijing to Sichuan, and finally returned to Beijing. In the end, one foundation had to wait for the donation to go through the process, and the team paid in advance in the name of an individual to carry out the early disaster relief work.
On the other hand, the threshold set by the law for the legalization of the identity of non-governmental charity organizations is too high, but some legalized non-governmental charity organizations are cheating under the guise of charity, which further reduces the credibility of charity organizations. After the establishment of Yan Ran angel fund, the primary task is to find a suitable designated hospital and cooperate to complete the rescue of children with cleft lip and palate. However, in the early days of the foundation, Li Yapeng put forward “three conditions” for hospitals. Most of the public hospitals could not accept these requirements. Li Yapeng was in a weak position for public hospitals and had little chance of winning. Under pressure, Li Yapeng can only choose private hospitals as partners. As another example, Han Hong’s foundation has been actively donating money and materials since the Wenchuan earthquake. In 2012, Han Hong’s charity foundation was established, but it was not until 2019 that it obtained the legal public offering qualification.
With the passage of time, private charity has also ushered in a certain degree of favorable policy. The cumbersome process of the foundation was finally relieved after the promulgation of the charity law of the people’s Republic of China in 2016. The adoption of the charity law provides a new channel for non-public fund-raising, and also provides optimal support for charitable organizations. The legalization of non-governmental charitable organizations has been alleviated to a certain extent.
Information is not transparent
In recent years, although the transparency index of charitable organizations in China has increased year by year, most charitable organizations still fail to provide some important and sensitive information, such as the salary of the person in charge and managers, the audited financial statements of charitable projects, etc.
Even if there is such a centralized information publishing platform based on the Internet, it does not mean that it is the best channel for charitable organizations to disclose information. The original text of all kinds of information reports can not be obtained in a timely and convenient manner. Some charity websites still have the situation that the information disclosed is not comprehensive, the timeliness is not strong and the information disclosed can not be verified.
Wu Wenhu, a professor of communication at Jinan University, said, “in an environment where there is a social class gap and monopoly groups rely on privileges to realize their desires, the sense of deprivation of the bottom groups is easily expanded and intensified, and the sensitive people quickly form a collective distrust. Therefore, the more opaque the system and position are, the easier it is to become a powder keg to ignite public resentment. 」
How to gain credibility
So how can charitable organizations regain their credibility? To solve this problem, we must first understand the generation mechanism of credibility. In his paper “trust in production: the institutional basis of economic structure”, a sociology professor at UCLA, who is highly praised by the author, wrote: trust comes from the process of communication, from organizational characteristics, and from the legal system.
He believes that the historical reputation of the two sides will give each other trust. The two sides with similar social characteristics are easy to build trust. The legal system provides protection for people’s behavior and can also produce trust.
First, for the credibility of charitable organizations, charitable organizations with a good history and reputation are easy to gain the trust of the public. The public’s judgment on the reputation of charitable organizations mainly has two bases: 1. First-hand information from charitable organizations. Second hand information from public opinion. Both will affect the public’s trust in charitable organizations.
For example, many charitable organizations invite donors to participate in project inspection, in order to give donors first-hand information. In the history of continuous interaction and interaction between charitable organizations and donors, both sides can quickly accumulate trust through positive feedback. At the same time, media, we media and experts play a key role in second-hand information. Under the accumulation of information obtained by the public through these channels, the judgment of this charity organization will be formed. Charitable organizations that play a positive role in the media can often gain the trust of the public.
If charitable organizations want to win the trust of the public, they must set up laws and regulations for the public to obtain the true, authoritative and reliable information from the inside and outside of charitable organizations. But the way of information transmission determines whether the true information of charitable organizations can reach the public, which determines the degree of public trust in charitable organizations. Because there are omissions and distortions in the process of information transmission, and the more information transmission links, the more information omissions, so the first-hand information and second-hand information have different effects on the credibility of charitable organizations. For the general public, they seldom rely on first-hand information, most rely on second-hand information to judge whether to give trust, and the information that the public refuses to give the basis of trust is mainly second-hand.
Secondly, people determine the credibility of charitable organizations according to some social characteristics. The more similar the values of the public and charitable organizations are, and the more charitable organizations meet the public’s expectations, the more the public will trust charitable organizations.
Trust is associated with expectation. The greater the trust is, the higher the expectation is; the smaller the trust is, the lower the expectation is. People’s long-term expectation of social role will be solidified into the behavior rules of the role. If the role does not meet people’s expectation, it will be considered as dishonesty and punished accordingly. Even if people’s expectations of the role are unreasonable, the role will be punished by people for not meeting their expectations. If the behavior of the trusted person reaches or exceeds the expectation of the truster, the relationship between the two parties will be consolidated or strengthened, and the truster will continue to trust the trusted person in the future. Charitable organizations should understand what the public expects of them. When donors entrust valuable money and goods to charitable organizations, they also give charitable organizations the expectation to make good use of the donated money and goods.
Third, the law provides a strong mandatory guarantee for both parties, and the dishonest will be punished by the law. In this way, when the law carries out its duties, the public will trust charitable organizations more.
The “charity law” issued in 2016 solved the problem of “no law to abide by” in the charity industry. However, due to historical reasons, the problem of “strict law enforcement” expected by the public is still in further implementation. The outbreak of problems accumulated during this period is also the public’s dissatisfaction with the strength of law enforcement. When charitable organizations can not respond to the reasonable expectations of the public, or even deliberately commit crimes, punishing them according to law can not only improve the credibility of charitable organizations, increase the cost of illegal activities, but also improve the credibility of government departments.
Therefore, to obtain credibility, we need to introduce restriction mechanism (laws and regulations, participants, etc.), ensure information disclosure, and meet public expectations.
Discussion on blockchain solution
The essence of blockchain is to deal with each other under the condition of distrust. In the field of public welfare and charity, we can use the blockchain consensus mechanism and technical means to achieve the above-mentioned solution of “introducing restriction mechanism (laws and regulations, participants, etc.), ensuring information disclosure and meeting public expectations”. Simply solving such superficial problems as information transparency and legislation can not solve the problem of trust. This solution is a “headache cure, foot pain cure” approach. If the essential problem is not solved, the outbreak of trust crisis is bound to occur.
Data transparency is not the key to the problem. It can be said that any charitable organization has a corresponding information system, which publicizes all kinds of information, but the trust problem still exists, and it breaks out again in the near future. Obviously, the construction of information technology or information system in 2019 is much better than that in 2011. Has the problem been solved? Laws and regulations are not enough to solve the problem. As mentioned above, there is no charity law for the “Guo Meimei incident” in 2011, but on September 1, 2016, China officially issued the charity law. By 2019, the crisis of trust will break out again. Has the problem been solved?
In order to be effective, blockchain solutions should be as mentioned above: “introduce restriction mechanism (regulations, participants, etc.), ensure information disclosure, and meet public expectations”. What is such a blockchain solution like? Our vision is as follows:
The POS consensus mechanism of blockchain is adopted to make regulators, large amount donors and asset custodians become super nodes, and change the original single jurisdiction of public charity into node consensus voting mechanism. In this way, the main participants will be the common interest group, and the group’s interests are consistent with the public interests. Through the consensus mechanism to ensure that the interests are consistent and can not harm other participants (or to pay a huge cost so that it is not feasible);
Public welfare organization management and fund management are separated, and token exchange mode is adopted to eliminate black box operation and improve operation efficiency. The donee gets the token transferred by the public welfare organization, and the asset custody institution transfers the fund to the bank account of the donee according to the donee’s token holding. Blockchain will ensure that: the transfer of funds is open, transparent, traceable, and can be exchanged in real time;
Multi signature technology is used to ensure the effectiveness of token and corresponding fund management. The transfer of tokens is signed by asset custody institutions, public welfare institutions and large amount donors.
Problems that blockchain can solve
The birth of blockchain technology reduces the cost of reducing trust, because its essence is a distributed ledger, which can perfectly solve the trust crisis in information system. The main problems and solutions are as follows:
Problem: the use of funds is not restricted to solve: POS multi sign through consensus mechanism and multi sign mechanism makes the cost of default very high
Problem: opaque capital flow solution: data link
Problem: inefficient use of funds and materials solution: smart contract digital asset transfer
Blockchain solution architecture
The blockchain adopts POS consensus mechanism and limited participation alliance chain. Large amount donors, public welfare institutions, regulatory authorities and asset custody institutions are all super nodes. Through the token system of the blockchain itself, the operation and management of public welfare institutions are separated from the asset management, and the asset trusteeship institutions issue tokens to the donors. The recipient uses the token exchange mechanism to exchange money with the bank.
Blockchain uses centralization, asymmetric encryption, distributed storage and other mechanisms to ensure that all nodes in the system can automatically and safely exchange data in a trusted environment. Moreover, this mechanism saves time and money, and can automatically match and enforce. Compared with other time-consuming and laborious tools, it has more advantages.
Since the beginning of bitcoin, blockchain technology has been developing, and Ethereum in 2014 In, a variety of new functions of smart contract technology were further developed. The smart contract was digitally written into the blockchain. The characteristics of blockchain technology ensure that the whole process of storage, reading and execution is transparent, traceable and unchangeable, which can solve the trust problems between individuals, between individuals and organizations, and between people and the Internet of things.
Because human beings are changeable and complex species, and human beings always make mistakes, and blockchain technology is an intelligent trust that can not be tampered with. Human beings may violate the rules and make fake, but technology will not deceive the public.
Under the influence of the development of Internet, big data and blockchain technologies, the public will increasingly realize the importance of credit, because once a breach of contract, it means that everyone can know the public’s past Dishonesty Behavior, and it will also directly affect the public’s use of these credit services in the future. To a certain extent, it will promote users to cherish their credit more and more, so as to improve the quality of credit Enhance the trust between people in the whole society.
This paper can only put forward a technical solution, together for charity information disclosure, self supervision and external supervision provides a feasible means, but its implementation is still facing many difficulties. Therefore, while summarizing the causes of the problems and proposing solutions, there are still some problems, such as lack of understanding of laws and regulations, details of the content and lack of understanding of the real operation process of the charity electronic system. With the deepening of the investigation, these remaining problems will be further presented as the discussion content in the future.
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