The growing interest in Bitcoin and other digital currencies has focused on getting than giving. But behind the scenes is a promising trend leveraging cryptocurrency for philanthropy. Like cryptocurrency, the foundation for effective charities is transparency, immutability, and traceability.
Traditional philanthropy differs significantly from crypto philanthropy. The most notable difference is how donors give. The demographics of donors, funding models, and even the reasons for giving are changing with crypto philanthropy.
There is growing evidence that crypto donations will play a lasting role within non-profits, perhaps even reshaping philanthropy.
Giving using crypto has already encouraged waves of young people to consider philanthropy and helped smaller charities compete for donations, but this may only be the first step as digital assets become more embedded in our lives.
How Did Crypto Donations Start, and How is it Going?
Towards the end of 2017, an anonymous post on Reddit read, “I’m donating the majority of my bitcoins to charitable causes.”. There has never been any revelation of the donor’s identity – they are only known as Pineapple Fund. The Pineapple Fund donated 5,104 bitcoins worth over $55 million to 60 charitable organizations (2017).
In 2017, non-profits encountered cryptocurrency for the first time, but the necessity of understanding how to move digital money in philanthropy has since increased.
Five years after introducing cryptocurrency donations, non-profit organizations are still struggling with the idea– the concept is still unfamiliar and challenging to comprehend. Cryptocurrencies can be volatile, the technology behind them can be confusing, and they are constantly evolving.
Despite these challenges, more non-profits are beginning to explore cryptocurrency philanthropy and its potential benefits.
A new group of donors who made money quickly in the crypto market has emerged in the sector in a big way. Contributions to donor-advised funds (DAFs) at Fidelity Charitable Trust (2021) increased from $13 million in 2019 to $28 million in 2020.
The average contribution size also increased, from $33,000 to $47,500. The Giving Block reports that the value of cryptocurrency donations is now over $300 million annually and is only expected to increase.
The Progress of Crypto Donations
Charitable organizations can now have global donors thanks to the ease of transferring cryptos. And there are now many international charity organizations that accept cryptocurrency donations. To deal with cryptocurrencies, UNICEF launched a new financial vehicle, CryptoFund. As a result, many organizations, including the Red Cross and Greenpeace, now accept cryptocurrency.
Government restrictions make it difficult for non-profits to get funding, which crypto donations alleviate. For instance, the U.S. blacklisted WikiLeaks, a non-profit organization that published news leaks in 2010. On the other hand, a block on its funding came from Visa (V), Mastercard (M.A.), and PayPal (PYPL).
Today, WikiLeaks receives millions of dollars in crypto donations. While cryptocurrency philanthropy has reached unprecedented levels of growth, it remains a niche form of giving and differs from traditional methods to a great extent.
Compared to traditional philanthropists, the pool of cryptocurrency users tends to be much younger. More than 60% of cryptocurrency users are under 40 years old. According to the U.S. Census Bureau, crypto users are 38 years old, while the average age of donors is 64 years old.
Young, tech-savvy adults donate most cryptocurrency to causes that receive more attention online. Some donors may bond emotionally to particular events after reading heartfelt stories. Narratives shared on Twitter about the Russia-Ukraine war, for example, led to about $100 million in cryptocurrency donations for Ukraine.
In the same vein, social media served as a global COVID-19 helpline with global reach when India got hit by the 2nd wave of the pandemic, which also led to crypto donations. As part of the relief effort, Ethereum co-founder Vitalik Buterin contributed around $1 billion to India’s COVID-19 relief program in Shiba Inu (SHIB) tokens when they were soaring in value.
The Tor Project, a non-profit dedicated to internet freedom and privacy, received 58% of its donations in cryptocurrencies in 2021. The organization said it received donations from over 100 countries, with the US, Germany, and France topping the list.
Cryptocurrency: Why Philanthropy is Giving it Attention
In a blockchain-based digital payment network, cryptocurrency is the unit of account. Any central bank or government doesn’t regulate the crypto market, and the cryptocurrency market isn’t intrinsically valuable beyond what people collectively agree upon.
Cryptocurrency acts as a borderless currency, making international transactions cheaper and more manageable since international financial regulations and exchange rates are not involved. More than 7,000 cryptocurrencies exist, including Bitcoin, Ethereum, and Dogecoin, whose price and popularity soared in early 2021.
Philanthropic organizations face new challenges and opportunities due to the advent of this digital, online market. The following are two particular benefits of cryptocurrency gifts:
- Taxes
Cryptocurrencies are like any appreciated asset, including securities and real estate, regarding U.S. taxation. When donated to charity, these assets don’t attract capital gains taxes, resulting in more significant gifts to non-profits.
Converting crypto to fiat, however, can trigger capital gains taxes. When an investor donates an appreciated long-term asset directly, the investor can debit the fair market value of the crypto during the time of the donation.
- Cost and Speed
Blockchain technology offers greater efficiency and transparency. Completing international transactions can take just minutes and cost a few dollars. Crypto donations have lower transaction costs than credit cards or debit cards, which were the most popular giving methods for 63% of donors worldwide, according to the 2020 “Global Trends in Giving Report.”
The processing wage on credit card transactions – a deduction made directly from the charity amount – ranges from 2.2% to 7.5%, according to Charity Navigator. An ordinary wire transfer of $2,000 from the U.S. to India may cost between $30 and $50 more in transaction fees. When transferring the same amount through the Ethereum blockchain, gas fees can range from $10 to $15.
Additionally, transacting in crypto only takes a few seconds or minutes, whereas transacting in fiat currency requires hours or even days
- Anonymity
It is easier for non-profits to target existing donors than find new ones. Therefore, donors increasingly prefer to remain anonymous as the pressure to donate rises.
Additionally, large donations may need the completion of a know-your-customer (KYC) and several personal identification requirements. While donating millions of dollars, donors can maintain their anonymity by using cryptographic donations.
- Private Funding
Cryptocurrency donations are increasing in areas where traditional giving is impossible, or federal policy is still catching up. For instance, to support its clinical research into the effects of cannabis, the University of New Mexico Medical Cannabis Research Fund, for example, heavily relies on donations.
Cannabis research is primarily excluded from federal funding, and banks are prohibited from facilitating cannabis-related transactions under federal law. 420coin, for example, uses bitcoin’s market independence to circumvent these restrictions to fund research at the University of New Mexico.
What Non-profit Organisations Should do With Crypto Donations
In this space, non-profits must decide whether to sell cryptocurrencies immediately, hold them indefinitely, or diversify their donations. There is value in each strategy.
UNICEF launched the CryptoFund in October 2019, letting it receive, hold, and disburse cryptocurrency while learning more about digital assets. CryptoFund’s first year saw twelve investments in eight countries. UNICEF realized that by keeping crypto in its native form, it could track where funds go and how they get spent.
Non-profits who need to convert crypto donations into cash immediately to pay for operational expenses have third-party intermediaries step in to help them. The Endaoment is an example of a crypto public charity that sponsors DAFs and accepts over 150 different cryptocurrencies.
Robbie Heeger started Endaoment to make giving cryptocurrency easy without first selling it and make it possible for non-profits in the United States to accept it as cash. Heeger built Endaoment on the Ethereum blockchain.
When a donor sends cryptocurrency to an organization’s unique address, the funds are held in a smart contract. When the non-profit is ready, they can convert the cryptocurrency into cash with one click.
The Risks of Crypto Philanthropy
Challenges persist as philanthropy learns how to use cryptocurrency for the public good. Despite being transparent, crypto donations recorded on blockchain can be anonymous, limiting organizations’ ability to cultivate relationships with supporters.
The recipients of crypto-contributions can also be exposed to significant risks if the source of the donations is questionable – reputational damage is possible if the donations are tainted or financial ruin if non-profits receive laundered money.
Volatility and the unregulated nature of the asset present additional challenges- a crash in the cryptocurrency market could have severe consequences for non-profit crypto holders. Federal regulations and tax laws related to the crypto market currently lag behind other assets, and they are still in the process of catching up.
Conclusion
Cryptocurrency philanthropy has the potential to upend how we think about giving. Cryptocurrencies’ borderless, digital nature presents new opportunities for donors and organizations alike. For donors, crypto philanthropy offers a way to support causes they care about without going through traditional channels. For organizations, crypto donations provide a way to receive funding from a global pool of donors.