Cryptocurrency and blockchain technology have exploded in popularity in recent years. For many, significant wealth has been accumulated in crypto assets. As the space matures, there is now great potential for nonprofits to tap into crypto donations and diversify their fundraising channels.
Why Nonprofits Should Accept Crypto
There are several compelling reasons why accepting cryptocurrency donations makes sense for nonprofits:
- Reach new donor demographics – The crypto community tends to skew younger and more diverse than typical nonprofit donors. Tapping into this new category opens major revenue opportunities.
- Significant assets ready to be donated – With over $900 billion in crypto circulating globally, there is no shortage of virtual assets ready to be donated to good causes.
- Tax incentives for donors – Donating crypto can have positive tax implications for donors depending on local regulations. This can incentivise higher gift amounts.
As evidenced by industry research, “46% of crypto donors found it difficult to find nonprofits accepting coins”. Clearly there is major untapped potential.
How Crypto Donations Work
Before exploring options for accepting crypto donations, it is important to understand basics of how the process works.
Cryptocurrency Overview
Cryptocurrency refers to digital or virtual assets and currencies that are secured through cryptography (complex maths). As Investopedia defines, cryptocurrency is a “digital or virtual currency secured by cryptography, which makes it nearly impossible to counterfeit or double-spend”.
Most cryptocurrenices use distributed ledger technology known as blockchain to securely record transactions. Transactions occuring in a peer-to-peer network with no central authority.
There are now over 20,000 cryptocurrencies in circulation today. Most popular options include Bitcoin (BTC), Ethereum (ETH), stablecoins such as USDC. The coins have real-world value that fluctuates similar to stocks.
Donation Process
The crypto donation process involves a donor transferring coins from their virtual wallet to a wallet owned by the nonprofit. The nonprofit can then decide to liquidate the coins into cash immediately or hold it as an investment asset.
Though transactions use pseudonyms, donors can still be issued tax receipts by linking wallet addresses to real identities. This preserves privacy while still enabling tax benefits.
Options for Accepting Crypto Donations
Now that we’ve covered the basics, next we will explore different options available for nonprofits to start accepting crytpo donations.
Popular Coins for Donations
While there are many cryptocurrencies to choose from, common options seen in nonprofit crypto donations include:
- Bitcoin (BTC) – The first and largest cryptocurrency with highest liquidity. Also the crypto most likely held by donors.
- Ethereum (ETH) – Second most valued coin aimed more for decentralized apps but popular hold.
- Stablecoins like USD Coin (USDC) or Binance USD (BUSD) – Attached to real world assets reducing volatility.
Options for Accepting Crypto Donations
There are a few options available for nonprofits to accept crypto ranging from turnkey services to more custom solutions:
Use a Third-Party Processor
The easiest way to get started is to use an existing crypto donation processing service. Providers like The Giving Block and Engiven offer plug-and-play services with automatic conversion to cash and issuing of tax receipts. This requires low lift for nonprofits but will involve small transaction processing fees.
Setup Your Own Wallet
For more control or custom use cases, nonprofits can choose to setup their own cryptocurrency wallets. This provides direct access to the donated funds without middlemen. However this requires building additional processes for receipting, liquidation, accounting and security management. More work but can be worth it long term for larger nonprofit donation volumes.
Popular self-managed wallet options include Coinbase, MetaMask, and hardware wallets like Ledger and Trezor.
Managing Crypto Assets and Risks
If choosing to directly hold donated crypto assets for any duration, nonprofits should be aware of risks and management practices including:
- Volatility management – Fluctuating coin prices means funds should be liquidated to cash per an approved policy (e.g. daily, weekly, etc).
- Accounting requirements – Crypto should be recorded as an investment asset on balance sheets. Marked to market value per accounting guidance.
- Evolving regulations – Watch for taxation policy or other regulatory changes locally and manage accordingly.
Conclusion
Accepting cryptocurrency donations has become a best practice for nonprofits to open up new lucrative channels of fundraising. With millennials and Gen Z showing very positive sentiments towards crypto investing and participation, capturing this interest for philanthropy is key. Fortunately with more turnkey solutions now available, getting started to accept crypto donations has never been easier to activate. This will likely be a mainstream donation option all nonprofits will want to offer very soon.
FAQs
What are the tax benefits of donating crypto?
Donating cryptocurrency can provide favorable tax treatment for donors depending on local regulations. In general, gifting crypto is not a taxable event itself so capital gains taxes are avoided. Donors can also claim the full market value of coins donated as a deduction if they itemize.
What charity coins should we accept?
Stick with mainstream, highly liquid coins like Bitcoin, Ethereum and stablecoins to start out. These have clear valuations and are easiest for donors to actually hold in wallets. As your program matures, you can consider adding other altcoins if requested by major donors.
Is crypto risky for nonprofits to hold?
Holding donated crypto that fluctuates in value does carry financial risks, especially around when to liquidate. To manage risk, nonprofits should convert crypto to cash quickly per an approved gift policy. Also account for coins accurately as investment assets.
How liquid are crypto donations?
Leading coins like Bitcoin and Ethereum enjoy high liquidity with billions in daily trading volume. Smaller altcoins may be harder to sell for cash so should be converted quickly through major crypto exchanges if accepted.
How do donors get tax receipts?
Even if transactions are technically anonymous on the blockchain, donors can associate their wallet addresses with an identity to receive acknowledgment letters and tax receipts. Third-party processors can assist with this or nonprofits can internally manage if taking direct custody of crypto donations.