According to CoinMarketCap, the value of the 1,610 cryptocurrencies it tracks is now over $411 billion. Nonprofits looking for a taste of that wealth should, at a minimum, develop the policies and infrastructure to accept crypto donations.
Much of the available wealth measured in crypto today is new. Bitcoin traded below $200 as recently as January 2015 and has a value 44 times higher at $8,854 as I write this. Other cryptocurrencies have had similar increases in value.
It is important to note, however, that Bitcoin and some other cryptocurrencies are well off their peaks. Late last year, Bitcoin traded near $20,000. Still, substantial value is still tied up there. Bitcoin has a market capitalization—value per coin multiplied by the number of coins in existence—of just over $150 billion.
Before we continue, let me offer an important note of caution. This article is not intended to opine on the question of whether buying or holding any cryptocurrency is a good idea. It is clear that crypto is volatile (read risky) and may not be an appropriate investment for individuals or nonprofits.
Ryan Scott, ICO advisor who focuses on social impact applications at ICO Impact, says, “I do believe nonprofits should start accepting Bitcoin and other cryptocurrencies.”
He offers two reasons. First, he notes that simply accepting crypto and converting to USD or “fiat” currency in the parlance of the crypto community, referring to government-issued currency, will give nonprofits an education into the use and function of a technology that promises to become as ubiquitous as the internet.
The second reason: “There are a lot of very crypto-wealthy individuals who have more money than they know what to do with, but one thing is for certain – they aren’t converting it to fiat.”
Amy Wan, founder and CEO of Sagewise, which is creating dispute resolution infrastructure for smart contracts that use blockchain, the technology that underlies cryptocurrencies, agrees. She notes that crypto investors are unlikely to want to sell to donate, preferring instead to contribute the crypto if only to avoid transaction fees.
Lisa Fabiny, the Director of Operations for SENS Research Foundation, says the nonprofit started accepting crypto in late 2015, at the request of donors. Generally, the organization sells the crypto as soon as it comes in, converting it to fiat. She notes, “Unfortunately, until our vendors and grantees accept crypto as a form of payment, conversion to fiat money will be inevitable for us.”
She says these crypto donations would not have come in otherwise. “I don’t believe that the majority of our donors could have been convinced to donate to us in USD, or other fiat currencies. I say this having requested that of a few donors. Large sums of cryptocurrency are notoriously hard to convert into USD, and we had our fair share of struggle to find a way to do so in a timely and responsible fashion.”
The crypto community—while not homogenous—includes a number of people with a strong libertarian bias that resents or fears unnecessary government intrusion in markets or in personal affairs. Cryptocurrencies allow for somewhat more anonymity. This has an interesting impact on nonprofit.
Fabiny says some donors refuse to give their legal names. “We request some contact information from our crypto donors when they make a donation but, by and large, we receive bogus information. It’s their right to do so, but we are obligated by the IRS to make a good faith attempt to learn the identities of our donors, and so we do, regardless of our success rate.”
Brent Andrewson, an attorney with Kirton McConkie who specializes in nonprofit law, confirms that there is no liability associated with accepting an anonymous donation. There are no “know your customer” rules that apply to nonprofits with respect to their donors. [Disclosure: Kirton McConkie is a former client.] Failing to provide valid identifying information to a nonprofit will, however, put the donor at risk of losing the tax deduction.
Furthermore, when nonprofits make grants they face strict rules. “Under Office of Foreign Asset Control (OFAC) regulations and certain Executive Orders, stiff sanctions can be imposed on a charity that even inadvertently supports a sanctioned organization. Therefore, it is imperative that the charity conduct due diligence and run a risk assessment before making further grants of funds that come in under questionable circumstance.
In order to accept crypto donations, Wan suggests using a service like bitpay, which allows customers to accept Bitcoin and Bitcoin Cash and convert them to dollars.
Scott suggests using an app like Robinhood that advertises that it will allow round-the-clock trading of cryptocurrencies commission free. Once set up, he suggests making potential donors aware by putting up a notice on your website.
Scott’s company Causecast is developing a simple web widget that will allow for crypto donations that will automatically be converted into fiat.
However you choose to do it, remember this. The party has already started. The Pineapple Fund, itself funded anonymously by crypto donors, has donated $55 million of Bitcoin to charities.