Bitcoin, like other cryptocurrencies, is backed by a decentralized network of computers in which encrypted transactions are recorded on a digital ledger, which is maintained by all the users of this decentralized system—the network verifies the transaction instead of a third-party organization such as a bank or other central clearinghouse. There are now thousands of established cryptocurrencies—as of April 2018, more than two dozen have market values of over $1B USD, including Bitcoin itself (which is now valued at more than $150 billion), Dash, Litecoin, Ripple, Cash and Ethereum.
According to Investopedia, “bitcoin mining is the process by which transactions are verified and added to the public ledger, known as the block chain, and also the means through which new bitcoin are released. Anyone with access to the Internet and suitable hardware can participate in mining. The mining process involves compiling recent transactions into blocks and trying to solve a computationally difficult puzzle. The participant who first solves the puzzle gets to place the next block on the block chain and claim the rewards. The rewards, which incentivize mining, are both the transaction fees associated with the transactions compiled in the block as well as newly released bitcoin.”
So donors who “mine” Bitcoin or other cryptocurrencies for charity are offering their time and their computers’ processing power and ultimately the bitcoins they earn by doing so— which seems an almost effortless way to donate without spending money at all.
Charities using Cryptocurrency
It may be eventually useful for charities to offer online giving methods to their donors, including that they also accept cryptocurrency donations and make such donations as easy as possible.
In 2017, when Toronto’s Covenant House hosted a Christmas cryptocurrency donation event hoping to raise $25,000, the event managed to raise over $70,000. War Child Canada now accepts Bitcoin, and so does the Canadian Red Cross, which has accepted Bitcoin since 2014. Internationally, WikiLeaks and The Water Project have also adopted this tech-savvy way to donate, and last year the U.N. sent food vouchers to over 10,000 Syrian refugees in Jordan through an Ethereum block chain.
And since donors and charities in communities without banks need only a computer or mobile phone to transfer Bitcoin, and are able to instantly view the donation’s use through the block chain, more people may be likely to adopt this method of donation because of this transparency and its tax advantages.
Why should charities offer to accept Cryptocurrencies?
As long as Bitcoin remains in the news, offering to accept Bitcoin transactions gives a charity a great opportunity to indicate to donors that its methods are up-to-date and to promote its cause.
• No transaction fees mean more of a donor’s money goes directly to the cause;
• Money may be be donated to people without bank accounts in communities without banking systems;
• Donors who prefer using Bitcoins might not donate otherwise at all;
• International donors do not have to worry about currency conversions;
• Because all information is readily available in the block chain system cryptocurrencies reduce the need to conduct audits and prepare annual statements;
• Transparency builds trust;
• There are tax benefits;
• The donation is instant; and
• The donation may be anonymous.
The ideas that Bitcoins will increase in value and offers a greater year-end tax return has pushed some to donate through blockchain.
How to set up a Cryptocurrency Donation
A charity may begin processing cryptocurrency donations simply by obtaining a specific matrix barcode or Bitcoin address, that leads the donor to virtual currency platforms such as Coinify or Bitpay, which are free services that handle Bitcoins. When the donation is complete, the organization transfers the Bitcoins to the charity. Toronto-based Grace Token, for instance, operating on the Ethereum block chain, offers to increase exposure of fundraising campaigns and donations with no upfront costs. https://www.gracetoken.org/
How will Cryptocurrency Donations make a Difference?
Charities stay transparent by making their cryptocurrency wallet ID public. Since donors may also see where their donations are being directed by tracking their transaction ID, this builds donor trust.
Downsides to Cryptocurrency
Today Bitcoin and other cryptocurrencies remain high-risk investments with an unknown evolution. Not a lot of people know about, understand, trust or even think of them as “real money.” In essence, in a naturally conservative industry, the adoption of cryptocurrency will be a challenge for many organizations and leaders to wrap their heads around. There are a number of broader interesting social and sector implications that could be shaped by bitcoin – such as the potential effect on perceptions about transparency, mergers, overhead, links to illegal activity, etc.
The introduction and evolution of cryptocurrencies will have a significant impact for charities. Some charities are already adopting bitcoin as a donation platform, with success. For others, the volatility and unknown landscape of cryptocurrencies that lies ahead will make its adoption a challenge. Since online giving has been increasing, it is imperative to stay on-trend and adopt cryptocurrency practices. This presupposes some technical expertise within the charity, however, as a lot can go awry without the right skill sets. As with all commodities whose price is solely determined by volatile market forces, no one knows where Bitcoin will land. As its value fluctuates, donors make quick decisions about how to gain the most from their assets. Charities look to inevitably gain from adopting Bitcoin to their fundraising practices.
Peacock’s Point - Rob Peacock, MA, is a Certified Fund Raising Executive with 30 years of fundraising experience and is CEO of Peacock Philanthropic and a Senior Associate with Charity Careers Canada. Rob is a Past Chair of the Association of Fundraising Professionals in Canada and is a faculty member for the Masters in Philanthropy and Nonprofit Leadership at Carleton University.