In the 80s and early 90s, ‘internet’ was a strange word. A few decades later, it’s horrifying to think what the world would be like without the internet. But all that is history now. The new buzzword these days is ‘cryptocurrency’.
What is cryptocurrency (or crypto, as most people call it)? How does it work? And most importantly, should your nonprofit consider adopting it? In this article, we will take a detailed look at cryptocurrency donations and answer the most important questions.
What is cryptocurrency?
Cryptocurrency refers to any digital or virtual currency that can be used as a legal tender for trading goods and services. The currency is encrypted and decentralized, allowing it to circulate without the need for a central monetary authority. So, there is no interference from governments or banks.
Ever since cryptocurrency came on the scene, it has steadily grown popular. And now even big players like PayPal are hinting at introducing their own cryptocurrencies.
How does cryptocurrency work?
Every unit of a cryptocurrency is created via a process called mining. This is where powerful computers are used to solve complicated mathematical programs that end up generating crypto coins.
Cryptocurrency is powered by the blockchain. This is a type of database that stores data in blocks which are chained together. The result is a chronological sequence of information, making cryptocurrencies secure and impossible to double spend. Also, counterfeiting is extremely difficult.
What are some of the most popular cryptocurrencies?
Hundreds of cryptocurrencies are created and deleted every day. However, some have been around for years. Here are some of the most popular ones:
- Bitcoin: This is the most popular cryptocurrency, holding a 70% share of the crypto market in early 2022 (although this fluctuates). The cryptocurrency was introduced in 2009. And it has grown from just being $1 for a Bitcoin in 2011 to hitting a record high of $68,000 in November 2021. Most nonprofits begin by accepting Bitcoin because it’s popular.
- Ethereum: This is the second most popular cryptocurrency. It was introduced in 2015. Many financial experts have been speculating for a long time that this is the cryptocurrency that will someday overtake Bitcoin.
- Dogecoin: Commonly known as the “fun and friendly internet currency,” Dogecoin was introduced in 2013 as a joke—combining 2013’s greatest phenomena (Doge and Bitcoin). The cryptocurrency proved popular right away. And it’s now ranked as one of the top 10 cryptocurrencies based on market value. Elon Musk is a big supporter.
- Litecoin: This is a spinoff of Bitcoin and was introduced in 2011. One of the biggest advantages of this cryptocurrency is that transactions are processed quicker when compared to Bitcoin.
- Cardano: Although relatively new, Cardono has been dubbed as the “Ethereum killer,” having been created by one of the founding members of Ethereum. Cardano was created to be a better version of Ethereum.
6 frequently asked questions about cryptocurrency in the nonprofit space
As with anything new, cryptocurrencies attract plenty of questions. Here are some of the most important ones asked by nonprofits:
1. What are the benefits of accepting cryptocurrency donations?
As cryptocurrencies become popular, many people are adopting them as vehicles of investment. This has also driven cryptocurrency donations. For example, in 2017, an anonymous donor gave $5 million in Bitcoin to the Open Medicine Foundation. In May 2021, Wharton School received a donation of $5 million, also in Bitcoin. In 2021, Ethereum creator, Vitalik Buterin, donated cryptocurrencies worth $1.5 billion to several nonprofits.
Another benefit of accepting cryptocurrencies means you will have more money in your wallet as the fees are lower than traditional currency—thanks to the elimination of banks and other agents. Also, transactions are processed faster.
In addition, if you would like to get more donations from millennials, accepting cryptocurrency might help as research shows 18% of them own Bitcoin. Another benefit is that donating to a nonprofit is tax-deductible.
2. How can a nonprofit start accepting cryptocurrency donations?
You have a couple of options. The first is to open a personal wallet. This is what you will use to hold your cryptocurrency coins after people donate. It’s the most efficient way of handling your crypto coins. But it might require some management and understanding of how cryptocurrency works. With a wallet, you can buy and sell. And you will have low transaction fees.
Another option is to register with a cryptoprocessor. The most popular options are Coinbase and BitPay. This method is the simplest and quickest for nonprofits that are just getting started. A cryptoprocessor will help you accept cryptocurrency and convert it to your local currency. You will have to pay a small fee for this service though.
3. Are there any Internal Revenue Service (IRS) or government regulations a nonprofit should be aware of before accepting cryptocurrency donations?
Cryptocurrencies are regarded as property and not currency. As such, they are subject to the same laws that are in place for all non-cash charitable gifts made to a nonprofit. For example, if the gift is valued to be more than $500, the IRS requires the donor to include Form 8283 with their tax return. And if the amount is more than $5,000, a qualified appraisal of the gift is needed.
4. How can we spend our cryptocurrency?
Currently, cryptocurrency is being used as an investment vehicle. So, you don’t have many options on what you can spend it on except to convert it into cash or hold it.
5. Are any nonprofits already accepting cryptocurrency?
Yes, the list of nonprofits accepting cryptocurrency keeps on growing. Save the Children was the first to jump on the cryptocurrency bandwagon in 2013.
6. How stable is cryptocurrency?
Unlike other forms of assets, cryptocurrencies are very volatile. They can rapidly change in value based on speculation. $2 million might be worth a few hundred thousand or $3 million by next week. If you’re looking for a safer option, you may want to consider running online charitable gaming-based fundraisers that are low cost, easy to set up and provide a high return on investment (ROI).
As cryptocurrency is still very new in the nonprofit space, you should carefully consider all risks before adding it to your fundraising strategy. Over time, with new advancements in technology, the adoption of crypto is sure to rise. And that will present a new demographic of donors to tap into. The best part is that it’s legal, secure, and could prove to be the currency of the future as some experts have predicted.