Cryptocurrencies and other digital assets have seen a sharp increase in both size and use. The total market value of cryptocurrencies as of March 2022 was almost $2 trillion, an increase from $14 billion just five years earlier. Additionally, 40 million adult Americans, or around 16 percent, have made investments in, traded, or utilized cryptocurrencies in 2021, according to Pew Research. The amount of cryptocurrency gifts made to Fidelity Charitable’s donor-advised funds increased from $14 million in 2019 to $28 million in 2020, according to a study from two years ago.
Charitable groups may gain from accepting cryptocurrency donations as the cryptocurrency market expands. This blog article will go through the advantages of taking cryptocurrency donations, the problems with them, and ways to establish them.
Benefits of Accepting Donations in Cryptocurrency
Accepting Bitcoin or any other crypto donations could boost fundraising and lead to bigger gifts. A review of one million nonprofit tax filings from 2010 to 2016 found that organizations that received valued securities (such as real estate and stock) grew by 66%, compared to those that exclusively accepted cash donations, which only grew by 11%. Donors may be more inclined to raise their donations if they are capable of doing so using their valued coins, as several cryptocurrencies, like Bitcoin, have gained in valuation over the previous few years.
Currently, the IRS considers cryptos to be property. By giving valued cryptocurrency rather than cash, contributors might get income tax benefits by circumventing paying capital gains tax. The hypothetical example below shows how giving appreciated digital currency might enhance the size of the donation and the donor’s ability to save money on taxes.
Opening the door to cryptocurrency donations may also open it up to a group of rich and youthful potential contributors. Influencer Marketing Hub’s study from August this year indicates that 67% of owners of cryptocurrencies are Millennials (between the ages 27 and 42 at the moment). Additionally, 71% of those with annual incomes of no less than $1 million possess cryptocurrencies.
Donations in Cryptocurrencies Raise Questions
There may be certain hazards associated with accepting cryptocurrency donations. First, because crypto donations may be made anonymously, it might be challenging to determine who made them. By requesting personal information from contributors prior to a contribution, organizations may allay this worry.
Second, the value of cryptocurrencies might fluctuate greatly. As an outcome, organizations that take cryptocurrency donations must choose whether to pay them out right away or keep them. The norm for the majority of public charities is to sell any donated cryptos as soon as possible while maintaining the autonomy to sell at any moment in the future.
Last but not least, as the industry of cryptocurrencies matures, the rules governing it are changing quickly. President Biden issued an executive order on March 9, 2022, instructing federal organizations to research and explore digital currency regulation. Therefore, businesses that deal with cryptocurrencies need to make sure they stay on top of any regulation that can have an impact on them.
3 Methods for Charities to Accept Digital Currency Donations
Once nonprofit executives and fundraisers get beyond a tiny learning curve, crypto donations have enormous advantages.
There are three basic ways for nonprofit professionals to receive cryptocurrency donations:
1) Make Use of a Crypto-Processor
Finding a platform that can assist you in instantly converting cryptocurrency to your local money is the simplest solution. BitPay and Coinbase are two well-known international platforms for money exchange.
Nevertheless, bear in mind that centralized organizations like these platforms impose transaction fees, lowering the actual worth of any donation. Additionally, should you cash out a cryptocurrency gift, you will not be able to explain the advantages of cryptocurrency to your investors.
2) Set up Your Personal Wallet
The most effective approach to collecting cryptocurrency donations is to create a personal wallet. The keys for accessing your cryptocurrency are stored on a device or service called a crypto wallet.
With a wallet, you can easily buy and sell items as well as manage your donations directly. This approach will reduce transaction and conversion costs while enhancing your financial management of cryptocurrency.
Wallets come in two varieties: hot and cold. A cold wallet has no Internet connectivity, while a hot wallet operates online or has access to a device with an Internet connection. And last, there are three different categories of wallets. Each of them is categorized as either a hot wallet or a cold wallet:
- Software wallets: Include desktop and mobile applications.
- Hardware wallets: The most common sort of wallets are these since they let you store and retrieve your private keys. These gadgets look like USB drives.
- Paper wallets: Early cryptocurrency users created paper wallets by writing or typing their keys on paper. The keys and QR codes were added afterward so that smartphones could scan them.
3) Utilize a Donation Platform
Utilizing a crypto contribution platform is the last method for accepting cryptocurrency donations. For instance, charity organizations The Giving Block and GiveTrack are committed to giving other NGOs a secure and reliable crypto donation method.
These groups will assist you in promoting cryptocurrency donations all across the world while lowering transaction costs and increasing transparency. The Giving Block also offers tools for contributing, fundraising, and managing cryptos, as well as a variety of crypto solutions for NGOs and contributors.
How to Prepare Your Nonprofit for Crypto Donations
Nonprofits in particular should complete a few extra tasks to prepare for the acceptance of cryptocurrency donations.
Make a Policy for Accepting Cryptocurrency Gifts
Setting ground rules for your fundraising efforts by stating what forms of cryptocurrency you will and will not take is a terrific idea. As we all know, there are several ways to collect donations in cryptocurrency. Therefore, it is crucial that you express the best approach for donors to donate to you in straightforward terms.
For information on how to create a concise and practical policy, consult the National Council of Nonprofits review of gift acceptance policies.
Do Not Allow Complete Anonymity
Crypto donations can be made anonymously. An ID allows you to track a gift, but you might never find out who is using it. This can appeal to contributors who prefer to stay anonymous, but it might be dangerous for your nonprofit. Consider the degree of transparency with which your company is comfortable.
For instance, in order to get a tax return for their donations, Save The Children mandates that everyone who donates cryptocurrency furnish at least an email address.
Set Reasonable Standards and Receipts
Donations made in cryptocurrency are treated as property by the IRS, which exempts them from capital gains tax, as well as allows for tax deductions. Due to this categorization, significant contributors now have a fun alternative for giving cryptocurrency. This implies that cryptocurrency donations should receive tax receipts in a manner comparable to in-kind or property donations.
Receipts for taxes can be provided in Canada quite similarly to how they are in the US, just so you know if you reside there. Any taxes on capital gains connected to Canadian contributors’ gift tax receipts, however, must be paid by them. Donors should be made aware of this fact.
They should be aware of another fact. There are some popular picks for charities that might put people donating in danger of going against legal status. Gambling fundraisers for charity are the best example. Even though they are a fantastic method to raise money for a cause you believe in, understanding the dos, don’ts, and legal standing of charity gaming events may be difficult. Whether you are organizing a huge or little event, one that benefits a local cause near and dear to your heart, or a national or worldwide non-profit organization, always make sure the event is legal. Make sure your cause is acceptable as a charity, as well. For instance, if you see any of these betting sites that accept crypto to organize fundraising, you are safe – it will be all legal.
Crypto Contributions Will Not Disappear Anytime Soon
Cryptos are expanding quickly. As an illustration, The Giving Block’s “Crypto Giving Tuesday” campaign grew by 583% from 2020 to 2021! Make sure your efforts, especially those like capital campaigns that may draw significant donors, are prepared to handle cryptocurrency payments.
Cryptocurrency is a movement, and the earlier you begin investing in it, the sooner you will start reaping its rewards.
Over the past few years, cryptocurrencies, a fast-expanding asset class, have helped many individuals become wealthy. By allowing cryptocurrency donations, organizations may increase their fundraising efforts and get accessibility to a growing group of crypto-wealthy people who wish to give with their cherished digital assets. There are major dangers and possibilities, just as with any novel asset class, and being open to them now might pay you later.
After reading this post, maybe you feel a little more at ease with the idea of using cryptocurrency for fundraising. Please have a look at the resources listed throughout the post to get started accepting cryptocurrencies and giving your organization another source of support.