On March 11, 2021, the buzz around NFTs reached a fever pitch when Beeple’s digital artwork featuring a one-of-a-kind NFT sold for over $69 million in a Christie’s online auction. Basketball fans are using an online marketplace to trade digital highlights in NFT format. Charmin even joined the NFT craze, selling digital artwork inspired by toilet paper to raise money for Direct Relief. While many people are perplexed by the number of people willing to pay tons of money for digital art and memes, an entire industry is profiting from the trend.
Given the amount of money surrounding NFTs and the digital art world, nonprofits, charities and their funders have begun to think about using the new technology for good. Many charities around the world were put in a difficult position due to the lockdowns that followed after COVID-19 hit in 2020. They were forced to dip deep into their treasury to keep operations afloat due to their inability to organize in-person charity events and fundraisers.
However, these organizations eventually had to start improvising. As a result, they turned to the new blockchain technology to raise money. While bank transactions remained an option, NFT technology proved to be faster, borderless and did not require bank approval.
Non-fungible tokens (NFTs) are a fully digital method of proving asset ownership. NFTs are most commonly associated with digital assets, but they can also be used with physical assets. NFTs use the same blockchain technology that was initially developed to run virtual currencies.
NFT fundraising explained: What is a non-fungible token?
The first NFT asset was designed to record and track ownership in the same way that a unique piece of art might come with a certificate of authenticity and history of ownership. The system is relatively secure because it relies on cryptography to validate transactions. NFTs are primarily stored on a public-based blockchain associated with the cryptocurrency, and blockchains can be private or public depending on the use case.
If an artist or collector donates a piece of digital art for sale at a charity auction, they may need to get an appraisal to receive a charitable deduction. The charity will need to keep meticulous records regarding the donation and asset valuation. If a reasonable value can be determined, prospective bidders will be informed of the item’s value. Winning bidders must also be given a receipt stating by how much their payment exceeds the item’s fair market value. Since the market for NFTs is so new and valuations fluctuate wildly, valuing NFT assets will be a very nuanced part of the charity auction process.
People, for example, “dropped” artwork on an NFT marketplace last year, and this artwork was then resold. A $1 piece was resold ten times and increased in value to $7000 between October 30, 2020, and January 9, 2021. Any artist, donor, or charity who assigns a value to donated digital artwork or other NFT-assets needs to seek advice from experts to properly document the value and ensure that everything is properly recorded and filed.
The mode of payment for NFTs
While the effect of NFTs among charities paves a bright path forward, new platforms come with new problems. For example, the winner of Beeple’s Christie’s auction paid in cryptocurrency, which is typical of many NFT marketplaces that use the Ethereum-based cryptocurrency Ether. NBA Top Shot, on the other hand, allows users to register with a credit card.
Donors and charities should think about what payment methods are available and who their target audience will be as they navigate the various platforms to decide with whom they want to partner to host an NFT auction. An NFT platform that requires Ether will probably work fine if the pool of potential bidders is Beeple-crazed crypto-enthusiasts.
If a charity wants to engage its traditional donor base, on the other hand, it may want to find an auction platform that accepts traditional payments. Also, if the auction accepts cryptocurrency bids, the charity must decide whether to keep the cryptocurrency or convert it into fiat currency as soon as it arrives. Many charities developed policies related to holding cryptocurrency in the aftermath of the 2017 cryptocurrency boom, with currencies typically being liquidated immediately upon receipt.
Cryptocurrency should be viewed as a highly volatile asset with significant upsides and downsides. This is why most charities only invest in cryptocurrency in small amounts and only as part of a broader, diversified investment strategy. Additionally, if the charity anticipates a high level of interest and funding from an auction, it must conduct due diligence on the platform with which it intends to work.
As the popularity of NFTs grows, so does the number of outlets claiming to support NFT marketplaces. If a charity wants to partner with a new platform, it should first vet it to ensure that it can perform and host the auction, accept payments, and deliver the proceeds to the charity.
Charities should ensure that their agreement with the platform is crystal clear with a focus on fees, timeliness, and the risk of loss if an asset is lost. They must also collaborate with the platforms to ensure that bidders and donors are fully informed about the auction or donation process.
Navigating fundraising regulations
Some locations have even begun to consider mandatory fundraising platform disclosures, which can guide charities and platforms.
Finally, money transmitters, payment processors, or financial institutions, some platforms operating in the NFT, blockchain, and cryptocurrency spaces may be subject to regulation. If a charity wants to store its assets on a platform that also offers payment processing, it should make sure the platform is appropriately registered or exempt from regulation.
NFTs and blockchain transactions are borderless, and their frictionless nature is one of their most appealing features for charities. A digital marketplace based on the Ether cryptocurrency can accept payments without worrying about currency conversion; there are no shipping costs, and purchases can deliver instantly. In other words, a charity that wants to accept digital payments, sell digital goods, or transfer digital assets using NFTs or cryptocurrency must be aware of the risks of international transfers.
The risks of using charitable NFT assets
As a result of trying to mitigate potential risks, the Office of Foreign Asset Control of the United States Department of the Treasury issued some guidance for charities working internationally. These regulations apply both in the context of specific countries and more broadly. As a result of the decentralized nature of NFTs, charities need to be aware of the dangers of accepting large payments from or sending payments to individuals or organizations that are unknown to them beyond a username or an Ethereum address.
In situations such as this, charities need to consult with their advisors first. It’s important to ensure that they take reasonable precautions to avoid legal and reputational issues if they do business with shady donors or recipients.
It is also essential to know that traditional fundraising compliance considerations apply regardless of whether a nonprofit holds an auction online or in-person to sell digital or physical art. The nonprofit may need to register depending on the state in which it operates. Depending on the nature of the items being sold and the location of the buyers, there may be sales tax implications. Charities should consult their legal counsel to ensure that all online fundraising compliance legal aspects have been considered.
How the world is using NFTs for charity in 2021
Even though it is still a relatively new concept, many charities have already started accepting alternate forms of donation through cryptocurrencies. In fact, The Giving Block – a popular crypto fundraising platform – has reported a 10x increase in the number of non-profits that are accepting crypto donations. This crypto charity trend has also encouraged NFT developers to jump in to provide that extra push.
Organizations like The American Red Cross, Save, UNICEF, and The Water Project were among the first to use cryptocurrency as an alternative source of fundraising. For the past seven years, the American Red Cross, for example, has accepted Bitcoin. Bitpay announced in 2014 that it would accept Bitcoin (BTC) donations through its platform. The world-famous Save the Children charity is one of the organizations that accept cryptocurrency donations. Bitcoin, Ethereum, and Dogecoin are among the 17 crypto options available in the Water Project charity’s fundraiser. Similarly, in 2019, UNICEF launched its CryptoFund, which allows donors to donate cryptocurrencies.
NFTs are the new trendy charity platforms, have found numerous applications in cryptocurrency fundraisers. Unlike cryptocurrencies, however, they provide far more than just donations. NFTs have emerged as viable fundraising alternatives. They enable charities, celebrities, and individuals to create digital tokens and auction them, with all proceeds going to the charity of their choice. Such sales are made possible by websites like OpenSea.
Depending on the nature of the items being sold and the location of the buyers, there may be sales tax implications. Charities should consult their legal counsel to ensure that all online fundraising compliance legal aspects have been considered.
Here’s how people and organizations around the world are using NFTs for charity:
As previously mentioned, Beeple, the artist who holds the record for the most expensive NFT ever sold, auctioned another NFT for charity. Justin Sun, the founder of TRON, purchased the (NFT) for $6 million. The proceeds were donated to the Open Earth Foundation, which works to combat climate change.
Additionally, Ellen DeGeneres raised $33,495 after auctioning an NFT for the World Central Kitchen. Other celebrities have done the same. This includes football icon Pele who recently announced that Ethernity Chain had created an NFT in his honor with 90% of the proceeds being donated to charity.
An NFT version of Twitter co-founder Jack Dorsey’s first published tweet sold for $2.9 million in March of this year. From the sale, he donated $2,915,835.47 to GiveDirectly, an organization that sends cash to low-income families affected by COVID-19 in Africa.
Fashion icon Iris Apfel is also selling NFTs for charity. The well-known business woman is turning some of her most memorable moments from this holiday season into NFT greeting cards that she’s auctioning for charity. She’s partnered Shutterfly – a company that produces photo books, photo cards, wall art, and personalized gifts – to make this possible.
Mick Jagger teamed up with 3D artist Extraweg to create an audio-visual piece based on his single Eazy Sleazy. The Music Venue Trust (UK), Back-Up (UK), and the National Independent Venue Association each received $50,000 from the sale of the NFT (US). Similarly, Kings of Leon released their album, When You See Yourself, as an NFT. They donated over $500,000 of the $2 million in sales to Live Nation’s Crew Nation fund. This fund helps live music crews affected by the pandemic.
Cryptocurrency developers are also hopping onto the NFT charity trend. In a move designed to commemorate the 13th anniversary of the bitcoin whitepaper, Gemini – a crypto project – chose 100 phrases from the original paper Gemini. Then displayed these phrases on a CNN billboard in New York’s Columbus Circle Gemini. Then sold each phrase as an NFT on their Nifty Gateway and donated all the proceeds to charity. Some locations have even begun to consider mandatory fundraising platform disclosures, which can guide charities and platforms.
Finally, money transmitters, payment processors, or financial institutions and some platforms operating in the NFT, blockchain, and cryptocurrency spaces may be subject to regulation. Perhaps your charity wants to store its assets on a platform that also offers payment processing. In this case, you should make sure the platform is appropriately registered or exempt from regulation.
How to successfully use NFTs for charity
Sell your NFTs on the right platforms
The first thing you need to do if you want to reach the right audience with news of your NFT sale is to make sure you’re advertising this NFT sale on the right platforms. At the moment, the most popular NFT marketplaces include OpenSea, super rare, and Nifty Gateway. By listing your NFTs for sale on these platforms, you can widen your reach and gain a bigger consumer base.
Auction the NFTs
According to a World Bank study, people prefer a reciprocal approach to charity. In other words, they like to receive something in exchange for the money they give. Depending on how NFTs are used for charity, they can fulfill this function. An NFT auction incentivizes people to donate by promising them a prize if they are the highest bidder.
Auctioning your NFTs accomplishes many goals. For starters, as is the case with a normal auction, you can generate a huge buzz by inviting people to bid on your NFT assets. Additionally, an NFT auction is a good way to aggregate liquidity and establish prices in a landscape where the value of assets is difficult to determine.
While an auction can generate positive publicity for your brand, it’s equally important to ensure the general public has access to this auction if you want it to really generate hype. After all, Beeple’s $69 million NFT sale captured the attention of millions because Christie’s used their traditional online platform to conduct the bidding rather than doing it on-chain.
By using this platform, they ensured that more people could participate – including people who weren’t crypto investors. Since people could place bids using both ETH (the native currency of the Ethereum Network) and fiat currencies. The auction was more accessible to the public.
Christie’s went beyond this by setting the lowest starting price in Beeple’s history – $100. Eventually, 33 bidders placed a total of 353 bids for Beeple’s work.
Share your NFTs on social media
Speaking of accessibility, it’s important to share the NFT assets you’re selling on social media as well. After all, this is the best place to go if you want to generate authentic connections with your target audience. Platforms like Telegram, Reddit, and Twitter are great places to connect with potential buyers and direct their attention to your NFT assets.
Host events with the artists or celebrities behind the works of art
A good way to appeal to potential NFT investors is by putting a face to the names you’ve partnered with to produce the NFT art that you’re selling. In order to do this, you can host events – either in-person events or virtual events – with the artists who created the NFT assets that you’re selling. Inviting the public to connect with these NFT influencers is enough to generate hype for your NFT sale.
Hosting an AMA event or a live stream with the artists you have partnered with is a good way to get people talking about what you’re doing – both in the NFT space and outside of it.
Establish an active presence in online NFT communities
It’s not enough to simply create accounts on various social media platforms and post your NFT assets there for everyone to see. As with the crypto industry, NFT sellers can boost their success by building communities online and taking time to interact with the members of those communities. Engage your supporters in conversations and let them have a say in how you grow your project. Community members who feel valued will purchase your NFT assets in a heartbeat and be loyal supporters of any upcoming NFT projects that you may be working on.
NFTs are unique in that they provide a tangible fundraising option. It is also undeniable that the interest in NFTs is increasing dramatically. This is advantageous for organizations that want to keep ahead of increased donations. It also exposes charities to new audiences who may not have previously seen their appeals for help.
With such a new trend still gaining traction in the mainstream. It’s easy to see NFTs getting increased popularity and sales volume, and finding more applications in fundraising opportunities in the future. NFTs are helping to redefine the “art” of fundraising as we enter a new digital era powered by blockchain.
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