If it felt like there was a ramped-up flurry of news about cryptocurrency and crypto donations at the end of 2021, you’re not alone. Somehow in the blink of an eye, this seemingly intangible, ever so out of reach, asset of sorts, was suddenly mainstream. Just like donor-advised funds in their early days and making gifts online (gasp!), it seems nonprofits should start to pay attention to crypto. Let’s break this down to understand what it is, how it may, in fact, be creating a new type of philanthropist, and what nonprofits need to consider in their own fundraising strategies and processes.
Part 1: Cryptocurrency: The Next Giving Frontier?
Whether you’re a Bitcoin guru or just hearing the word “blockchain” is enough to make your head spin, there’s no doubting the hype surrounding cryptocurrency. While some believe crypto can foster global financial equity, others view digital assets as volatile and too risky. But if President Biden’s recent executive order is any indication, virtual currencies are all but guaranteed to gain broader traction in the U.S. economy. Skeptical or not, cryptocurrency has the potential to transform finance – and therefore philanthropy – as we know it.
Today, cryptocurrency is becoming a more mainstream part of global philanthropy than ever before. Household names like the American Cancer Society, Save the Children, and UNICEF now accept cryptocurrency donations. In 2021, Ukraine became the latest country to legalize cryptocurrency; the nation recently received over $70 million in donations from both individuals and cryptocurrency firms following Russia’s military attack.
Cryptogiving has entered the spotlight in a way that many of us could have never imagined just a few years ago. But the essential question remains: why should an organization bother with cryptocurrency? The bottom line is that opting to accept digital currencies could generate a significant increase in annual giving to your organization. Organizations can be open-minded toward innovation in philanthropy but would be wise to have internal conversations about the role that this new type of philanthropy can play.
But wait – what exactly is cryptocurrency again?
Simply put, cryptocurrency is a form of digital money that relies on a type of technology called blockchain. A blockchain is like a hacker-proof digital accountant, making it nearly impossible to counterfeit. Digital transactions are verified and added to the blockchain through a process called mining.
Mining is the process of creating new coins. Mining cryptocurrencies requires computers with sophisticated hardware that solve complex computational math problems. Miners, who own the high-powered computers doing the mining, are incentivized to help secure the network by participating in the transaction validation process because they receive something called a block reward in exchange. This block reward is typically a virtual coin that exists on a particular blockchain. Or, in other words, it’s currency that exists virtually owned and regulated by no one entity. The value increases because of supply and demand, and it can be traded, sold, and donated just like our current “old fashioned” Hamiltons and Benjamins.
While Bitcoin was the first cryptocurrency and is still the most valuable, thousands of cryptocurrencies now exist. You may have heard of other popular ones such as Ethereum, Solana, or the infamous Dogecoin which was endorsed by Elon Musk.
Cryptocurrency also has its fair share of opposition, with some citing environmental and security concerns because of the way coins are created and because it is still largely unregulated.
Crypto is a non-traditional and cutting-edge form of currency which is no doubt a large part of its appeal. Today, globally there are over 300 million crypto holders in the world. Yes, you read that correctly. 300 million. In the U.S. alone, an estimated 21 million people own cryptocurrency. So, whether we’re ready or not, crypto holders have these assets that they are going to at some point need to contribute because they’ve found themselves with unexpected wealth and want to avoid capital gains tax.
Okay, so why should my nonprofit organization consider accepting cryptocurrency?
Though more and more nonprofits are signing up to accept cryptodonations, some organizations may be quick to refuse cryptocurrency because of its perceived complexity, high risk, and other factors which make it feel more dubious. Yet, if this truly is an emerging area for philanthropy, the pros may outweigh the cons. Let’s consider what it can mean for fundraising:
Upward Giving Trend
2021 was a big year for cryptodonations, with over 1,000 nonprofit organizations adopting this new form of giving and estimated billions in contributions up from $200 million in 2019. The average crypto gift was also over 80 times larger than the average cash donation – estimated between $7,000-$10,500 compared to $128 cash according to both Every.org and The Giving Block. Fidelity reported $28 million in cryptocurrency was donated into DAFs–up 115% from 2019. All signs are pointing to crypto as an increased way to contribute either directly or through other entities like DAFs.
Nonprofits–Meet Your Next Generation of Donors
Younger generations are at the forefront of crypto investments, with millennials and Gen Z making up over 60% of total adopters. Right now, cryptocurrency investors tend to be younger with almost 60% under the age of 35, and almost 80% male. But an estimated 53% of the “crypto-curious” are women. We always talk about how nonprofits must meet their donors where they are. This giving method is very clearly favored by a demographic nonprofits have wanted to engage, with millennials investors at the forefront. Millennials are not only on track to be the most charitable generation, with three-quarters considering themselves philanthropists, but nearly half believe that cryptocurrency is a smart investment.
The number of crypto holders and the amount contributed in cryptocurrency in 2021 may not necessarily be indicators of philanthropic inclination. After all, we know there’s a lot more that goes into the making of a donor mindset than just money. But here’s what’s particularly interesting and of note. According to Fidelity, 33% of crypto investors have donated $1,000 or more of cryptocurrency to charity and 45% of cryptoholders report being charitably inclined in general motivated by both their heart and their head.
Could we be seeing the emergence of a new type of philanthropist?
Donating cryptocurrency to a nonprofit organization, like any other donation, has been deemed tax-deductible by the IRS. How taxes play into crypto and NFTs is still complicated. But, more than 50% of those who contributed cryptocurrency citing the tax advantage. Tax incentive isn’t usually a primary driver for philanthropy. It might help in a donor’s decisions but we know that donors are always driven to support charities that are personally meaningful to them and where they feel their gifts can make a difference. Any tax advantage is icing on the cake.
Keeping with the Times
With the rapid rise of tech coupled with a global pandemic, many nonprofits have had to compete for funds and visibility in a world that has moved almost wholly online faster than ever before. Leveraging technology comes with a powerful opportunity to acquire a younger demographic of donors, especially as those who grew up with the internet have become so accustomed to supporting a cause they care about with the click of a button or a swipe. As many organizations strive to appeal to younger donors, cryptocurrency could prove a key inroad to fundraising more efficiently and cost-effectively.
A New Frontier…
In some ways, cryptophilanthropy is like how DAFs were 15 years ago. It was a new way to donate. Not everyone could afford to have a DAF. It required nonprofits to think differently about who their donors were because it was one more layer between them and their supporters. And it grew in popularity by donors who favored the ease of the giving process. Yes, the world of cryptocurrency can seem overwhelming. But some of the early adopters have seen promising results – higher than average donations, donor acquisition and retention, and unique exposure to the next generation of giving. In Part II of this series, we’ll hear from some nonprofits who have successfully incorporated cryptofundraising into their strategies.
Disclaimer: These posts are for informational purposes only and not intended as legal or financial advice. Please consult a professional for the latest and most accurate information.