In 2017, the first cryptocurrency experiment in philanthropy kicked off through what is now known as the Pineapple Fund, where an anonymous Bitcoin owner decided to donate the equivalent of $55 million to 60 nonprofit organizations. Five years later, as cryptocurrency has become more popular than ever, cryptophilanthropy remains on track to be one of the biggest fundraising trends of 2022. The philanthropic community has watched crypto donations soar, increasing a whopping 66% in 2021 compared to 2020. However, despite these remarkable statistics – like the average crypto gift being upwards of $12,000 – some organizations remain wary.
Is cryptocurrency too good to be true?
While it’s certainly not unusual for a brand new type of technology to be met with skepticism, there are some important questions and concerns to address when deciding whether or not to include cryptocurrency in a fundraising strategy. While we’ve already covered what cryptocurrency is and why an organization should consider it, it’s worth diving into the main critiques and implications they could have for a nonprofit organization. From sustainability issues to security concerns, nonprofits must look at cryptocurrency from all angles prior to bringing it onboard.
Let’s get to it!
Scientists and environmentalists alike have been quick to point out the impact that cryptocurrency can have on the environment, because digital currencies require a major amount of electricity. Many popular cryptocurrencies, like Bitcoin, rely on something called the “proof of work” system, which involves virtual miners using a very high amount of processing power to verify transactions from all over the globe. From this, Bitcoin has been estimated to use 91 terawatt-hours of electricity annually – or more than the total consumption of the country of Finland.
After Elon Musk announced that Tesla would no longer accept cryptocurrency as payment for its cars, environmental nonprofit Greenpeace also decided to stop accepting donations in cryptocurrency after a seven-year history of doing so. Then, last October, more than 65 nonprofits wrote to Congress, urging them to consider cryptocurrency mining’s damage to the environment when contemplating legislation, citing that Bitcoin’s growth could single-handedly push global emissions up about 2 degrees Celsius in the coming decades.
However, some make the argument that Bitcoin as a polluter is not entirely accurate. In 2020, the University of Cambridge found that almost 40% of mining is powered by renewable energy, and it’s safe to assume that number has only risen in the past two years. Then there’s Ethereum, known as the second most popular cryptocurrency behind Bitcoin, which is switching over to an entirely new “proof of stake” mechanism used by blockchain networks which will apparently operate with substantially lower resource consumption. While the matter of sustainability is extremely important when considering cryptocurrency – especially if it directly relates to an organization’s mission – the case has been made that it may actually create economic incentives for renewable energy production. The bottom line is that these environmental implications are being taken seriously by the crypto community, backed by the idea that cryptocurrency serves as a catalyst to drive sustainable innovation in a way that wouldn’t happen without its existence.
Volatile Value – Is it Worth the Risk?
An additional challenge to consider from a nonprofit perspective stems from cryptocurrency’s unregulated and volatile nature. In May, Bitcoin dropped below $30,000 – falling more than 50% of its all-time high of about $69,000 in late 2021. The value of cryptocurrency is influenced by supply and demand, investor sentiments, government regulations, and even media hype. Not to mention, if the crypto market crashes, that contribution worth $15,000 one day and $2,000 the next creates an uncertainty that some nonprofits may feel is too much and unreliable to depend on for their fundraising goals.
But there are at least two reasons that cryptocurrency gifts should be considered despite the yo-yo nature of their potential value.
Organizations have the option to avoid risk by immediately cashing out crypto using intermediary organizations such as nonprofits that can process crypto contributions like Every.org, third-party crypto payment processor, and not too far in the future, traditional investment houses, that can help automatically convert donated crypto to U.S. dollars, avoiding a potential decrease in value over time. Plus, if an organization is able to and chooses to hold onto this type of fund, the risk could pay off. As of now, the value of cryptocurrency tends to increase over time.
This unique technology makes it much easier to transfer, track, and account for funds sent internationally. This transparency means that with crypto, organizations can open the door to accept donations from anyone, anywhere in the world – without paying international exchange fees, changing currencies, or dealing with international banks. It also allows for international philanthropy in countries that may have a lower-value currency exchange. In other words, a contribution of 3 Bitcoins, for example, is still 3 Bitcoins regardless of the country.
Despite the potential ups and downs of value, the ability to accept cryptocurrency can unlock pros that may outweigh the cons. Ultimately, nonprofits should have a policy in place that covers whether or not crypto donations will be liquidated immediately to retain value or held at the risk of increasing value if deciding to onboard crypto donations.
Cybersecurity & Privacy
Privacy and data protection issues have become a greater concern for donors, according to Global Trends in Giving Report. Though security is a fundamental part of cryptocurrency and blockchain design through its decentralized structure, there still have been some major security breaches. According to Atlas VPN, decentralized finance-related breaches made up 76% of all major hacks in 2021. Despite this seemingly alarming number, hacking still remains extremely difficult to pull off – so much that some hackers end up returning the funds to avoid prosecution and legal action.
A nonprofit organization’s funds being hacked is the last thing any fundraiser wants – but flipping the perspective on the advantages of how donations are used within this cybersecurity can be argued to outweigh the disadvantages. One of the most exciting features of cryptocurrency is its transparent nature where once a transaction is completed, it can never be altered. This means that it will exist forever on the decentralized, digital ledger that is the blockchain.
So tracking funds donated to a nonprofit is made even easier, since anyone can see every transaction that’s been made. Donors will be able to see how their money is used (unless organizations exchange it for local currency), which, in turn, can help supporters become more trusting of organizations and connect with them on an even deeper level when seeing how their gift supports a community or project. But the other side of this coin is that crypto donations recorded in the blockchain can be transparent but anonymous, making it not only difficult for organizations to cultivate relationships with their supporters but can be risky if the source turns out to be tainted.
Preparing To Accept Cryptodonations
As with any contribution, it’s a good idea to include cryptodonations in your gift acceptance policy and procedures. Tina Roh at Every.org advises having a clear per coin policy and procedure. Nonprofit leadership and board will want to agree to what kind of cryptocurrency your organization will and won’t accept as well as whether or not you will hold onto or sell immediately the currency or NFT contributions. Your leadership may also discuss other factors such as the environmental implications and potential anonymity of donors who contribute in this way.
Opportunity Versus Obstacle
Only time will tell whether or not crypto will beat its critics. But the rising frequency of crypto donations indicates that this method of giving will play an important role in the nonprofit sector in the foreseeable future. As this specific type of philanthropy differs significantly from traditional ways of giving, the argument can be made that the bottom line is that the emergence of gifting cryptocurrency is an opportunity for nonprofits.
Like the Wild West once was, cryptocurrency is still in the early stages of development and use, but if your organization is ready and willing to put in a little effort, accepting cryptocurrency could gain you access to a global market and a new stream of fundraising revenue.
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.
To read the first installment in this series giving you a 101 of cryptocurrency, visit this page.