Cryptocurrency 101 for Charities
While cryptocurrency is still relatively new and volatile, its popularity is clear: there is an estimated 13% of Canadians who hold cryptocurrency according to a recent study by KPMG. Bitcoin has become part of the common vernacular; financial institutions are quickly building up their digital infrastructure; and more and more traditional and institutional investors are buying or investing in the broader crypto market.
Despite this rise in popularity, charities have been slow to adopt these forms of digital currency as vehicles for giving.
As more Canadians begin to hold more of their wealth in digital assets, fundraising organizations must become aware of the opportunities this new stream of revenue presents.
So, let’s start with the basics: what is cryptocurrency? And what are crypto donations?
According to Investopedia.com, cryptocurrency, or crypto, “is a digital currency that is secured by cryptography...Cryptocurrencies generally operate on blockchain technology – a distributed ledger enforced by a disparate network of computers.” The popularity of cryptocurrency is due to its decentralized, peer-to-peer network which makes it exempt from any form of central governing authority.
Sounds pretty confusing if you’re not tech savvy. So, let’s break it down to the very basics: it’s like a new stock market for the masses that uses digital files as currency.
Crypto donations are simply donations made using cryptocurrency as a form of payment. Some investors have made significant gains in the crypto markets and they are using those gains to make donations to charities.
Why is cryptocurrency significant for fundraising?
Cryptocurrency presents an opportunity for the charitable sector to diversify their donor base.¹
“Over the past few years, with the launch of mainstream cryptocurrency trading platforms, there have been increasing numbers of individuals, particularly millennial investors, who have been accumulating cryptocurrency.” Says Jason Shim, Director of Innovation at Pathways to Education. Jason is the co-author of Bitcoin and the Future of Fundraising and in 2013, lead Pathways to Education Canada to be the first Canadian charity to issue tax receipts for Bitcoin donations. “For fundraising organizations, this may offer opportunities to engage a crypto-savvy audience that is keen to give back to the community and is just waiting to be asked” says Shim.
This trend is reflected in the 2022 Giving Report; donations of cryptocurrency are growing in popularity among younger donors as 6.1% of Generation Z and 4.5% of Millennials have donated using cryptocurrency.
Beyond the popularity of cryptocurrency, there are principles behind the cryptocurrency movement like decentralization that may appeal to socially minded folks who both work for charitable organizations and donate to them.
Is market volatility a concern?
Some individuals have been reluctant to get involved in crypto due to the large fluctuations in the market. Shim explains that while it can depend on an organization’s gift acceptance policy, market volatility is generally not a concern if the cryptocurrency is sold immediately for fiat currency (just as organizations manage gifts of securities). There are, however, examples of organizations holding through the volatility, such as Charity: Water's Bitcoin Trust.
Are there other risks?
Given the rise in popularity of cryptocurrency, there has been an exponential rise in the number of crypto-related scams. While individuals are likely to be more vulnerable to socially engineered or phishing scams compared to organizations, using a reliable payment processing partner will help organizations alleviate some of this risk. Just like the importance of using a trusted payment processor to process credit card or debit payments, Shim explains “When working with platforms to accept crypto donations, it's important for organizations to do their due diligence and to ensure they are working with a trusted and reliable provider.”
How can charities get started?
If you wish to introduce a crypto giving program, it is important to consider how you will seek support from your organization’s leadership team. Do you have a fundraising ally on the board who has demonstrated an interest in crypto that you could talk to for advice? Furthermore, what is expected of the rest of your team to make this happen? As when introducing any new system or process, all those involved must understand the benefits.
Here are some other important questions to ask: Does pursuing a crypto giving program align with your overall fundraising strategy? And does accepting cryptocurrency align with your organizational mission & values²?
While crypto does present an opportunity for organizations to diversify their donor base, expand their revenue channels and keep up with the digital transformation happening in society, it is important for organizations not to get distracted.
As Shim notes “Crypto donations are just one way for individuals to express their philanthropy and can serve as an introduction to broader conversations and engagement. The key principles of fundraising and stewardship still apply and in particular, taking the time to understand and engage in crypto communities can aid in this.”
Making the decision to start a crypto giving program will not transform your organization overnight. It’s likely to remain a smaller revenue channel until you build up your muscles, just like any new fundraising strategy.
And to build up those muscles to solicit crypto donations successfully, you may wish to become a member of the community yourself. For example, you could be active on Crypto Twitter or if you’re so inclined, diversify your investment portfolio to include cryptocurrency, even if it’s in smaller amounts.
Finally, you want to make it easy for donors to donate. To get started, you will need the following:
- Determine what cryptocurrencies you will accept (BTC and ETH being the most widely owned).
- Include information on your website that informs your donors that you accept gifts of crypto
- Consider using a trusted third-party platform that will facilitate the transaction and sale of your donations.
What is CanadaHelps’ cryptocurrency donation solution and how will it mitigate the risks of accepting cryptocurrency donations?
CanadaHelps has launched a solution for charities that want to get started with accepting cryptocurrency donations. We’ve done the hard work so that charities, no matter their size, can accept cryptocurrency donations while mitigating the risks.
All in all, cryptocurrency is an increasingly popular asset for investment and donation. Make sure your charity is informed and prepared for the potential of cryptocurrency donations.
¹ Connelly, Anne & Shim, Jason. Bitcoin and the Future of Fundraising: A Beginner’s Guide to Cryptocurrency Donations. Innoraise Imprints. January 18, 2021.