Nonprofits have been accepting cryptocurrency donations for over a decade. The recent spike in cryptocurrency fundraising was sparked by IRS guidance which provided clarity and ignited the trend.
Over the last couple of years, we’ve spent hundreds of hours talking to senior nonprofit leaders across organizations both large and small about Bitcoin and other cryptocurrencies. These conversations are often filled with misconceptions that begin with heated discussions and end with “A-ha” moments when everything finally makes sense.
Here are a few of the greatest hits when it comes to nonprofit misconceptions around cryptocurrency:
Myth 1: Cryptocurrency donations aren’t really a “thing” yet.
- Almost 60,000,000 people use Bitcoin and other cryptocurrencies globally
- $200,000,000+ is donated in cryptocurrency annually
- A single donor donated $56 million worth of Bitcoin to 60 nonprofits at the start of 2018 – on Reddit!
- The number of nonprofits accepting cryptocurrency doubled in 2019
- Major crypto gifts haven’t slowed down, with multi-million dollar pledges happening in December and January so far.
Myth 2: Cryptocurrencies aren’t regulated enough.
- Cryptocurrencies are regulated by many of the same government agencies that regulate the traditional world of finance including the IRS, SEC, CFTC and local regulators.
- Most relevant for nonprofits is the IRS. The IRS issued initial guidance in 2014 and updated their guidance in 2019. They have made it clear that they classify cryptocurrency as property for tax purposes. So making a donation in cryptocurrency to a 501(c)3 is similar to a stock donation, meaning the donor does not pay capital gains tax and can write it off on their taxes.
- This year the IRS will be asking all taxpayers if they have transacted in “virtual currencies” on their 1040 tax return – further incentivizing potential donors to support their favorite nonprofit to offset their gains.
- The SEC and CFTC treat cryptocurrencies as securities and commodities. They apply the applicable framework to their regulations based on which type they are classified as, meaning they are regulated similar to traditional assets.
Myth 3: Bitcoin donors are more likely to be criminals.
- Interestingly enough, your current donors are more likely to be criminals. Cash is 800 times more likely to be used for money laundering, due to Bitcoin’s transparency and traceability. The US Dollar is still the preferred currency of criminals, but you don’t hear compliance departments and legal talking about that!
- Members of the DEA have stated that they prefer when criminals use cryptocurrency, since they are easier to catch. Smart criminals wouldn’t use a system that records every single transaction on an immutable and public ledger.
Myth 4: Nothing makes Bitcoin valuable, right?
- Bitcoin is backed by math and code. It cannot be arbitrarily printed/devalued like what happened in Venezuela. There will always only ever be 21,000,000 bitcoin created.
- Bitcoin is a global and borderless currency, meaning that your organization now has a global and borderless donor base.
- 43% of millennials trust the crypto markets more than stock markets and 71% of millennials would invest in cryptocurrency – making it a valuable source of diversification for nonprofits donor base.
Myth 5: All Cryptocurrency transactions are anonymous.
- Unlike cash donations (which can be anonymous), all cryptocurrency transactions are recorded on a blockchain, adding to the transparency and accountability of cryptocurrency donations to your organization.
- Tax deductions are still the number one incentive for people to donate, giving donors a clear tax incentive to disclose their data to nonprofits and the IRS.
- Organizations that use cryptocurrency donation widgets designed especially for nonprofits have the ability to capture donor data and turn on or off anonymous donations – one reason why nonprofits should use a solution tailor-made for cryptocurrency giving rather than just putting a wallet address on their website.
Myth 6: Bitcoin’s price is volatile and fluctuations are risky for my organization.
- Bitcoin’s volatility is exactly what creates the tax incentive for potential donors to donate to a nonprofit.
- Nonprofits that use an auto-conversion and auto sell functionality (check that your provider has one of these) don’t need to worry about price volatility as their donations are automatically converted to cash and stored in an FDIC insured bank account.
Myth 7: Bitcoin isn’t secure and can be hacked.
- Practicing good digital hygiene for cryptocurrency is similar to good digital hygiene for your bank account or other important accounts. Make sure to use strong passwords. Nonprofits that use an institutional cryptocurrency account with an auto sell functionality and an FDIC insured bank account have an additional layer of protection.
- Make sure that your cryptocurrency custody and exchange solution is SOC 2 compliant to ensure security, data integrity, and privacy of data. Leading providers will have this.
- Unlike many well-known companies and brands, the Bitcoin blockchain has never been hacked. As the network grows in size, the level of security increases. In order to attack the network, 51% or more of the network has to be overtaken, which would cost billions of dollars.
Myth 8: Mining cryptocurrency is bad for the environment.
- This myth stems from bad data and assumptions, but the most recent research shows the opposite is true.
- Bitcoin and other cryptocurrency mining are mostly powered by renewable energy in remote places where the energy wouldn’t be used for anything else.
- If you compare the electricity use of cryptocurrencies to that of traditional fiat currencies, you’d find that the US dollar is significantly worse for the environment.
- You can read more about this issue in a research report from CoinCenter and Dr. Koomey.
Myth 9: Cryptocurrencies are only for the tech-savvy.
- Since cryptocurrencies are still a relatively new technology, they are not as user-friendly as many other technologies like smartphones and laptops. Look for a solution that is easy to use and doesn’t require any technical experience to setup.
- If you can embed a YouTube video, add a page or link to the menu on your website, then you have the technical skills required to fundraise with crypto.
- There is no need to recreate the wheel on your own when getting set up to take cryptocurrency donations. Using existing solutions designed by those with nonprofit experience to save time, and ensure that everything is deployed correctly.
Myth 10: Bitcoin is only for large nonprofits with big teams.
- Getting setup with a cryptocurrency exchange account is similar to opening a bank or brokerage account. This means filling out some paperwork and verifying information about your nonprofit.
- Organizations with an established web presence and social media following will find it easier to fundraise with cryptocurrency, but many smaller organizations have found their niche in cryptocurrency fundraising, some even exclusively fundraising with crypto.
- Organizations as diverse as Save the Children, No Kid Hungry, Rainforest Foundation US, Trees for the Future, US4Warriors, and the Mona Foundation are showing successes from actively fundraising with cryptocurrency.
For nonprofits looking to diversify their revenue stream, engage new donor demographics, and stand out from the crowd, accepting cryptocurrency donations is the way forward. Whether you are in charge of development, fundraising, or advancement, now is the time for you to google “Donate Bitcoin” and engage with your leadership team to have a full discussion around cryptocurrency donations and what they mean for your organization.
Get your organization ready to accept cryptocurrency now, so that you aren’t left empty-handed the next time a donor gives away $55 million dollars worth of cryptocurrency on Reddit.
At The Giving Block, we help nonprofits fundraise with cryptocurrencies such as Bitcoin, Ethereum, Litecoin, Bitcoin Cash, ZCash and more. According to the IRS, approximately 8% of all adults in the United States have some form of taxable cryptocurrency holding, meaning at least 12,000,000 people are potential cryptocurrency donors.