Whether you’re seeing news about it on your Twitter feed, reading about it in your favorite news publication, or hearing about it from your friend who is constantly talking about it — you can’t seem to escape cryptocurrency’s notoriety.
If you’re just learning about crypto, you’re probably thinking to yourself: What exactly is crypto, how did it come about, and what does it have to do with nonprofits?
Follow us along in this guide to learn:
- What cryptocurrency is & who crypto owners are
- What the legal implications are of accepting crypto donations
- The growth of crypto philanthropy over the years
- What to consider before accepting crypto donations
- How nonprofits can seamlessly integrate crypto as a payment method
What is cryptocurrency?
Because of the recent media hype, you likely have some idea of what crypto is. In layman’s terms, crypto is a digital or virtual currency that is protected by something called cryptography — a process of using encryption algorithms to convert the original message into ciphertext so that only the user has the key to decrypt the message. Cryptography protects crypto from counterfeit and double-spending.
When crypto is bought or sold, the transaction is recorded on a decentralized digital ledger called the blockchain. In a blockchain, blocks of data are chained together using hashes — a long number that acts like a digital fingerprint. While a blockchain may sound similar to a database, the distinct difference is how the data is structured: A blockchain collects data in groups (blocks) that hold sets of information, and because blocks have limited storage capacities, these blocks are closed and linked to the previously filled block when filled (a blockchain).
The decentralized structure of crypto means that there is no single entity or government body controlling the value or availability of digital coins. Currently, there are nearly 10,000 different types of cryptocurrencies — the most popular being Bitcoin, Ethereum, Tether, and BNB.
While the sudden boom of crypto may lead one to believe that it was a recent phenomenon, crypto was actually founded back in 2009 with the introduction of Bitcoin. Even more surprising is that Bitcoin wasn’t worth a dime in 2009, but its worth jumped to $0.09 the following year. Bitcoin only started to gain global recognition in 2017 when its price dramatically increased from $1,000 to nearly $20,000 in a single year.
In November 2021, Bitcoin’s value skyrocketed to its peak at nearly $69,000. But similar to the stock market, crypto is an even more volatile market and its price is constantly fluctuating. Because of this volatility that’s driven by a number of factors, the price of Bitcoin has continued to rise and fall in the months that followed. At the time of writing this, the price of Bitcoin was just over $23,000.
Get to know crypto owners
The rapid-growing interest in crypto means that there’s more demand for it and more people are investing in the digital asset. Let’s take a look at how much ownership of crypto has changed over the past few years:
- In 2018, 8% owned crypto
- In 2019, 14% owned crypto
- In 2021, 23% owned crypto
- In 2022, 61% plan on buying crypto
With an estimated 59 million Americans who own crypto, there is an additional 61% of Americans who are interested in investing in crypto. With this growing interest, Gemini estimates that there could be up to 19.3 million new crypto owners in the US.
In the “2021 The State of U.S. Crypto Report,” Gemini reports that crypto owners tend to fall in the Millennial age group, skew more male, and have more wealth. Demographics are similar for those who are crypto-curious.
Legal guidelines around accepting cryptocurrency
Those who are just getting started with crypto often wonder about the legalities surrounding crypto. Its legal status depends on the jurisdiction and even remains undefined in certain areas.
Currently, crypto is legal in the US, UK, Mexico, Australia, New Zealand, and India. It’s also legal in a number of other countries but has certain restrictions and guidelines around its use. For instance, in Canada, you must register with Fintrac and maintain compliance. However, its use remains illegal in a handful of countries: China, Algeria, Egypt, Morocco, Bolivia, Bangladesh, Nepal, and Kosovo.
For organizations that fundraise internationally and are interested in accepting crypto donations, we highly recommend taking the appropriate steps to fully understand crypto trade laws and financial reporting requirements — whether through an in-house legal team or an outsourced legal specialist.
When a nonprofit receives a crypto donation, it can exchange the donated asset into government-issued fiat currency, hold on to it, or transfer crypto as a non-cash asset. If the nonprofit chooses, it can also use crypto to pay for goods and services.
Keep in mind that crypto is a non-cash, in-kind donation and should be processed as such. When reporting crypto donations on your organization's Form 990, your nonprofit should list crypto donations on Schedule M (non-cash contributions). If your nonprofit plans to hold on to crypto assets for more than three years, you must fill out the IRS Form 8282, which states the sale, exchange, or other disposition of donation property.
“I would always check with your auditors. They’re there for you to ask questions and gain best practices on reporting requirements.”
Director, Fundraising Operations, Pathways to Education Canada
The rise of crypto philanthropy
For years, reputable nonprofits — like UNICEF, charity: water, and Save the Children — have understood the value of crypto and have taken the necessary steps to accept it as a donation option.
Offering crypto can be a gateway to more major donors. As more high-net-worth individuals invest in crypto and let it appreciate over time, many of them also look to donate their assets to charitable causes.
“If you have an interest in engaging with people who buy and trade crypto, you want to be in this space because there is great potential for your organization to acquire new major gift donors.”
According to Fidelity Charitable, 45% of crypto owners donated $1,000 or more to charities in 2020 — an accumulation of $28 million. If you think that’s impressive, that number skyrocketed to $331 million in 2021, a nearly 12-fold increase from the previous year.
Because of the value of crypto, you’re probably wondering why someone would choose to let any of it go. The answer is simple: People are more inclined to donate crypto for tax-related purposes.
First, the donor’s tax deduction will be equal to the fair market value of the donated cryptocurrency at the time of the donation. Secondly, the nonprofit receives the full value of the donor’s contribution because the donor does not have to pay any capital tax gains.
What to consider before accepting crypto donations
While there are many advantages of including crypto into your library of donation payment options — like receiving larger donations and tax benefits — nonprofits should take precautionary steps to protect themselves from any possible liabilities.
One of the most important things to do before you roll out crypto donations is to update your organization’s gift acceptance policy, a statement that outlines how you will accept cash and non-cash gifts.
When updating your gift acceptance policy to include crypto, here are key questions to address:
- What is a crypto donation? Take the time to explain what crypto is. In particular, it’s important that you define crypto donations as non-cash gifts and that they will be treated as in-kind donations.
- Is there a minimum a crypto donor has to meet? You might not want to put a minimum on how much should be donated, but you will want to define guidelines around donating crypto. For tax purposes, you should have donors sign a gift of acknowledgment for any gifts over $250. Additionally, it should be required that your donors get any gift over $5,000 appraised and fill out Form 8283.
- Will you require all crypto donors to identify themselves? While most crypto donors will want to be acknowledged for their gifts, some still prefer to stay anonymous. If you are collecting data around crypto donors, you’ll want to explain that in the gift acceptance policy.
- How will crypto donations be processed? Before accepting any donation, you should decide how you’re going to process crypto donations. Donors will want to know if you’re going to liquidate the asset immediately or hold on to it to gain value over time. In some rare cases, a crypto donor might offer a major gift but request that you hold on to it for a certain amount of time. You should be ready for those types of conditions as well.
- Are crypto donations refundable? Make it clear in your gift acceptance policy that crypto donations are non-refundable. While most donors won’t change their minds, this gives your organization an extra layer of protection from any donor who decides to revoke their crypto donation after making the gift.
“I would never articulate specific coins or tokens our nonprofit is accepting in our gift acceptance policy because they're constantly changing. But for a platform that can process crypto donations, like Fundraise Up, I will use it as my guideline because they have done their due diligence as a subject matter expert in the field.”
Wallets and exchanges: How can you store crypto?
Before you start adding crypto as a donation payment method, it’s a good idea to figure out the best way to store your digital assets. From different types of wallets to exchanges, there are a host of options to choose from:
- Hot wallets: You can use this type of wallet to store, send, and receive crypto tokens. It’s called a “hot wallet” because it’s always connected to the internet.
- Cold wallets: On the other hand, cold wallets are similar to hot wallets in that you can store, send, and receive crypto tokens — but these digital wallets are not connected to the internet and can be stored offline.
- Exchanges: An exchange is a website or service connected to the internet that allows you to store, buy, and sell crypto assets. It also lets you convert tokens into fiat currency, like the US dollar or euro.
So, which should you choose to store your crypto donations? We recommend using a crypto exchange. Many crypto owners already opt to store their assets on an exchange platform because it’s secure, easy to set up an account, and simple to view and manage digital assets. There are a number of crypto exchanges to choose from — like Gemini, Coinbase, and Binance.
Plus, the majority of these exchanges are already equipped to transact with the most popular crypto tokens, making it easier for your supporters to donate their favorite tokens.
The simplest & fastest way to accept crypto
To alleviate any hefty upfront costs and the administrative burden it takes to create and manage a custom-built crypto solution, nonprofits tend to look toward donation platforms already built to accept crypto donations. At Fundraise Up, we empower nonprofits to effortlessly accept crypto donations just like any other payment method. That means, whether donors are giving through credit cards, bank transfers, digital wallets, or crypto, you can track and manage those donations under one platform.
For donors who are interested in donating crypto, Fundraise Up makes the checkout process simple and effortless. Once the donor selects the “donate crypto” option on your website, they will be shown the crypto-specific checkout. Within the checkout, the donor will enter the type of crypto they want to donate, along with the donation amount.
Next, the donor will fill out their personal information and is provided with a wallet address where they can transfer the crypto. The donor will then use their preferred wallet to transfer the crypto donation. Once Fundraise Up is notified by the crypto processor that the transaction went through, the donor will be moved to the thank-you page.
And just in a few quick and easy steps, your donor has completed their crypto donation to your nonprofit.
With crypto giving on Fundraise Up, nonprofits can:
- Securely accept donations directly on their organization’s website
- Collect crypto, card, digital wallet, and bank transfer donations using one platform
- Connect Fundraise Up to Gemini or Coinbase Commerce
Interested in learning more about Fundraise Up and how you can start accepting crypto donations? Contact your Customer Success Manager or schedule a call with one of our team members.