Does your nonprofit currently take advantage of cryptocurrency donations? If not, you might be missing out on a valuable source of additional income and a rapidly growing market.
What is cryptocurrency?
Cryptocurrency is a type of digital currency that’s been on the rise in the last few years. In general, cryptocurrencies are backed by blockchain technology that keeps them decentralized and secure. Most cryptocurrencies are not issued or backed by a centralized government system.
You’ve likely heard a lot about cryptocurrency, especially in the last two years. However, people across the world have been using and investing in forms of cryptocurrency, like Bitcoin for nearly a decade. In general, cryptocurrencies are rarely used for day-to-day retail transactions, instead they’ve been used as investment opportunities.
Since cryptocurrencies aren’t backed by a central bank or government force, exchanges are mostly handled through third-party services or individually from one user to the next. The value of cryptocurrency is also constantly in flux, meaning that there is no one true value for a single cryptocurrency’s “coin.”
Why nonprofits should accept cryptocurrency donations
Nonprofits should consider accepting cryptocurrency donations because it’s a continually growing source of currency throughout the world. In fact, some reports estimate that “the value of all bitcoins in the world was over $1.03 trillion” in 2021!
Many people throughout the country have access to some form of cryptocurrency with limited places to use it. Additionally, allowing cryptocurrency donations helps your nonprofit keep up-to-date on giving trends while tapping into an additional source of funds.
Potential problems with cryptocurrency donations
As your nonprofit is deciding whether or not to invest in process to accept cryptocurrency donations, it’s important to also know the potential problems with this donation model.
Cryptocurrencies are volatile
One key problem with accepting crypto donations is that the value of cryptocurrencies are constantly changing. Since cryptocurrencies aren’t backed by a central government or bank, the values of each currency change rapidly. Additionally, since new forms of cryptocurrency can be made by anyone, these coins might be valuable one day and worthless the next. Your nonprofit might have to spend extra time and energy tracking the various values of each currency you receive.
In recent news, popular cryptocurrencies like Bitcoin have lost nearly 37% of their value. Other cryptocurrencies have also suffered similar losses in value. This type of drastic change in the values of “stable” cryptocurrencies has led many to worry about a potential “crash” in cryptocurrency values.
Environmental impact of cryptocurrencies
Some nonprofits, particularly nonprofits dedicated to environmental causes, might be uncomfortable with the amount of energy cryptocurrency uses. One report calculated the energy costs per transaction of popular cryptocurrencies and found startling results. Currencies like Bitcoin used 1173 kWh per transaction while others like Ethereum used 87.29 kWh per transaction. In everyday terms they found that these transactions “would equate to roughly 6 weeks of electricity.” If your nonprofit is concerned about environmental output, you might steer clear of cryptocurrencies or invest in sustainable cryptocurrencies.
How to accept cryptocurrency donations
There are many ways nonprofits can accept cryptocurrency donations. However, when planning out how your nonprofit wants to accept cryptocurrency donations, keep in mind that there are unique tax filing requirements for cryptocurrencies you own.
Nonprofits can accept crypto donations by using donor advised funds (DAF) to accept crypto donations and convert them into cash payments. This allows nonprofits to take advantage of crypto donations without the burden of taking actual possession over each crypto coin donated.
Additionally, nonprofits can take direct possession of crypto coins they receive through third-party platforms. This requires a nonprofit to set up their own crypto wallet. Nonprofits can then convert coins received directly into cash donations or save them as future investments.
Popular platforms like Coinbase can be used to facilitate cryptocurrency donations. However, there are additional requirements for nonprofits when accepting crypto donations. Nonprofits should create their own tax receipts, collect donor information manually, and keep track of all donations made for accounting or tax purposes.
Learning more about cryptocurrency
If your nonprofit is interested in accepting crypto donations from donors, you should first learn more about cryptocurrency. Sites like Investopedia can help your nonprofit understand the background of cryptocurrencies and decide if they’re the right fit for your organization.
Ultimately, cryptocurrencies are a growing financial trend that your nonprofit can take advantage of with a little extra legwork and research.
