Accepting Cryptocurrency for Donations - What Your Nonprofit Needs to Know

Unless you've been living under a rock, you probably know that cryptocurrency is all the rage these days. Now, that doesn't mean that you understand all the ins and outs of it and how it applies to your nonprofit. That's why you're here, after all. But, odds are, your interest has been piqued. 

What is this new form of currency?

How does it work? 

Is it safe?

There are many questions around cryptocurrency, and we'll get to them. But before we dive into the details, here's why it's relevant.  

What is Cryptocurrency?

Cryptocurrency is a form of digital money. While many cryptocurrencies are called "coins," it isn't tangible. It's called "crypto" because it relies on cryptography or encryption to anonymize ownership. This cryptography also makes it impossible to counterfeit or double-spend.

As a cryptocurrency owner, you have a digital key and password tied to that "coin." To spend or cash out cryptocurrency, you need to find a vendor that accepts it. Or you can work with a third-party exchange broker to convert your "coin" into cash. 

Unlike most currencies, cryptocurrency is not backed by any government or regulatory agency. It's also decentralized, meaning it's managed using blockchain on a distributed ledger that's duplicated across a network of computers. Blockchain is what makes cryptocurrency so secure from hackers or those looking to cheat the system.

Why Your Nonprofit Should Accept Cryptocurrency

The growing popularity of cryptocurrency makes it an attractive payment option for donations. Because it is a digital currency, collecting online donations is easy. Online giving has grown in the past few years, so accepting cryptocurrency is a logical next step.

Additionally, it appears that cryptocurrency holders are a generous bunch. According to Fidelity Charitable, 45% of cryptocurrency owners donated $1000 or more in 2020 compared to 33% of typical investors.

Cryptocurrency is also popular among Millennials, so accepting it may appeal to younger donors. One in three Millennials owns cryptocurrency, which is more than double the rate of the average investor. Millennials, perhaps because of coming into adulthood at the time of the Great Recession, are notoriously generous and charitably inclined.  

The Value of Cryptocurrency

The value of the U.S. dollar is relatively stable. It's affected by the economy but does not fluctuate much. For example, a dollar today can buy you a candy bar, much like it did last year, and will likely do tomorrow.

Cryptocurrencies can vary in valuation. Plus, there are several cryptocurrencies out there. They each have a different value and vary in how they follow market trends. 

Since cryptocurrency is relatively new, we're still learning how to understand the fluctuations in value. Perhaps the best example is to think about cryptocurrency the way you think about the stock market. When stock prices are on the rise, people buy in looking to make a profit, which raises the value even higher. And, when stock prices start to fall, people cash out and put their funds in more stable investments. Cryptocurrency appears to follow a similar pattern. 

How Can Your Nonprofit Start Accepting Cryptocurrency?

Luckily for nonprofits, there are several options to start accepting cryptocurrency. What you choose may depend on the level of control you wish to have over the transactions and how much you want to invest. You can select from an out-of-the-box solution or DIY your own.

These platforms process the transaction, convert the cryptocurrency to cash, and issue receipts for tax purposes. 

Every.org

Every.org is unique in that they are, in themselves, a nonprofit organization with 503(c)(3) status. The free platform installs in seconds. While there are no set-up fees, they do charge a brokerage fee of 1%. It ensures that your nonprofit handles only the cash, which streamlines the process for you and puts the legal risk on them. With over one million nonprofits using Every.org, it's a trusted player in the cryptocurrency space. 

The Giving Block 

The Giving Block provides processing tools and educates the nonprofit sector on the benefits of cryptocurrency. While they charge fees for set-up and transactions, they put some of that money back into the nonprofit community. The Giving Block installs as a widget on your website, so there's no confusion with sending donors to another platform. 

Engiven

So far, Engiven has been most used by faith-based nonprofits. A unique feature is that they allow donors to send funds to specific programs. They charge a flat 3% fee and don't charge for set-up. The Engiven donation pages also have built-in FAQ functionality to educate donors on your organization and programs. 

Other Processing Services

The backbone of the three previous solutions is technology from Coinbase Commerce or Gemini. But, if you're tech-savvy, you can work with a service provider and create your own widget or custom donation page. 

But, they don't offer the donor support, cash conversion, or automated tax receipts provided by the other options. 

Risks and Considerations to Accepting Cryptocurrency

While blockchain and encryption make cryptocurrencies difficult to hack or counterfeit, that doesn't mean it's without risk. 

For example, most cryptocurrencies are held in digital wallets and require a key and password to access the funds. But, digital wallets can be the target of hackers. Or, at worst, owners may lose the key and passwords needed to access the money. Once lost, cryptocurrency is gone forever. It's estimated that 4 million in Bitcoin may be unrecoverable. 

Cryptocurrency is also used for transactions on the dark web. The anonymity of cryptocurrency and obfuscation of transaction details is appealing to those with less than lovely intentions. 

Additionally, the IRS treats cryptocurrency as property and taxes it as such. It may also be considered capital gains, depending on the scenario. For more information on how the IRS handles cryptocurrency, visit their Virtual Currency FAQs page. 

Is Cryptocurrency Right for Your Nonprofit?

While there are upsides to accepting cryptocurrency for donations, such as capturing new donors, there are risks as well. No matter what you decide, it seems we are in a brave new world of digital currency.