What Nonprofits Need to Know About Cryptocurrency

With cryptocurrency’s explosive growth and recent headline-grabbing news, many nonprofits are wondering how to tap into “crypto philanthropy”, and if it’s a trend that’s here to stay. Others already have. If you’re a nonprofit who wants to explore cryptocurrency, there’s a few things you need to know.

What is Cryptocurrency?

Well, it’s a little complicated.

Cryptocurrency is an internet-based medium of exchange which uses cryptographic functions to conduct financial transactions. The creator of Bitcoin (one form of cryptocurrency), who goes by the name of “Satoshi Nakamoto”, kind of broke the internet when he published “Bitcoin: A Peer-to-Peer Electronic Cash System” and argued for an electronic payment system based on cryptographic proof instead of trust, that allows any two parties to transact directly with each other without the need of a trusted third party.

But what does that even mean? 

For the sake of simplifying here, we’ll call cryptocurrency a digital, cash-less, bank-less currency system.

Sounds kinda wild, right? Let's get into it a little bit more.

Deborah Blum explains it well in her blog post, Making Bank, published on The Chronicle of Philanthropy.  

“Cryptocurrency was created as a type of peer-to-peer electronic cash system with no controlling authority. Instead of a central server or central bank, transactions are made, verified, and stored via a blockchain, a public ledger that keeps track of everything that’s ever happened within that network. But for the end users, the people with digital wallets, it comes down, simply, to entries in a database, similar to the numbers account holders see in their bank accounts or investment portfolios.”

Blum offers a solid starting point for what your nonprofit should know before you dip your toes into the crypto current. For now, we’ve outlined what you should know to get your nonprofit setup for cryptocurrency. 

Do your research on the best crypto currency vendors

For every nonprofit considering accepting cryptocurrency, finding the right and trusted services to handle cryptocurrency is critical. When selecting vendors, these are some of the questions your organization should consider:

• What are the set-up fees and per-transaction costs?

• Which currencies are accepted (there are several different types of cryptocurrencies, with Bitcoin being the most well-known)?

• Does the digital-to-dollars exchanges happen automatically or does it have to be initiated?

• How does the service integrate with other payment options?

• What’s the user experience for donors?

• What technical support can your nonprofit receive once it starts handling digital assets?

Adjust your investment and gift acceptance policies accordingly

Before you decide to adopt cryptocurrency for your organization, your investment and gift acceptance policies should reflect that. Most nonprofits that accept cryptocurrency require the gifts to be immediately converted to U.S. dollars, similar to gifts of stock or other donated securities. 

Something to keep in mind is the anonymity of cryptocurrency. Though transactions on the blockchain are associated with the public addresses of both the sender and receiver, the network never reveals the people to whom the addresses are linked. This can be a challenge for fundraisers, as the IRS requires nonprofits to identify some donors on a confidential part of their informational tax returns. Make sure to familiarize your organization with all aspects of cryptocurrency gift acceptance.

Ensure thorough recordkeeping of cryptocurrency for filing your 990

The Internal Revenue Service has given limited guidance on cryptocurrency, but their website page on frequently asked questions about virtual currency transactions is a good place to start. Essentially, cryptocurrency gifts are treated like stock, art, and real-estate donations, with the donor able to write off the full value of the assets. For many donors, this has important tax ramifications. An important part of successfully adopting cryptocurrency for your organization, as with many aspects of compliance, is to stay up to date on IRS regulations.

Some Cryptocurrency services that nonprofits should know

As cryptocurrency continues to grow, services are growing with it. Once you’ve done your research and decided on a platform to adopt, you should stay informed on new and updated services. Here are a few to start.

• Coinbase, a platform for businesses and individuals to buy, sell, transfer, and store Bitcoin and a handful of other altcoins (any form of cryptocurrency other than bitcoin), added new payment services and tools that nonprofits can use to boost their ability to accept cryptocurrency donations.

• Engiven empowers nonprofit organizations to securely accept and exchange cryptocurrency. The platform assists set up for digital wallets to accept Bitcoin, and other types of altcoins, and creates a widget on organizations’ websites to make it easy for donors to give.