Published Nov 17, 2021
By Qredo Team

Crypto and the Third Sector How Charities Can Learn to Love Digital Assets

The arrival of institution-grade infrastructure marks a tectonic shift for digital assets, opening the market to hedge funds, corporate treasurers and large asset managers.

It also smooths the path for another, entirely different kind of institution — the charity.

Faced with many of the same strategic and practical challenges, they now have the opportunity to follow in the footsteps of financial institutions and benefit more fully from the blockchain revolution.

Why should charities accept crypto?

  • Reach more generous donors in the form of newly-wealthy crypto holders. A recent study from Fidelity Charitable found that holders of crypto were more generous than other investors, with 45 percent donating $1,000 or more to charity in 2020, compared to 33 percent of general investors.

  • Boost trust and meet greater expectations of transparency with a public blockchain-based path from donor to recipient.

  • Cut out the middlemen by avoiding long chains of banks and government agencies, making donations go further, faster, at lower cost.

  • Enable anyone to donate anonymously from anywhere.

Crypto: A growing source of donations 💸

As the world of philanthropy has woken up to the benefits of crypto over the last decade, more charities have started accepting digital asset donations from a growing number of different sources.

Back in 2013, when bitcoin was more magic internet money than a macro asset, its charitable potential was brought to light as a group of bitcoiners approached Save The Children to support typhoon relief in the Philippines — prompting the NGO to become one of the first intrepid organizations to accept bitcoin donations.

Then as the market bubbled higher in 2017, the philanthropic trend was kickstarted by an anonymous investor known as Pine, who had a psychedelic-induced revelation that he needed to shed the weight of his massive bitcoin holdings. He set up the Pineapple Fund and donated 5,057 bitcoin (worth ~$86 million at the time) to 60 different charities before closing it down in 2018.

That same year, stablecoins became popular, giving charities another way to accept crypto while reducing the uncertainty of asset volatility and tax reporting.

Since then, charities have claimed a small slice of each new innovative trend.  The rise of Proof of Stake blockchains brought crypto staking pools, of which a small proportion decided to peel off a percentage of the monthly profits for charity (albeit often by reverting to regular bank transfers).

The arrival of non-fungible tokens (NFTs) led to even more high-profile contributions. At the peak of NFT mania, Jack Dorsey sold a blockchain-based token representing ownership of his first ever tweet for $2.5 million — with all proceeds going to the GiveDirectly charity.

Somewhere along the way, charity firmly established itself as part of the increasingly powerful crypto subculture; expressed through fundraising events such as Amir Khan's Crypto Twitter boxing match in Dubai, and the annual #BitcoinTuesday that aims to galvanize giving on a specific date in the crypto calendar.

Some of the biggest names in crypto have helped spearhead such donation campaigns, including Vitalik Buterin who broke records by giving 50 trillion Shiba Inu coins (then worth $1.2 billion) to India’s Covid Relief Fund in May 2021.

Yet despite occasionally hitting the headlines, crypto has yet to gain real traction as a large-scale medium for charitable fundraising. And although the crypto community is increasingly finding innovative ways to give, charities themselves often don't provide a direct route for digital asset donations, causing donors to lose potential tax benefits because the assets must be converted before they can be donated.

Even at the smallest ticket size — casual traders, crypto gamers, and NFT collectors — people involved in crypto at every level are often open to making donations, but are unable to because they are simply not accommodated.

This is reflected in the figures, with the largest crypto donation solution, The Giving Block, collecting only an average of $300M for nonprofits each year — a tiny percentage of the $500BN donated to charity annually in the U.S.

How can charities accept crypto?

Accepting donations in digital assets can be as simple as sharing a QR code. With the right infrastructure in place, all the behind-the-scenes operations — including custody and conversion — are taken care of automatically.

The importance of infrastructure 🏗️

Attracting crypto donations is one thing. But how should charities then hold and manage the funds they do receive?

For charitable organizations with limited resources and technical know-how, the daily operations of managing crypto can bring big challenges: How do you hold it, convert it, account for it, and cash it out? And how do you avoid falling victim to hacks and losses?

These obstacles — around custody, compliance, reporting and cashing out — are similar to those faced by large financial institutions and corporate treasurers when increasing their exposure to digital assets.

They can seem so onerous that  most nonprofits find it too risky (or simply too hard) to explore this new frontier of fundraising or grow it to a significant donation source.

One path is to simply outsource the entire process — this solves some of the operational heachache, but comes at a cost (needing to give up a % of your donation income) and means surrendering funds to a third party that may be unregulated or at risk of hacking.

However, like banks and investment firms — their distant institutional cousins — charities can now benefit from a new generation of crypto infrastructure which allows them to own more of the process and be less dependent on a trusted third party. This includes institution-grade digital asset payment rails that can seamlessly connect willing donors and waiting charities.

With such infrastructure to effectively meet their needs, charities now have the opportunity to embrace digital asset donations and usher in a new era of crypto-powered philanthropy.

If you're a charity, get in touch to find out how Qredo can help you to securely and compliantly accept and manage digital asset donations.

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Disclaimer.The content in this article is for informational purposes only. The author is not endorsing any company, project, or token discussed._

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