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How cryptocurrency has become a force in philanthropy
BPrasith Toudomvet/Shutterstock (Licensed)
It’s not just for deep web purchases anymore.
When people think of cryptocurrency, they don’t typically think of philanthropy.
While people often have diverse views on cryptocurrencies—some see them as the new frontier while others focus on the money laundering and security concerns—donating to charity isn’t something often considered.
But regardless of where one falls on the spectrum, cryptocurrencies have been making a mark in the philanthropic sector for a few years now.
People who have made a lot of money from their cryptocurrency companies and/or investments have been making large gifts to charities. Most recently, in April 2019, the New York Business Journal reported that Chris Larsen, co-founder of Ripple; his wife Lyna Lam; and Rippleworks, Ripple’s social venture foundation, made a gift of $25 million to San Francisco State University in Ripple’s cryptocurrency, XRP.
In 2018, his company made $50 million in cryptocurrency gifts to 17 universities throughout the globe for a new University Blockchain Research Initiative. Moreover, in that same year, Ripple funded every DonorsChoose.org classroom with a gift of $29 million of XRP.
And that’s just one man and his affiliated cryptocurrency companies. The Pineapple Fund, “a philanthropic experiment,” donated $55M in Bitcoin to charities since 2017. An anonymous donor known only as Pine explains on his website: “because once you have enough money, money doesn’t matter.”
At the end of May 2019, Ben Delo, bitcoin billionaire and co-founder of BitMEX, signed the Giving Pledge, which means pledging most of his wealth to charity, along with other philanthropic giants, like Bill and Melinda Gates. Moreover, Fidelity Charitable, considered the top donor in the U.S. in recent years, received $69 million in donations of cryptocurrency.
Many charities have been responsive to the market of cryptocurrency. Several established charities, like Save the Children and the American Red Cross, have been accepting cryptocurrencies for several years.
The Tor Project was an early adopter of cryptocurrencies. The Tor Project is a nonprofit that aims to “advance human rights and freedoms by creating and deploying free and open source anonymity and privacy technologies.” It has been accepting Bitcoin since at least 2014 and recently began accepting other cryptocurrencies like Augur (REP), Ether, and many others based on the inputs of the cryptocurrency community in March 2019.
Sarah Stevenson, Fundraising Director at The Tor Project, explains in a phone interview that the organization’s experience with cryptocurrencies has been “an amazing experience for Tor… I reached out a lot of different people in cryptocurrency community and they were extremely helpful in helping us figure out which coins to accept, wallets and exchange to use.”
This change in Tor’s acceptance policies has been fruitful; since March, they’ve raised $67K in various cryptocurrencies.
The Water Project is another charity that embraced cryptocurrencies early on. The nonprofit aims to “unlock human potential by providing reliable water projects to communities in sub-Saharan Africa who suffer needlessly from a lack of access to clean water and proper sanitation.”
Peter Chasse, President and Founder of The Water Project, explains that the nonprofit was the second recipient of the Pineapple Fund. When asked about their experience with the currencies, he says that it has been fantastic and great to be at the center of it all. The Water Project has been the beneficiary of several cryptocurrency initiatives, including a recent digital art sale with cryptocurrencies through Xero Gallery.
Some organizations have tried to create coins to assist in fundraising such as UNICEF’s Game Chaingers, which asked gamers to use their computing power of their graphic cards to mine for Ether for relief efforts in Syria. WorldCoin raised $10K for The Water Project but Chasse notes in a 2014 blog post that volatility, unfortunately, halved the amount raised.
Indeed, with something so volatile—Bitcoin was once at $20K before plummeting—how exactly do charities handle that?
When someone makes a donation, the cryptocurrency is transferred to a digital wallet, a system that stores user’s payment and password information. Then the charity would work with a third party like Bitpay to convert the cryptocurrency into dollars or other more traditional currencies. There may be conversion or transaction fees with each transfers.
Best practice is to convert the cryptocurrency into dollars when it is received, similar to how nonprofits already handle gifts of securities.
John Taylor, Principal at John H. Taylor Consulting, explains that nonprofits have traditionally converted gifts of stock and other gifts-in-kind that cannot be used by the charity—notably exceptions such as art pieces for a museum or food for an event—into cash.
This practice means that charities do not have to play a guessing game with when to sell a stock or an asset. Occasionally, they may hold on to a stock for investment purposes, but that’s not a common practice, Taylor explains. Granted, Taylor notes that some cryptocurrency donors may be displeased about the sale, but that’s why charities need to have gift agreements to manage expectations of the donor and the nonprofit.
One notable difference from regular fundraising is the anonymity of many of their cryptocurrency donors.
Both charities noted that most cryptocurrency donations have come from anonymous donors. Chasse explains that part of the anonymity is concerns of donors from hacking. Since fundraising has historically been about creating and maintaining relationships, anonymity presents a hurdle for nonprofits. To handle this pool of anonymous donors, The Water Project developed an application that people can track the pool of cryptocurrencies and how it is being used.
Taylor has been working with a variety of nonprofits about fundraising vehicles for decades. In a phone interview, he explains that he sees cryptocurrencies as another gift vehicle, or another means to donate money akin to securities or property. Taylor said that he’s seen hesitation to new fundraising vehicles for many decades: “I had these same conversations in the late 1980s/early 1990s when donors were asking [about accepting] Discover Card. We had CFOs didn’t want to take on another credit card [because it would be hard to reconcile]… Cryptocurrency is not a big deal.”
Instead, he thinks it’s important for charities to figure out how to accept cryptocurrencies if a donor wishes to give a cryptocurrency. Taylor says, “It’s is a big deal if you don’t take the time to research how to accommodate such a donation.”
As The Tor Project found, there is quite a boost to opening the nonprofit to new currencies.
Taylor sees cryptocurrency as akin to closely held stock, something that charities have been accepting for a while.
However, there are many critics of cryptocurrencies as a field, due to issues with security and concerns over money laundering. Recently, Gerald Cotten, CEO of QuadrigaCX, passed away without sharing his password; customers lost out on $136 million as a result. Taylor points out that money laundering has always been a concern with philanthropy since the 1980s, so it’s nothing new. Chasse said that they attempt to run cryptocurrencies through anti-money laundering (AMLs) services to counteract money laundering and other nefarious schemes. It’s tricky when donors are anonymous but nonprofits do what they can.
Another criticism of cryptocurrencies fundraising is the tendency with some cryptocurrency organizations to go around established charities. In 2013, Ripple has been encouraging people to give to Give Directly, “a platform for donors to provide direct transfer resources to the extreme poor.”
One of the attractions of cryptocurrencies is the decentralization of currency, away from central governments and states. So this group of donors may be inclined to be distrustful of established third-parties like nonprofits. Chasse cautions cryptocurrency companies and related organizations: “If you want to support philanthropy and charity, don’t recreate wheels that are already spinning effectively. Be a blockchain based company, don’t do charity by yourself.”
When asked about the future of cryptocurrency in charities, the people interviewed had mixed views. Taylor is not sure if “it is a flash in the pan. If you look at the percentage of individuals that exchange cryptocurrency, it’s negligible.” He advises against nonprofits going overboard in attracting cryptocurrencies, such as developing specific campaigns to find those donors.
Stevenson, on the other hand, sees lasting appeal of cryptocurrencies in fundraising. She explains, “It’s not going to go away; it’s growing everyday… It takes time to be accepted generally but I expect it to be widely adopted in the near future.”
Chasse takes it further, seeing great potential for cryptocurrencies.
Right now he sees them as another fundraising vehicle, but future development could make a huge impact for nonprofits like his. Chasse aims for “radical transparency” and sees great potential. He says: “if an organization wants to be radically transparent and want to have ongoing audit with donors, cryptocurrencies/blockchain offers a way to do that, you can build applications where you can show people how the money flows through your organization all the way to buying a shovel in Western Kenya.”
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Elisa Shoenberger is a writer and journalist in Chicago. She has written for the Boston Globe, Deadspin, SyFy, and other publications. She also writes regularly for Book Riot, Best Lawyers, Book and Paper Fairs Blog, and Streeterville News. She has worked in fundraising for over seven years.