Progress Without Profit: Cash, card or cryptocurrency?

I’ll be the first to admit that while I’ve heard the term “cryptocurrency” tossed around for the past couple years, my understanding of the concept remains subpar. When I asked my dad — whom I consider an expert in most things finance — for a succinct definition, his less-than-confident explanation of blockchains failed to enlighten me. Thus, I turned to the internet, and the article “What is Cryptocurrency?” on Dummies felt like a good place to start.  

From what I’ve gathered, cryptocurrency — unlike the United States dollar, the Mexican Peso or the Japanese Yen — offers a decentralized form of digital money not backed by a government. Cryptocurrencies, such as  the well-known Bitcoin, are created through mining. Powerful computers solve complicated problems to support blockchains, a sort of database that records the transactions made, thereby removing the need for a physical bank.

Although Bitcoin, the first form of cryptocurrency, was released in 2008, a spiked interest in cryptocurrency occurred this year. However, receiving Bitcoin is not as simple as cashing a check; one must create a digital wallet or use a third-party intermediary to process the payment.

Although I’ve given a bare-bones definition (which is hopefully somewhat clear), the most important thing to note is that cryptocurrency won’t disappear anytime soon. 

As cryptocurrency flourishes, nonprofits must decide if and how they will take part. While nonprofits shouldn’t turn away donations, they need to understand that accepting cryptocurrency comes with its own set of complications. 

According to a 2018 Global Trends in Giving Report, only 2% of nonprofits in the U.S., Canada and Europe accept cryptocurrency donations despite the increasing popularity of the system. 

The 2% of nonprofits accepting cryptocurrency is by no means a representative sample. While large universities such as USC have infrastructure in place to accept cryptocurrency, smaller nonprofits lack the resources needed for the pivot to digital donations.

This past summer, the University of Pennsylvania received a $5 million anonymous donation in Bitcoin. More volatile than stock, cryptocurrency poses risk for the nonprofit. For example, the $5 million donated to UPenn could be worth $3 million or $7 million in a week. Due to this, most cryptocurrency donations to nonprofits are liquidated immediately. UPenn used a third-party intermediary to liquidate the assets and transfer cash to the university. 

Working with over 2,000 different kinds of cryptocurrencies, small nonprofits lack the ability to accept, process and quickly liquidate different forms of donations. Additionally, nonprofit staff may not fully understand cryptocurrency and feel too intimidated to accept it. A small nonprofit staff might not want to bury their heads in a book about the intricacies of Bitcoin during their free time. 

Additionally, if more donors switch to cryptocurrency, smaller nonprofits could get left behind while larger nonprofits adapt to the change. The Giving Block, an organization meant to guide and advise nonprofits on incorporating cryptocurrency, aids nonprofits unable to accept cryptocurrency due to logistical problems. By providing them with the necessary resources, organizations such as The Giving Block can give smaller nonprofits a way to venture into cryptocurrency. 

Aside from mere logistical issues, the blockchains that run cryptocurrency allow for complete anonymity of the donor, which deters nonprofits who want to cultivate relationships with donors in hopes of future additional funding. This may be especially difficult for smaller nonprofits who often rely on a handful of large donors for the majority of their funding.  

Similar to Donor Advised Funds — which I’ve previously written about — cryptocurrency is not subject to capital gains taxes, which allows wealthy donors to avoid paying taxes. As cryptocurrency becomes a more popular medium for donors, the effects of cryptocurrency must also be considered. In theory, money flowing into nonprofits should have no drawbacks, but lax regulations may exacerbate existing inequalities that allow the wealthiest to evade taxes through loopholes. 

The potential for great rewards down the line could outweigh the initial obstacles of cryptocurrency. Often severely underfunded, nonprofits should not shy away from the opportunity to tap into new donors. Additionally, without the obstacle of differing government-backed currency, cryptocurrency simplifies international aid. Lastly, the use of blockchain technology within the transactions allows organizations to track the exact use of cryptocurrency for more transparency and accountability. 

Not all nonprofits will find it beneficial to accept cryptocurrency donations; a fair assessment considering cryptocurrency isn’t an essential form of donations. However, these smaller nonprofits must take their available time, effort and resources into careful consideration before they take the plunge. 

Sophie Roppe is a senior writing about nonprofit organizations and social justice.