Cryptocurrency: How Nonprofits Can Tap Into New Sources of Donations
Nonprofits are increasingly looking to crypto philanthropy as a fundraising source, and there is some impressive data as to why.
Fidelity Charitable found that 45% of crypto investors donated to charities in 2020, compared to 33% of general investors. Fidelity Charitable along with other organizations reported massive increases in crypto donations, with more than ten times the amount received in 2021 compared to 2020.
Still, for many nonprofits cryptocurrency remains something of a mystery. An encrypted data string denotes a unit of currency, and it is monitored and organized by a peer-to-peer network called a blockchain. That can all seem rather complicated on the surface, but while the value of crypto has experienced some volatility, adoption of it continues to grow.
It’s also interesting to note that HODLers, a group of crypto owners following a “hold on for dear life” strategy, own a large percentage of cryptocurrency. For Bitcoin, it is estimated that 1% of holders control 27% of the supply. Could this be a donor group you haven’t yet looked at?
It seems that blockchain as a technology is likely to be here to stay, impacting how we earn and spend money. Savvy nonprofits will want to look into this early – how can you tap into these new sources of donations?
How is cryptocurrency changing philanthropy?
Cryptocurrency is an innovative way of generating and utilizing wealth. It has facilitated ordinary people making large sums of money and has a large contingent of enthusiasts.
From a demographic perspective, millennials are the most likely to be involved with and interested in cryptocurrency investing. 35% of millennial investors own crypto, while half of those who haven’t invested in it say they’d like to. In good news for nonprofits, 90% of millennials are inclined toward charitable giving, compared to 74% of the total population.
Increase in digital asset donations
When you look at the combination of inclination to give and investment in cryptocurrency, millennials are the largest group at the center of the Venn Diagram. For nonprofits, this means an increase in donations of cryptocurrency.
One-third of cryptocurrency investors have donated crypto to charities, although surprisingly, the tax implications of this are not well-known among crypto investors. Fidelity Charitable found that cryptocurrency investors weren’t particularly savvy about the capital gains tax requirements if they sell long-term appreciated assets. Similarly, they often hadn’t grasped that by donating cryptocurrency directly, they could minimize their capital gains liability.
Another important note is that 55% of cryptocurrency investors weren’t sure that digital currency could be donated to nonprofits. This could provide a clue for nonprofit campaigns – it may be worth specifically mentioning cryptocurrency as an option.
Potential transaction savings
Traditional financial services platforms embed a lot of fees, both for the donor and the nonprofit. On the other hand, the transaction fees associated with cryptocurrency donations are on average much less than card transactions.
When compared to wire transfer transaction fees, users are reporting that cryptocurrency transfers incur fees that are up to 80% less. For donors and nonprofits, this can be a win-win. Nonprofits in particular can save large sums across multiple donor transactions and accumulate an appreciating asset.
Donor anonymity
As you know, nonprofits find it easy to go back to their existing donors and request more donations. They’re on the list and you have their contact details – it’s more straightforward than finding entirely new donors.
However, for many people out there, this is why they prefer to be able to give anonymously. They’re hoping to avoid being on a list of target donors and feel less pressure this way.
In terms of large donations, KYC (know your customer) laws often mean that anonymity must be waived. However, laws around cryptocurrency, while bound to change, haven’t yet gotten there. This means donors can give a large crypto donation while remaining anonymous.
From an iWave perspective, it’s important to note here that crypto-donation anonymity means that we can’t track whether a prospect is a potential cryptocurrency donor. However, you can gather intelligence on prospects which may indicate they’re a likely crypto holder. For example lifestyle, demographics, and career information.
How could blockchain impact the future of fundraising?
There are both positives and potential negatives of the impact of blockchain on the future of fundraising. Here are some of those:
Fundraising innovation
Blockchain represents opportunities for nonprofits to innovate and tap into a new way of giving. So far, most crypto donations have come from tech-savvy, young adults. They often respond to causes that are publicized on social media.
Additionally, there’s a move toward cause-based funds. This is where donors support a particular cause that is near to their hearts rather than choosing a specific non-profit organization to donate to. The Giving Block is one example with its Impact Index Funds. These funds support a cause, such as education, mental health, environmental causes, and more, so that no one charity is getting all donations. This could be good news for smaller nonprofits in particular, who tend to be less known.
Nonprofits need to introduce technology
This could be a positive or negative, depending on your perspective. In order to tap into blockchain for fundraising, nonprofits need a safe, secure way to accept cryptocurrency and protect the identity of their donors. At the same time, they need to protect themselves from frauds that have happened within the blockchain.
There is still a lot of ambiguity as various jurisdictions scramble to update legislation that will help to prevent financial crimes via blockchain and provide protections to those who receive it.
Adding to this, nonprofits need to be able to safely and easily exchange their crypto donations for local currency. This requires the technology to do so safely.
Value risk
Accepting crypto donations can mean that nonprofits gain an asset that appreciates so that they otherwise get a larger donation than they would have if it were cash. However, the risk with any appreciating asset is also that it depreciates – if crypto were to dive, the nonprofit could find they lose significant donation funds.
Improved trust
Cryptocurrency provides the ability to track and trace funds, meaning that nonprofits who receive crypto donations will be even more financially transparent. This can help to build trust with donors who can see exactly how their donation is used.
How to utilize NFTs for fundraising
An NFT is a “non-fungible token” that can be exchanged on a blockchain. You can look at NFTs as a way to prove ownership of original, tangible material. For example, a JPG file of an artwork or the MP3 file of a song.
NFTs provide a verifiable way for creators or collectors to prove they’ve created or bought something. An NFT is exchanged (“minted”) on blockchain and there is a digital record of every transaction.
For nonprofits, NFTs represent another possible new avenue of fundraising. Some examples of utilizing them include:
Hold public auctions of NFTs
Major NFT aggregators such as OpenSea tend to attract large audiences and higher bids. Your organization could partner up with a desirable artist or creator to produce NFTs for auction. NFTs are currently attracting tens of thousands of buyers per month.
NFT giving as an investment
Another potential way nonprofits can utilize NFTs is if donors were to purchase them, then donate to the organization. Nonprofits might prefer to sell the NFT and convert it to cash value, but they do also have the option of hanging onto them as a potentially appreciating asset.
NFT proceeds donations to nonprofits
Another avenue nonprofits can look at is the artists themselves. Those that successfully sell NFTs may be willing to donate some proceeds to charity – in fact, research shows they’re already doing that.
Conclusion
Cryptocurrency is a growing interest for nonprofits, particularly as more potential donors invest in crypto or NFTs.
There are opportunities to accept donations in the form of cryptocurrency, or to partner with artists that sell NFTs. While that does involve the uptake of technology to accept crypto, along with some risk, there are also plenty of potential rewards.
One thing nonprofits can do is take a good look at their donors. Do you have donors who are likely investors in cryptocurrencies? Have people asked if they can donate crypto? iWave’s donor intelligence solution can help you to build profiles and get a good idea of whether cryptocurrency is your next move.
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