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Essentials of Crypto-Gifts and Bitcoin Bequests for Nonprofit Executives: What’s it All About?

Essentials of Crypto-Gifts and Bitcoin Bequests for Nonprofit Executives: What's it All About?

Cryptocurrency Gifts and Bequests:  What’s This All About?

It would be difficult to find a fundraiser to admit that she was avoiding the active cultivation of cryptocurrency gifts and bequests.  Nonetheless, a random look at the websites of a number of charities, large and small, reveals that many organizations are ignoring this new and gigantic source of revenue.   Startling, no?

In the last decade, and especially the last two years, the “crypto” market has exploded, with the total value of Bitcoin alone in early 2021 at about $1 trillion. Want to hear about an opportunity most of us missed?  The first recorded Bitcoin transaction, just a decade ago, was the purchase of two pizzas for 10,000 Bitcoins.  If the pizza maker happened to hold on to the payment, it is in early 2021 worth about $500,000,000.  That’s right.  Half a billion dollars. Even if those pizzas were sprinkled with a double portion of extra cheese, that is quite a return.

Those who lead (and those who raise funds for) charitable organizations may be wary of crypto-solicitation simply because it is new and, admittedly, a little mysterious.  A similar sea change in the nonprofit world occurred a quarter-century ago.  Can you imagine?  Some poor souls actually thought that it would be possible to raise money on a contraption known as the inter-nets (or was it net?)  Get the picture?

We think that there are some basic things you should know, and think about, before disregarding crypto-fundraising.  This essay, and one to follow, is our effort to summarize those key points.  We want to make clear that when we mention particular platforms or financial service providers, it is by way of illustration.  We are not recommending them.  Frankly, though, we wouldn’t mention a provider unless we were convinced of its integrity.

#1 It’s Not Just Bitcoin

“Bitcoin” is not synonymous with “cryptocurrency,”  Bitcoin is the most well-known type of digital currency.   There are, however, over 2000 “brands” of digital currency.  The good news is that a charity fundraiser doesn’t need to know all of them, or even any of them, in detail. More on that later.  In general, in this series of postings, we will often use “Bitcoin” interchangeably with “cryptocurrency.”  That is just a shorthand for stylistic purposes.

#2 The Digital Difference

We are all accustomed to electronic financial transactions.  You can buy something on eBay and pay for it via PayPal.  Once you authorize the transaction PayPal accesses your bank account, the bank verifies that you have sufficient funds and transmits an electronic message to PayPal, which, in turn, deposits the money into the seller’s account.  Let’s say that the price was $100.  The electronic transaction we just described was a proxy for you withdrawing $100 from your bank account in the form of a note ($100 bill) issued by, and backed by, the United States government and giving it to the eBay seller.

Digital currency is different.  Unlike the situation above, where the electronic information stands for the “real” money, in the cryptocurrency world, the information is the money.  Moreover, at this point, none of the available cryptocurrencies is backed or issued by any government.

The system in which it works is highly secure and completely anonymous.  Obviously, if a donor sends a Bitcoin contribution to a charity and identifies herself, the charity will know the source.  On the other hand, if the donor has a strong interest in anonymity, cryptocurrency is her ideal solution.

#3 Cryptocurrency is More Than a Fad

The naysayers who avoid Bitcoin may take the position that the whole “crypto thing” is just the darling of the moment and will surely die on the vine, probably sooner than later.  Horseless carriages, talking pictures, electronic mail – all of these were earmarked for extinction by the then-current traditionalists and, well, the rest is history.

The explosive growth of these new currencies certainly warrants the attention of the charitable world.  In fairness, there are responsible voices, including at least one official of the Federal Reserve, articulating the view that governments will soon develop their own digital currencies and drive the Bitcoins of the world out of business.  Maybe, but betting the farm on that outcome could wind up costing you the farm.

#4 Cryptocurrency Will Not Become Significant in the Charitable World – It Already Is

It is difficult to give current statistics on Bitcoin ownership and use, mainly because the numbers are growing so quickly.  Some of the giant donor-advised funds report that the amount of crypto-gifts has been doubling, year over year.  An already-outdated estimate puts annual charitable crypto contributions in the $300,000,000 range.  Roughly 20% of U.S. residents own and/or transact in cryptocurrency.

The IRS has issued regulatory guidance confirming the tax-favored status of Bitcoin donations.  Bitcoin is treated as property, just like a stock. Bitcoin gifts, therefore, appeal to donors.  Unlike many stock donation transfers, Bitcoin gifts are easy, quick, and low-cost (or even free).

Take a look at our related posting on preliminary steps needed to dive into Bitcoin fundraising.