The rise of cryptocurrencies, or crypto for short, has brought about new possibilities in various sectors of society. It is not just as a means of investment, it is also a tool for charitable giving, offering advantages like transparency and efficient internal transfers. However, for every good side of something, there is also the flip side or the bad side, so to speak. Risks like volatility and fraud are not uncommon.
With the increasing number of crypto and the constant advancement of blockchain technology, many individuals and organisations are exploring the use of crypto in charity.
In the past few years, crypto-philanthropy has increasingly been gaining traction. In 2017, an anonymous Bitcoin (BTC) millionaire known only as Pine, established the Pineapple Fund, a philanthropic purse to donate $55 million worth of BTC to 60 non-profits.
Pine identified their reason for giving very broadly, “If you’re ever blessed with crypto fortune, consider supporting what you aspire our world to be.” The donor gave to organisations focused on innovative approaches to technology challenges, poverty alleviation, conservation efforts, and medical research.
As more organisations worldwide make the move towards accepting donations in BTC, Ethereum (ETH), and other crypto, crypto-philanthropy became a great way to connect with the young and tech-savvy.
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Source: Fidelity Charitable
Fidelity Charitable received $331 million worth of donor crypto contributions in 2021, liquidating the assets for philanthropy ─ it had gotten $28 million in 2020, which was a stark contrast to the amount received in 2021. Numerous other organisations saw a rise in crypto-philanthropy as well.
But when opting to donate digital coins, one has to weigh the positive and negative impact as well. A major advantage is transparency. With blockchain technology, all transactions are recorded and publicly available (on a public ledger), which allows owners to view where their funds are going and how they are being utilised in real time. This transparency can be useful in building trust between donors and charitable organisations, and increase accountability.
The speed of transactions is another advantage ─ it can be completed within minutes regardless of the donor’s or the charity’s location. This speed can be especially important in emergency situations where funds need to be quickly distributed to those in need.
It also allows for fast and low-cost international transfers, which is particularly critical for charities that operate in developing countries where traditional banking systems can be slow and pricey. By using crypto, charities can swiftly and efficiently dispatch funds to where they are needed most.
Then comes the flip side ─ the risks or disadvantages.
It is inevitable that some challenges or risks are associated with crypto-philanthropy. One concern is that crypto is highly volatile, meaning their value can fluctuate rapidly. This means that a charity that receives a BTC or ETH donation may see its value decrease significantly in a matter of days or less, resulting in a negative impact on the organisation’s finances.
In addition scammers have also set up fake charities to solicit crypto donations (one part is due to the largely unregulated nature of crypto), so it is essential to research the charities beforehand prior to donating. Check out this article about various crypto and NFT scams.
One of the latest incidents was the devastating earthquake in Turkey and Syria just last month. Chainalysis reported recently that around $5.9 million in crypto donations have been made so far to support the Türkiye-Syria earthquake relief efforts. It also identified 18 suspected scam donation addresses tied to the earthquake disaster.
Experts warn that cybercriminals and scammers are taking advantage of the urgent need for aid, launching fake online donation platforms and charities to cheat donors out of their money. Akshay Joshi, the Head of Industry and Partnerships for the World Economic Forum’s Centre for Cybersecurity, said that, “It is crucial that donors validate the legitimacy of the charities they channel their support to and stay cautious of non-traditional payment methods…Charity scams, arguably the most disgraceful crimes, leverage social engineering to exploit the generosity and goodwill of populations as they seek to express their solidarity with those in most need of resources.”
According to a BBC investigation, scammers have circulated appeals for donations to fake charities on Twitter and TikTok, for instance. And according to other expert analyses, scams have also circulated on Telegram and Facebook.
A TikTok spokesperson said in a statement, “We’re…actively working to prevent people from scamming and misleading community members who want to help, and are reminding viewers to report suspicious behavior as we do our part to keep people safe during this difficult time.”
A PayPal spokesperson echoed a similar sentiment in their statement that the company is “always working diligently to scrutinize and ban accounts, particularly in the wake of events like the earthquake in Türkiye and Syria, so that donations go to intended causes.”
Following the earthquake, Confense, an email security company reported a spike in email phishing scams urging people to donate to dubious aid groups with crypto. “Unfortunately, people with less charitable ambitions have decided to exploit the resulting outflow of support for this tragedy and deceive people’s goodwill to make a quick profit,” Confense mentioned in a recent statement.
Here is another outrageous “spending” ─ a castle for charity. It appears that FTX had spent $3.5 million purchasing a centuries-old castle-turned-hotel in the Czech Republic through an obscure non-profit with ties to the “effective altruism” movement. Prior to being closed, part of the grant agreement from FTX stipulated that all donated funds must be spent, resulting in most of it going towards the purchase of the castle “Chateau Hostavoc”.
Following FTX’s blowup in November, the team behind FTX Foundation resigned citing “fundamental questions about the legitimacy and integrity” of the operations funding FTX’s charity programs.
Fortunately, there is a rainbow after the storm, or rather, a positive and uplifting impact of crypto-philanthropy.
Ukraine has received over $70 million in crypto since the start of the conflict between Ukraine and Russia, according to a 24 February report by Chainalysis. Non-fungible tokens (NFTs) have also been donated. ETH donors contributed the most at $28.9 million, followed by BTC donors at $22.8 million, and Tether donors at $11.6 million.
Ukrainian deputy digital minister Alex Bornyakov noted that the speed of crypto payments allowed the country to respond quickly to the invasion as traditional financial systems would have taken too long.
In an interview with Yahoo Finance, the co-founder of Ukraine DAO, Alona Shevchenko, expressed that “crypto provided a solution when the Ukrainian central banking system imposed restrictions on foreign currency transfer sin and out of Ukraine to prevent a run on the hryvnia (Ukrainian currency).” Shevchenko went on to say that crypto allowed them to cover some of the immediate needs of defenders.
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Ukraine’s vice prime minister and minister of digital information, Mykhailo Fedorov, stated in a tweet last August that “a significant portion of the crypto payments received by the digital ministry have been used to finance Ukraine’s military equipment, armored clothing, various vehicles, and medicine.
In mid-January, the Internal Revenue Service (IRS) clarified that donors who make a digital asset gift over $5,000 must obtain an appraisal of their crypto-asset from a qualified appraiser to deduct it from their taxes. This new guidance is consistent with the IRS’ position of treating crypto similar to property, rather than stocks or securities.
What are some factors that contribute to a qualified appraiser? The guidance outlines qualities such as having “earned an appraisal designation from a recognized professional appraiser organization” or having otherwise “met minimum education and experience requirements set forth in regulations.” They must also “regularly perform appraisals” for the asset that is being appraised.
Unfortunately, these appraisals are costly and could drain away money that would have otherwise gone to charities instead. Also, an added burden is placed on the donors to file paperwork with the IRS.
But overall, despite the risks and concerns, many charities and non-profit organizations are embracing crypto as a means of donation. After all, crypto has transformed the philanthropic landscape, opening a vast array of opportunities to serve communities globally as a force for good. It is evident that the trend is growing and here to stay. As an increasing number of charities and non-profit organizations accept crypto, it will be intriguing to see how this form of giving will continue to impact the philanthropic landscape.
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