What Is Cryptocurrency And Why Does It Matter To Nonprofit Organizations?

Why does cryptocurrency matter to nonprofits?

Cryptocurrency Defined

Cryptocurrency, or crypto, is a digital asset that can be used to buy goods and services and even make donations. Crypto is secured by blockchain technology, which describes a network of linked computers.  The network is decentralized, and all transactions are recorded, so this technology is the most secure way to buy, sell, create, and trade digital assets. 

Individuals, nonprofits, and corporations around the world are growing with technology and embracing the applications of blockchain and cryptocurrency. The global crypto market is expected to reach $4.94 Billion by 2030. 

Cryptocurrency allows transactions to be completed faster and with more transparency than traditional payment types ever have. They cannot be fraudulently duplicated, and every transaction is uniquely recorded on the blockchain. 

 So why does this matter to nonprofits? 

Crypto For Nonprofits

The Opportunity For Organizations

In 2020, it was reported that 45% of crypto-investors donated at least $1,000 to charity. Those donations created over $300 million in revenue for nonprofit organizations. Crypto investors remain active in the purchasing, trading, and selling of digital assets for a variety of reasons including wealth, curiosity, and innovation. Crypto donors tend to be younger than traditional donors and seek creative ways to positively impact society.

Digital assets have great potential to increase in value. Accepting, holding, and reinvesting cryptocurrencies as donations can provide future financial growth for your organization. If your nonprofit is not accepting cryptocurrency as donations, you are missing out on substantial earning potential. 

Donor Benefits

The most notable financial benefit for donors that make contributions in the form of cryptocurrency is avoiding capital gains tax. Investors that purchase cryptocurrency for a low price and then sell their asset when it has reached a higher value, stand to pay significant tax on the gain. When that high-value crypto is donated rather than cashed in or sold, the investor can support a worthy cause and avoid the capital gains tax.

How To Get Started With Cryptocurrency

Know The IRS Regulations

Accepting donations requires a nonprofit organization to comply with the regulations set by the Internal Revenue Service (IRS) and other governing agencies. The IRS requires that cryptocurrency be regarded as property and carries the same reporting and tax implications as noncash charitable gifts.

Individuals or businesses that donate cryptocurrency or other digital assets that are valued above $500 must complete Form 8283 and noncash gifts valued higher than $4,999 must be professionally appraised. The receiving nonprofit must report any contributions over $5,000 on Schedule B with the IRS. 

Some donors choose cryptocurrency as their means of contribution so that they can remain anonymous. They may not want to receive future communication from the organization or similar charities, or they may have personal reasons for leaving their name out of the donation. Anonymity can make it difficult for a nonprofit to comply with IRS regulations and legal requirements.

Nonprofits can require personal data from crypto donors but may lose some potential contributions in doing so. Referring to your internal organization’s policies about cryptocurrency is the best way to handle this conflict.

Create Crypto Gift Policies

If your organization is considering accepting cryptocurrency as revenue or you’ve already received digital donations, it is a good idea to have documented cryptocurrency gift policies. The gift policy should contain details about what your nonprofit will permit regarding digital assets.  The written policies should be distributed to interested parties and reviewed and updated frequently.

Some questions you can refer to when creating crypto gift policies include:

  • What types of cryptocurrencies will the organization accept?
  • Will the organization accept anonymous crypto gifts?
  • Will the nonprofit convert to traditional currency or hold the asset for value appreciation?
  • Will the organization use a third-party solution to accept these gifts?
  • Which members of the organization will be the point person for cryptocurrency?
  • Will there be an established committee for crypto donations?

Accept Donations

In order to accept cryptocurrency donations, the policies must outline how the gifts will be processed. There are multiple ways to process these donations including:

Intermediary 501(c)(3) 

An easy way to accept digital asset donations is through an intermediary 501(c)3, which is an organization, like Every.org, set up for the purpose of receiving and converting cryptocurrency donations for the benefit of other organizations. 

Nonprofit Crypto Processors 

Another option to accept crypto as donations is to work with a third-party processor, like The Giving Block. This is a great option for nonprofits that rarely receive cryptocurrency because the processor helps with administrative needs and tax compliance.

Crypto Exchange

If your organization wants to automatically convert crypto donations to cash, using a crypto exchange, like Coinbase, allows you to add an easy checkout method on your website for digital asset contributors. 

Digital Wallet

Another option for nonprofits is to set up a crypto wallet to receive, send, and store cryptocurrency. This method requires some expertise because donor information cannot be stored in the digital wallet and the tax implications can be complicated.

Final Thoughts

In 2022, we cannot ignore the financial impact of cryptocurrency. Nonprofit organizations that want to grow and succeed must consider accepting digital asset donations. Contributors appreciate the tax benefits of donating cryptocurrency and nonprofit organizations can convert the donations to cash or store the assets with the goal of increasing their value. 

To get started with cryptocurrency at your organization:

  • Understand tax requirements.
  • Create a cryptocurrency policy.
  • Choose a processing method.

Work with JFW Accounting Services for compliance and transaction expertise.

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