Should Charities be surfing the Crypto wave?
Cryptocurrencies have grown in popularity as forms of payments and finance over the last couple years and it begs the question, can charities make use of them and are there any risks involved?
Cryptocurrencies have become the new modern way for many organisations to deal with their finances. From investment to donations, charities can be opportunistic and use the many benefits of cryptocurrencies to make things easier for them. With cryptocurrencies gaining as a form of payment and investment, charities could strike gold or be digging at nothing. Here are some ways that your charity can benefit from Crypto as well as the potential baggage that Crypto carries with it:
Disclaimer: This blog is not to be interpreted as promoting financial advice, rather a summary of the positives and negatives of using cryptocurrencies in business.
Terms to know:
Cryptocurrency – A digital currency used for payments in which the transaction is carried out through a decentralised system.
Token – Digital representations used to represent an asset on or facilitate a transaction on the blockchain.
Blockchain – Decentralised system used to record transactions, mostly cryptocurrency ones.
Decentralised system – Unalterable systems to record transactions, most notably, cryptocurrencies. The data is permanently recorded and viewable to the public.
NFT – A ‘non-fungible token’ is a unique decentralised asset, made via the blockchain that cannot be replaced.
Why should your charity consider Cryptocurrency?
Support a cause with cryptocurrency donations:
Your charity now has the ability to accept donations in cryptocurrencies such as Bitcoin, Ethereum, and Litecoin (three of the more popular cryptocurrencies). This can provide donors with greater flexibility and convenience when making donations which allow donors to make donations quickly and easily from anywhere in the world, without the need for a traditional banking system. This can also help your charity to reach a wider audience of Crypto enthusiasts, a demographic that was once widely out of reach.
Embracing this new audience of Crypto donors is a further way for your charity to directly engage with a new highly generous donor base that is regarded as being very enthusiastic about ethical causes and passionate about what they support. Also, with fundraising tactics evolving and the raising of cash becoming significantly more strained, it may just be wise to have an open mind and explore this new avant-garde.
For example, a charity could create a token on a blockchain, which is used to represent an asset on or facilitate a transaction on the blockchain, the decentralised platform for recording cryptocurrency transactions. This can be offered to donors as a way of raising funds. These tokens could have a specific use case, such as giving donors access to a charity’s services or products. For example, British Red Cross is now trialing cryptocurrency donations to support their cause. This growing confidence in cryptocurrency is a reason to consider adopting cryptocurrency as a supportive donation method.
Transparency and traceability of cryptocurrency:
Blockchain technology, which underpins many cryptocurrencies, provides a secure and transparent way of recording transactions. Your charity can use this technology to provide greater transparency to donors, allowing them to see exactly how their donations are being used. This decentralised system makes it easier for tracking donations and ensuring that they are used for their intended purpose. Trust in the donation process is essential, especially for donors who want to ensure their generosity is being used for the purpose and with the intent to deliver on what they expect. This requires a transparent traceability system and one example of this is through the Ethereum platform. The blocks recorded (transactions) are visible to every party involved. Having this decentralised system helps to alleviate the uncertainty of where donations are going and is a more transparent way of recording donations.
Not so kryptonite Investments:
You can invest in cryptocurrencies as part of your charity’s investment portfolio. While cryptocurrencies are known for their volatility, they can also provide high returns in the long run. However, it’s important for charities to carefully consider the risks and potential benefits of investing in cryptocurrencies before making any decisions. Transactions in cryptocurrencies typically have lower fees than traditional banking systems. This means that charities can receive more of the donation amount.
Access to new funding:
Some cryptocurrencies have been designed specifically for charitable purposes, such as GiveCrypto and Binance Charity Foundation. Charities can use these platforms to access new sources of funding and reach a wider audience of potential donors. Cryptocurrencies can be used to receive donations from anywhere in the world, without the need for a bank account in that country which gives you that global reach.
The dark side of Crypto currencies – things to take into consideration.
However, it’s important to note that cryptocurrencies can be volatile, so charities need to be aware of the risks and manage their funds accordingly. For example, back in 2021, Bitcoin had a couple of sporadic phases in its lifetime where the value of a single bitcoin fluctuated, losing 30% of its value in one day and then somewhat recovering a part of that loss. These examples of volatility do undermine the intrinsic value of cryptocurrency investments and bring into question whether they’re the right investment choices.
Additionally, not all charities may have the infrastructure (ways to accept Crypto like a wallet) or resources to accept cryptocurrency donations, so it’s important to research and find a reputable charity that accepts Crypto if you’re interested in donating in this way. There are different ways of receiving cryptocurrencies and they vary in technicality. For example, charities could use an intermediary to manage the transactions, but this leaves the charity without custody of that cryptocurrency or a wallet which the charity would need to be records recorded on donor transaction information as well as who has the access credentials to the wallet, a further security question to be answered internally.
Does Crypto help the environment?
Another crucial issue which takes aim at the ethical values that a charity would like to retain, is the environmental impact that cryptocurrency generation can have. To create more, a technique known as mining, requires a very intensive amount of electricity usage. While not all cryptocurrencies use this technique, the 2 Crypto leaders (Bitcoin and Ethereum) do and while these 2 are the most widely accepted in form of transactions, this could mean a conflict of interest with charities wanting to prevent energy waste and not perpetuate a problem of energy inefficiency that is contributing to global environmental concerns.
Overall, while there are potential benefits to charities using cryptocurrencies, it’s important for charities to carefully consider the risks and ensure that they have the appropriate knowledge and expertise before getting involved.