Bitcoin and other cryptocurrencies have experienced a series of highly-publicised trials and tribulations over recent months, after reaching giddy heights last year in terms of valuation and public awareness. But despite the gleeful prediction of some commentators that “the bubble is about to burst”, it seems that whilst there might be some fairly substantial market corrections to come, many cryptocurrencies are looking set to stick around for the foreseeable future. It also remains the case that there is a new class of “crypto-millionaires”, who are sitting on gains (usually unrealised) from the astonishing rise in value of cryptocurrencies over the last few years.
In this blog, I want to explore what potential there is for harnessing some of this new crypto-wealth for philanthropy, and what the challenges and opportunities might be in doing that. In a weird way, this brings me right back to where I started with crypto, as in Giving in the Digital Age - the very first blog I ever wrote on the subject back in 2013 - my thoughts weren’t much more sophisticated than that I had heard of Bitcoin and was curious about whether charities could tap into what seemed like a potential new source of funding. Having spent the subsequent four years musing on all sorts of other ways that blockchain technology might affect philanthropy – from radical transparency to charitable DAOs; and from social impact prediction markets to philanthropic washing machines – the time now seems ripe to return to this original question (albeit hopefully in a more informed manner…)
WHY MIGHT CHARITIES NOT WANT TO ACCEPT CRYPTO DONATIONS?
There are a number of questions that are likely to be at the forefront of any charity’s mind if the suggestion of taking crypto donations arises:
1. Complexity
Anyone coming to cryptocurrency for the first time may find it a bit bewildering. There are over a thousand cryptocurrencies on the market now - many of which make pretty elaborate and grandiose claims about why they are the best, and often have armies of online fans who will vigorously defend them whilst rubbishing their competitors. Furthermore, there is a whole new lexicon to familiarise yourself with (‘mining’, ‘blockchain’, ‘consensus protocol’, ‘forking’, ‘hash function’, ‘proof of work’, ‘proof of stake’ etc.) For outsiders, this may all seem a bit off-putting.
As I said, I don’t know for sure that crypto donors would be likely to be sceptical or distrusting of charities. However, I have seen signs of these sorts of attitudes in the efforts to apply blockchain technology to philanthropy more widely; as some projects put forward what I would consider to be an overly-strong and negative narrative about charities and why they can’t be trusted in order to explain why the transparency that can be achieved with blockchain is necessary. I would guess that charities that try to engage potential crypto donors would have to overcome some of the same scepticism or negativity. (Although, of course, we should remember that this is merely part of a much wider need to combat cynicism and proclaimed lack of trust in charities).
WHY MIGHT SOMEONE WITH CRYPTO WEALTH WANT TO GIVE IT TO CHARITY?
Finally, let’s come back to something more positive. Why might someone who has made significant amounts of money through crypto want to give some of it away? Again, one answer is obviously “for all the manifold reasons that anyone else gives”, but are there any motives that might be particular to this group of potential donors?
One, as outlined above, is that their wealth might be particularly unexpected. So rather than having the attitude towards wealth of a salaried employee, or an entrepreneur who had built and sold businesses, they might istead have something more akin to the attitude of a lottery winner, and hence be more amenable to giving a reasonable chunk of their new found wealth away.
Another reason for giving might be that you think the crypto market has topped out, or that you think it is going to suffer a major correction, and that by donating in crypto now you would be able to give at a level that may be impossible for you at any other point. If that is the case, then can I be the first to suggest that you think about shifting from HODLing to GIEVing (© me, just now)?
A related and more practical (some might even say cynical…) reason for considering giving in crypto is tax. Since, in the UK at least, cryptocurrencies are currenlty viewed as investment assets for tax purposes, donations of crypto would be treated in the same way as direct gifts of shares or property. This means that they would be exempt from capital gains tax, and the donor could also offset the fair market valuation of the donation against their taxable income for the year. Given the astonishing rise in value of many cryptocurrencies, anyone who has held them for a while would potentially face a very large CGT bill if they sold them off at this point. Hence the possibility of donsating a chunk that would then avoid CGT might be very appealing.
This is also worth noting from the charity’s point of view, as it is one reason that it is worth considering setting up an exchange wallet or similar in order to take direct crypto donations. If, instead, you asked any potential donor to realise their crypto assets into fiat first and then make a donation, they would have to pay CGT (so, presumably, there would be less left to donate) and they would only be able to claim their marginal rate of tax back as relief through Self Assessment, so they would get a much smaller personal tax releif. For a donor giving a very large amount, this might be a major consideration. (Of course, we are assuming here that people actually pay tax on crypto assets, which may not actually be the case in many instances at the moment, but let’s gloss over that for now!)
Hopefully that spells out some of the key opportunities and challenges in terms of the potential for cryptophilanthropy. In case it wasn’t clear already, I am definitely NOT suggesting that any charities run out and take a loan in order to buy Bitcoin. I’m not even suggesting that all charities should necessarily consider enabling donations in cryptocurrency. But for those who are sufficiently confident that they understand the technology, it is something they should at least think about. Particularly if they can do it in a way that minimises the risks associated with volatility and KYC/AML as outlined above. And for those who have made money through crypto and like the idea of doing some good with it, I definitely think they should engage with charities to see whether they are willing to enable crypto donations (if they aren’t happy just to sell the crypto and donate in fiat of course). To repeat my refrain from above: it’s time to shift from HODL to GIEV.