The traditional way that people give to charities varies substantially from crypto philanthropy. Donor demographics, financing structures, and even the motivations for donating are all shifting, revealing the differences.
The increasing frequency of stock and crypto donations suggests that this kind of giving will have a huge long-term impact on the charity sector, and may even revolutionize philanthropy. The availability of cryptocurrency for charitable giving has already prompted fresh waves of younger people to look into and investigate philanthropy. This has really benefited smaller charities who are often ill-equipped to compete with larger organizations for contributions, but these may only be the beginning steps as digital assets become more ingrained in our lives.
Donations to cryptocurrency are skyrocketing
Last year was characterized as having the largest amount of cryptocurrency donations. According to Fidelity Charitable, a nonprofit that assists contributors when it comes to charitable giving, 45 percent of cryptocurrency investors gave to charity in 2020, compared to 33 percent of all investors. Back in 2020 Fidelity Charitable $28 million, before receiving roughly $331 million in crypto last year. Giving Block, a crypto contribution platform, announced $69 million in total donation volume last year in its annual report, a staggering 1,558 percent increase over 2020.
The simplicity with which cryptos may be sent to any area of the world allows charity organizations to receive contributions from all over the world. Many worldwide charities have begun to accept cryptocurrency donations. To cope with cryptocurrency, UNICEF developed CryptoFund, a new financial entity. Several large organizations, like the Red Cross and Greenpeace, have also started accepting cryptocurrency.
Being able to accept crypto has enabled many nonprofits to accept donor support, who have been unable to obtain money due to government restrictions. WikiLeaks, an international non-profit that distributes news leaks, was banned by the US government in 2010, and its funding was restricted by Visa (V), Mastercard (MA), and PayPal (PYPL). WikiLeaks is now receiving millions of dollars in cryptocurrency donations. Despite its meteoric rise, Bitcoin and cryptocurrency philanthropy remains a specialized type of giving that varies in many ways from traditional techniques.
Cryptocurrency users are, on average, significantly younger than traditional philanthropic givers. Over 60% of Bitcoin users are under 40 years old. The average age of crypto users in the United States is 38, while the average age of donations is 64.
In 2014, United Way, a global nonprofit organization, began accepting cryptocurrency. According to website analytics, the typical user is 45 to 65 years old, and 80 percent of them are female. Meanwhile, the average age of visitors to United Way’s crypto contribution site is 25 to 35 years old, with males accounting for 80% of the total. Cryptocurrency is attracting a big number of young individuals to philanthropy.
Responding to social media-advertised causes
The majority of Bitcoin donations are made by young, tech-savvy individuals who support causes that are gaining traction online. These contributors may be moved by sincere stories and personal connections to specific events. For example, narratives about the Russia-Ukraine conflict that were circulated on Twitter resulted in around $100 million in Bitcoin donations to help support Ukraine.
When India was dealing with the second wave of the COVID-19 pandemic, social media became a COVID-19 helpline with a worldwide reach, which ended up resulting in crypto contributions as well. Ethereum co-founder Vitalik Buterin was one of the contributors, donating about $1 billion in shiba inu (SHIB) tokens to India’s COVID-19 relief, which skyrocketed in value around the same time.
The Tor Project, a well-known non-profit dedicated to internet freedom and anonymity, received 58% of its donations in cryptocurrency in 2021. This generosity highlighted crypto contributors’ preference for data privacy above other causes.
To be sure, some cryptocurrency contributors may be unsure which non-profit or cause to support. But that’s a common problem when it comes to charitable giving.
Giving Block has just created impact index funds, sometimes known as cause funds. These funds will assist contributors in making educated judgments and may expose them to options they would not have considered otherwise.
Traditional giving has tended to favor well-known charities. Many funders have favored foreign charitable groups that are adept at reporting their accomplishments, but this tendency may be hurting smaller but equally deserving organizations.
Education, disaster assistance, food, and the environment are all covered by cause-based funding via crypto contribution platforms.
Donors can support a certain cause rather than a specific non-profit organization, and all non-profits will receive an equal percentage of the given funds. This system ensures that smaller non-profits are treated equally and that the greater cause receives more attention than larger, more well-known non-profits.
Transaction costs are lower
Donors may be drawn to crypto philanthropy for a variety of reasons. Donations are a way for crypto investors to avoid paying capital gains tax. Donating long-term valued assets directly can also help charities raise more money, and donors and non-profits can save money on transaction costs charged by typical financial services platforms.
According to the 2020 “Global Trends in Giving Report,” transaction costs for getting crypto donations are lower than those for receiving credit or debit card donations, which were the preferred form of giving for 63 percent of contributors globally. According to Charity Navigator, credit card processing fees, which are deducted directly from the donation amount, can range from 2.2 percent to 7.5 percent.
Meanwhile, a $2,000 wire transfer from the United States to India may cost $30 to $50 more in processing fees. When transferring the same amount over the Ethereum network, the gas fees might range from $10 to $15. Furthermore, there exist blockchains with significantly lower costs. Furthermore, crypto transactions might take as little as a few seconds or minutes, but cross-border currency transfers can take hours or even days.
Deductions for taxes that are appealing
Cryptocurrency donations to non-profits are tax deductible in the United States, the United Kingdom, Canada, Australia, and New Zealand, among other countries. Converting crypto to fiat, on the other hand, may result in capital gains taxes.
An investor can deduct the fair market value of a coin at the time of a gift by providing a long-term valued asset directly. For instance, if you purchased a cryptocurrency for $1,000 and it increased in value to $2,000, you may deduct the $2,000 value.
If you convert $2,000 to fiat, you must deduct 20% of the $2,000 in taxes paid from the contribution amount. As a consequence, investors can save anywhere from 20% to 30% on taxes.
It is simpler for nonprofits to target existing contributors than it is to recruit new ones. But with that said, as the demand to donate grows, many contributors choose to stay anonymous. Similarly, contributing a large sum of money may necessitate the completion of know-your-customer (KYC) and other forms of personal identification.
Donating in cryptocurrency allows contributors the option of maintaining their anonymity – even while making large donations. However, as several nations tighten their crypto legislation, such anonymity may not continue long.
More than 1,300 NGOs accepted cryptocurrency donations as of 2021. Crypto philanthropy is driving young people to donate by enabling unprecedented levels of direct donations and cause-based impact investing. As a result, the shift from organization-focused to cause-based financing will encourage small NGOs to adopt cryptocurrency.
These innovations have the potential to create new opportunities for NGOs while also disrupting existing donation practices, such as the work being done by Overflow.co