Crypto Philanthropy 101: What Donors and Organizations Need to Know

Giving crypto as a charitable donation or setting up a nonprofit to receive crypto isn’t hard, but there are some unique considerations to think about.

Updated Jan 26, 2024 at 2:25 p.m. UTC

Nonprofits are continually tasked with finding new ways to make philanthropy cool – if, at times, a little kitschy. From mail-in sweepstakes to 24-hour walkathons, grabbing and sustaining the attention of donors is a heavy lift.

Cryptocurrency donations offer a novel approach to philanthropy. According to some leaders in the Web3 space, nonprofits won’t have to work very hard to convince crypto investors to donate; they are already eager.

“Donating crypto is a win/win,” said Alicia Maule, digital engagement director at The Innocence Project and co-founder and CEO of Givepact, a crypto fundraising platform for nonprofits. “People who have accumulated crypto want to give to their favorite organizations. They don't have the cash to give, but they have crypto.”

We saw this in March 2022, when just months after the peak of the 2021 bull run, thousands of people sent close to $7 million in crypto to Ukraine to bolster the country’s resistance against Russian invasion. Additionally, according to The Giving Block, a crypto donations company, at least 1,000 organizations last year donated $125 million worth of cryptocurrencies using the company’s platform. The Giving Block now expects crypto donations to surpass $10 billion over the next 10 years.

It’s therefore smart for individual investors, fund managers and nonprofit organizations to learn how to donate and/or receive crypto as a charitable gift.

Before you donate: Consider taxes

Perhaps the most obvious consideration regarding crypto donations is taxes. Similar to cash, donations made via cryptocurrencies are tax-deductible. In addition, donating a portion of digital assets as charitable gifts can help profitable crypto investors avoid the capital gains taxes they would otherwise incur if they were to convert the crypto to U.S. dollars (USD) and donate the equivalent amount in cash.

Robbie Heeger, president and CEO of the crypto philanthropy institution Endaoment, says the tax benefits associated with crypto donations, along with newly minted wealth generated by crypto in recent years, are creating a “rising tide” in a sector that normally attracts older donors. He encourages the “new, young crop of people who feel like they've been carried by the rising tide [of crypto]” to give back, but also to remember to pay attention to the tax benefits, which may not be as ingrained as with older donors.

As for organizations, U.S.-based nonprofits that qualify for tax-exempt status with the Internal Revenue Service (IRS) can generally expect to avoid paying capital gains taxes if the crypto’s value increases between the time the gift was received and when it was sold or converted back into USD.

Ways to donate crypto

Philanthropic DAOs

DAOs, or decentralized autonomous organizations, are innovative models for pooling and distributing cryptocurrency using blockchain technology, both as a financial infrastructure and governance instrument. DAOs are both transparent and community-run, creating the conditions for what Endaoment Chief Operating Officer Zach Bronstein once called “the highest form of organizational decentralization of which we can currently conceive.”

DAOs are comparable (though not perfectly) to a donor-advised fund or a community foundation in the fiat world, with some distinctions. Individuals can join a DAO through a variety of methods, as every DAO has unique membership requirements. Some require donation minimums, while others are token-gated, meaning members become active by purchasing a non-fungible token (NFT), the proceeds of which go toward the DAO treasury. In nearly every case, DAO membership requires active participation in community channels (such as Discord), regular meeting attendance and voting.

With no executive authority or centralized board, DAOs are generally managed through a multisignature crypto wallet that tracks fiscal activity on the blockchain. In addition, most transactions, including any donations made by the DAO, happen via smart contract – a type of computer code that executes when certain terms and conditions are met. This level of transparency and automation facilitates what’s known among Web3 advocates as a “trustless” environment. DAO members vote on the terms of the smart contracts, influencing how donations get used, and because the data is stored on chain, members and donors alike can verify that the DAO is living up to its mission and guidelines.

CowgirlDAO, the philanthropic arm of the art activism community, Computer Cowgirls, is one example of a charitable DAO. Founder and artist Molly Dickson donated the smart contract and artwork from her second NFT collection to Endaoment, which provides a platform for collecting crypto and sending it to qualifying organizations. Endaoment receives all proceeds from Dickson’s NFT sales, but it is the CowgirlDAO community who votes on which charities will receive funds, with a focus on organizations that provide abortion access to individuals.

Gitcoin, one of the most beloved crypto-for-public-good communities in the space, has been operating since 2017 and has reportedly distributed over $50 million to projects focused on decentralized finance (DeFi), climate solutions, open-source technology and more. With over 21,000 members in its Discord, the community operates like a DAO and has 190 devoted delegates overseeing and stewarding funds. Notably, Gitcoin uses a published formula known as Quadratic Funding, which it explains in detail on its website, to determine grantees democratically. Anyone can donate to Gitcoin through the website.

Crypto donation platforms

For individual donors and nonprofit organizations not interested in forming or contributing to a DAO, there are a few straightforward options that let people donate crypto directly.

The Giving Block

Who it’s for:

  • Qualifying nonprofits that want to receive crypto
  • Individuals who want to donate crypto to qualifying nonprofits

Cryptos accepted: Over 200 including BTC and ETH

Credit card donations accepted? Yes

How it works: For individual donors, giving through The Giving Block is as simple as heading to its website, clicking “Donate Crypto” and searching a database of thousands of nonprofits to find the one you’d like to support.

To receive crypto, nonprofits must sign up with Gemini, a U.S.-based centralized crypto exchange co-founded by Tyler and Cameron Winklevoss. Because Gemini operates within the U.S., participating organizations must comply with its know-your-business (KYB) and onboarding processes, which takes a couple of days and some paperwork. Once set up, organizations can receive crypto directly through The Giving Block’s website. Gifts will show up in their new Gemini accounts and will automatically be converted to USD.

In some instances, which co-founder Pat Duffy calls “fringe cases,” donors can send less straightforward types of crypto donations, such as NFTs, through The Giving Block’s partnership with Renaissance Charitable, a conduit 501(c)(3) that facilitates non-cash donations for nonprofit organizations. Inquire directly if you have any questions regarding this.

A word from the co-founder: More millennials and young people need to think like “50-plus-year-old white guys,” said Duffy — and by that he means we all should take advantage of the tax benefits of donating assets to philanthropic organizations instead of cash. As most high-net-worth people know, donating assets helps one avoid capital gains taxes, thereby freeing up more money to save, donate or spend in ways we feel good about.

“If you have $1 million dollars sitting in a bank account, and $1 million in crypto, and you're thinking about giving to a charity, you could give your Bitcoin or Ethereum over the dollars,” he explained.

Endaoment

Who’s it for:

  • Qualifying nonprofits that want to receive crypto
  • Charitable DAOs, individuals or organizations that want to start a crypto community fund
  • Individuals who want to donate crypto to qualifying nonprofits

Cryptos accepted: ETH and over 1,000 other cryptocurrencies

Credit card donations accepted? No

How it works: Endaoment is a nonprofit community foundation and public charity built on the Ethereum blockchain that allows anyone to donate their digital assets to any qualified 501(c)(3) U.S. nonprofit organization.

The Endaoment team considers itself something of a Community Fund for DeFi projects. Individuals can create a Donor-Advised Fund (DAF) on the Ethereum Mainnet via the Endaoment app, donate directly to any qualifying organization or simply join the Endaoment Discord to ask questions and get involved.

A word from the CEO: While crypto runs on the gospel of trustlessness, Endaoment’s decision to operate as a community foundation introduces some oversight into the otherwise trustless protocol, Heeger explained.

“The interesting thing about the nonprofit space is that there are components of the interaction that you want to be completely trustless and fully anonymous. And then, there are components where you want some level of trust,” He said.

According to Heeger, the actual paying out of any crypto that moves through Endaoment’s platform is subject to the board of director’s approval.

“You want to know the organization that you're interacting with is reputable, that they do what they say they do in their filings with the government and that they are not presently funding acts of violence, misinformation campaigns, hate speech or hate activity,” he said. “We take that really, really seriously.”

Givepact

Who’s it for:

  • Individuals who want to donate crypto to qualifying nonprofits – and build a reputation that flaunts their donor history

Cryptos accepted: BTC, ETH and certain ERC-20 tokens

Credit card donations accepted? Yes

How it works: While other crypto donation platforms sprung up quickly to capture activity from 2021’s bull run, Givepact is launching in 2023 to give crypto donors a “deeper and richer experience than what people are used to,” explained Steven Aguiar, Givepact co-founder and chief operating officer.

After all, Web3 communities value gamification, community and ongoing social engagement. In a future where consumers’ identities and social reputations are linked to their crypto wallets, Maule and Aguiar expect donors will appreciate crypto-native rewards structures and collectibles that signal their values and passions.

Similar to proof-of-attendance-protocols (POAP), or digital collectibles redeemed by attendees for participating in a special event, Givepact is considering new ways to let donors see and display their philanthropic history on-chain in order to make giving “addictive.”

A word from the cofounders: “We know that people are going to give because they care and for tax reasons,” said Maule. “But we also know that we have this very energized NFT audience that may now consider philanthropy part of their identity. They're doing it already but to now have a platform rewarding them, we think that's going to put good impact at the center of community and culture.”

Pitfalls to avoid

Practically speaking, the most immediate pitfall for nonprofits that want to receive crypto is market volatility. Every organization that plans to accept crypto donations should decide whether they plan to hold onto their crypto, transfer it to stablecoins or sell it immediately for local fiat currency. While holding crypto might result in a return, it could also bring losses.

For donors, obvious pitfalls may include theft, scams or sending money to a bad actor. Some worry that normalizing the use of crypto for charitable donations or mutual aid creates opportunities for scammers, who could create fake charities and request donations in the form of crypto.

“We've seen situations in the wake of crises where people spin up [crypto] wallet addresses or ‘DAOs’ to support humanitarian causes. Those wallet addresses get shared on Twitter and Discord, but no one really ultimately knows where the money is going,” said Aguiar.

Risks of getting scammed are particularly high when individuals send money directly from one self-custody crypto wallet to another without first vetting the recipient. Last year, the U.S. Federal Trade Commission (FTC) published a consumer alert cautioning people against this tactic, stating that dishonest people were capitalizing on crypto donations to Ukraine and tricking people into sending money to their personal wallet addresses. Keep in mind, self-custody crypto wallets do not have a customer service department. You can’t get a refund if you send your money to a bad wallet.

Last week, the U.K. Charity Commission published new guidance for nonprofit organizations planning to accept crypto donations, with a particular focus on tax compliance and precautions against money laundering.

As with all crypto decisions, beware the hype and do your research before donating to anonymous wallets. Look for clearly defined guidelines, professional websites and, when possible, the Etherscan name or address to verify the activity of the organization you are donating to matches what it claims publicly. If using one of the platforms listed above, read the FAQs thoroughly, and don’t be afraid to contact team members directly with any outstanding questions.

Finally, when the IRS comes calling, be prepared with a clear log of your transactions, noting any capital gains or losses during each taxable event.

Edited by Toby Leah Bochan.

This article was originally published on May 3, 2023 at 7:00 p.m. UTC

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Megan  DeMatteo

Megan DeMatteo is a service journalist currently based in New York City. In 2020, she helped launch CNBC Select, and she now writes for publications like CoinDesk, NextAdvisor, MoneyMade, and others. She is a contributing writer for CoinDesk’s Crypto for Advisors newsletter.


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