Philanthropy and Charitable Giving with Cryptocurrency

Learn how cryptocurrency and blockchain technology is transforming philanthropy and charitable giving, from tax benefits to innovative donation platforms.

This 2,000 word guide provides an in-depth look at how cryptocurrency and blockchain technology is transforming philanthropic donations. It covers the benefits of crypto donations, tax implications, innovative charities utilizing crypto, the future of cryptocurrency-powered philanthropy, and actionable steps for getting started.

1. Benefits of Donating Crypto to Charity

Cryptocurrency donations offer unique advantages compared to fiat currency donations that make crypto an appealing option for philanthropic initiatives.

Tax Advantages

One of the biggest benefits of donating cryptocurrency is the potential tax savings:

• Long-term capital gains tax rates – Cryptocurrencies held over 12 months qualify for more favorable LTCG rates of 0%, 15% or 20% instead of short-term income tax rates.
• Tax deductions – Donors can deduct the full fair market value of crypto donations, up to 30% of their AGI. This allows offsetting capital gains taxes.

For example, John bought 1 BTC in 2016 for $1,000. It’s now worth $20,000. If he sells it, he’ll have a $19,000 capital gain and owe taxes on that amount. But if he donates the 1 BTC to charity, he can deduct the full $20,000 without paying capital gains tax.

Anonymity and Privacy

Cryptocurrency transactions enhance privacy since they don’t require linking identities to wallet addresses on the public blockchain. Donors who wish to keep some anonymity can do so.

Ease of International Transfers

Transferring crypto is fast, low-cost, and seamless across borders compared to international wire transfers or money transfers which have high fees, delays, and friction with different currencies and intermediary banks.

Low Fees

There are little to no transaction fees associated with sending cryptocurrencies between wallet addresses. This means more of the donation reaches the charity compared to the 2-4% fees charged by payment processors on credit card donations.

Appreciating Assets

If donors hold onto cryptocurrency instead of selling it, they benefit from any appreciation over time. As mainstream adoption grows, prices may continue rising exponentially. Retained crypto could transform into a much bigger future donation.

2. How to Donate Crypto to Charity

There are several methods for donating cryptocurrencies to nonprofit organizations:

Direct Crypto Donations

Donors can send crypto directly to a charity’s public wallet address, if they have one in place to accept cryptocurrency. All that’s needed is the charity’s wallet address to initiate the transfer. Software wallet apps or crypto exchange accounts can be used to easily send the coins.

Direct wallet-to-wallet transactions are fast, anonymous, secure and free. The receiving charity gets access to the crypto donation instantly.

Crypto Donation Buttons

Some charities accept crypto donations through a donation button or widget on their websites tied to a digital currency payments processor. These buttons allow quick and secure crypto donations using payment rails integrated on the charity site. Donors simply designate a donation amount which gets converted to crypto by the processor, providing a smooth user experience.

Crypto Fundraising Platforms

Specialized cryptocurrency fundraising platforms streamline the process for both nonprofits and donors. They convert crypto to fiat currency so charities receive USD while keeping transaction fees low. Some examples are:

• The Giving Block – Enables one-time or recurring tax-deductible crypto donations to ~1000 verified charities. Nonprofits can also conduct fundraising campaigns.
• Engiven – Offers donor-advised fund management and tools for churches accepting online crypto tithes and offerings.
• Raise – Facilitates global crypto fundraising campaigns for nonprofits with customizable widgets.

Donor-Advised Crypto Funds

Crypto philanthropy can also be facilitated through donor-advised funds (DAFs) which manage the donated assets. Account holders advise how their DAF should distribute grants over time. Leading brokerages like Fidelity Charitable and Schwab Charitable have launched DAFs that accept cryptocurrency donations.

NFT Charity Auctions

Some nonprofits are experimenting with NFT fundraisers – creating unique non-fungible tokens and auctioning them off. Since all proceeds go to the charity, it’s an innovative way to fundraise. The NFTs can also encode certain benefits or access for their owners.

3. Tax Implications of Donating Crypto

While donating cryptocurrencies offers lucrative tax benefits, filers need to be aware of certain implications:

Capital Gains Taxes

Donors still have to pay capital gains tax if the coins they are donating have appreciated in value since acquiring them.

The capital gain is calculated as the current market value minus the original purchase price. This gain gets taxed based on the long-term capital gains tax brackets.

Fortunately, donors then get to deduct the coin’s full current value as a charitable contribution up to 30% of their Adjusted Gross Income for the year. This deduction can balance out taxes owed on the capital gain from the appreciation.

Itemized Deductions and Limitations

These tax benefits only apply to taxpayers who itemize deductions on their tax return. The total amount of itemized deductions – including charitable contributions – must exceed the standard deduction for itemizing to make financial sense.

For crypto donations valued at over $500, the IRS requires a qualified appraisal to deduct the full market value. An account transcript or wallet history typically provides this proof for smaller donations below $500 which don’t need formal appraisals.

4. Innovative Charities and Projects Using Crypto

Many nonprofits are pioneering cryptocurrency adoption to expand their philanthropic initiatives and capabilities:

Direct Relief

Global humanitarian aid organization Direct Relief utilizes crypto donations to fund emergency medical programs across over 85 countries spanning from Ukraine to Haiti. They accept Bitcoin, Ethereum, and other coins which provide life-changing medical resources to those in crisis.

UNICEF

The United Nations Children’s Fund (UNICEF) became the first U.N. organization to hold cryptocurrency in October 2021 when they launched a crypto fund. Known as UNICEF Cryptocurrency Fund (CryptoFund), it invests exclusively in cryptocurrencies like Bitcoin and Ethereum. The gains will initially finance open source technology benefiting children worldwide.

Save the Children

Save the Children charity has been accepting Bitcoin since 2013 for their literacy programs which have benefited over 200,000 children forced out of school across Africa, Asia, and the Middle East. Cryptocurrency donations also support their efforts protecting children in humanitarian crises.

There are now over 12,000 charities listed on sites like Charity Navigator that accept cryptocurrency to fund their initiatives across causes like healthcare, education, hunger relief, veterans support, religious programs and more.

5. Future of Cryptocurrency and Philanthropy

Many possibilities lie ahead in leveraging crypto’s unique attributes for charity:

Mainstreaming Crypto Donations

Simplifying the donation experience through integrated platforms reduces friction for smaller donors to support causes through cryptocurrency. Features like rounding up everyday purchases or loyalty programs that accrue crypto rewards which can be donated amplify participation among crypto enthusiast circles.

DAOs and Decentralized Governance

DAOs (decentralized autonomous organizations) managed entirely on the blockchain through smart contracts and community governance are emerging. These could enable decentralized management of charities without centralized points of control or finance handling. DAO-run charities harness the wisdom of tokenized crowd voting while increasing transparency.

Increased Transparency

Blockchain-based accounting, spending tracking, and impact measurement integrated with crypto transaction records offer radical transparency for donors to trace where their money goes. This helps sustain engagement and trust while reducing chances for fraud or misuse of funds.

Micro-Donations and Nudge Philanthropy

With crypto donations divisible to 8 decimal points on blockchain networks, micropayment support could unlock smaller value transactions. Cryptocurrency tipping to reward content creators has grown popular already. The same nano-tipping model could incentivize philanthropy by reducing barriers to entry. Machine learning models can also learn to “nudge” daily choices and behaviors toward spontaneous giving.

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“Cryptocurrency has significant disruptive potential across the philanthropic sector – from transforming back-office operations through increased efficiency, transparency and trust, to innovating modes of fundraising and community engagement.” – Sheldon Xia, President of Bitcoin Fundraising

Thoughtful integration of crypto, smart contracts, decentralized governance, and AI holds promise for reinventing assumptions about fundraising and nonprofit management.

6. Getting Started with Crypto Giving

Interested donors getting started with crypto philanthropy should take the following steps:

Choose Reputable Charities That Accept Crypto

Vet nonprofits before sending crypto just as you would with fiat donations. Sites like Charity Navigator, Guidestar, and GiveWell rate transparency and effectiveness. Confirm they directly accept crypto or use a third party processor.

Understand Tax Rules and Implications

Consult a tax professional to understand capital gains taxes triggered on the coins you wish to gift and eligibility for itemized deductions. Keep records like wallet addresses sending/receiving crypto, dates transferred, crypto value in USD equivalent at the time, and chain confirmations.

Use Platforms to Simplify Donation Tracking/Reporting

Instead of complex tax paperwork by directly transferring coins, fundraising platforms like The Giving Block and Engiven handle disbursal logistics, IRS reporting, and offer tools to track donations. This simplifies accounting and documentation.

Research Charities and Programs to Maximize Impact

As with traditional giving, make sure your crypto philanthropy aligns with charities reflecting your values and priorities. The level of transparency inherent to cryptocurrencies and blockchain could let donors trace a gift to see specific outcomes it accomplished. Consider setting up recurring donations or a donor-advised fund to make multiple crypto grants over time.

Cryptocurrency promises to reimagine charitable initiatives through peer-to-peer cash transfers devoid of geographic restrictions where transactions flow directly to those in need – cementing a new era for global philanthropy enhanced by digital currencies.