Cryptocurrency, NFTs & Blockchain for Your Nonprofit
The world of cryptocurrency, blockchain and non-fungible tokens (NFTs) can be daunting and confusing. But if you’re running a nonprofit, it’s worth taking the time to understand these technologies and how they can be used to benefit your organization.
Cryptocurrency, blockchain, and NFTs offer a lot of potential for nonprofits. For example, they can be used to raise funds, accept donations, and even create your own fundraising NFTs.
This guide will cover everything you need to know about using crypto, NFTs, and blockchain for your nonprofit. We’ll discuss the benefits and challenges of these technologies and how to get started.
How Do Nonprofits Utilize Cryptocurrencies & Blockchain Technologies?
According to Fidelity Charitable research, 45% of cryptocurrency owners donated $1,000 or more to charity in 2020, compared to 33% of all investors.
Nonprofits can utilize cryptocurrencies and blockchain technologies by accepting donations in cryptocurrency or using crypto and blockchain to create their own fundraising NFTs. These can be used to raise funds and provide donors with a way to track how their donation is being used.
Gifting cryptocurrencies to a nonprofit organization or donor is similar to giving any other asset. Laws surrounding crypto gifting will vary by jurisdiction, but overall, they are vague and still lack fundamental organization.
As a general rule, the IRS designates cryptocurrency (or virtual currency) as property, not money. Therefore, the same rules apply to non-cash gifts of cryptocurrency as they would for any other type of asset. For example, if a donor makes a cryptocurrency gift worth more than $500, they must file Form 8283 with their tax return. And for gifts valued at over $5,000, the donor needs to get a qualified appraisal.
Furthermore, your organization must develop a written policy for accepting cryptocurrency gifts. The policy should outline what is and isn’t allowed regarding exchanges, wallets, and third parties. Make sure the parameters for gift approvals are also included in the policy. Often, it’s most effective to designate one person to approve the acceptance and sale of cryptocurrencies like Bitcoin, Ethereum, Litecoin, or a cryptocurrency created by an organization, like Carbon12’s $C12 Token.
When it comes to NFTs, there are a few different ways that nonprofits can utilize them. For example, you could create an NFT to represent a donation or use an NFT to track how funds are being used. You could also auction off an NFT to raise funds or use it as a raffle prize.
NFTs can be created for just about anything, so get creative! There are a ton of different ways that your nonprofit can utilize them.
Benefits of Using Crypto, NFTs & Blockchain for Your Nonprofit
You’re always looking for ways to optimize fundraising and reduce costs as a nonprofit. And utilizing crypto, NFTs, and blockchain can help you do just that. Whether you’re a religious organization, an educational institution, or a charity, these technologies can be extremely beneficial.
For churches and religious organizations, crypto and blockchain can be used to facilitate tithing and other donations. For example, creating a new cryptocurrency can make it easier for members to donate, as they can do so directly from their wallets.
This is beneficial because it allows donors to give without worrying about conversion rates or fees. It also makes it easier for donors to track their donations and see how it’s being used. Several additional benefits of using cryptocurrency, blockchain, and NFTs for your nonprofit exist. Here are some of the most notable advantages:
One of the biggest benefits of using blockchain is improved transparency. With blockchain, all transactions are recorded on a public ledger. This means that anyone can view the transaction history of a particular address.
This level of transparency is beneficial for nonprofits because it allows donors to see how their money is being used. It also helps to build trust between donors and nonprofits.
2. Reduced Transaction Fees
Another advantage of using cryptocurrency is that it can help to reduce transaction fees. When you use traditional methods such as credit cards or bank transfers, there are usually high fees involved. Crypto transactions are performed using a public key — a private, alphanumeric address that changes with each transaction.
You can also pay for goods and services on mobile devices by scanning QR codes linked to your wallet. Credit cards can also be used on mobile phone platforms, but the payments must go through several channels before they’re processed and approved.
With cryptocurrency, transaction fees are often much lower. This is because there are no middlemen involved in the process. When a customer uses a credit card to make a purchase, the merchant is charged an interchange fee by the credit card payment provider. These fees can be as high as 3–4% of the total purchase price. Furthermore, these companies can arbitrarily add more fees at any time without warning.
As blockchain technology becomes more accessible, merchants can accept payments via blockchain technology by working with a reliable payment provider that will convert cryptocurrency revenue into fiat currency (government-issued legal tender).
Such services cost significantly less than processing traditional credit card payments; most only charge around a 1% flat fee to cover their processing costs.
3. Reduced Transaction Fees
Another benefit of using cryptocurrency and NFTs is that they can help to increase donor engagement. When donors see how their money is being used and where it’s going, they’re more likely to engage with the nonprofit.
This level of engagement can lead to increased donations and more loyalty from donors. According to Google’s Bitcoin demographics, a significant portion of crypto users, at 9.34%, are only recently out of high school.
Furthermore, almost 50% of users fall into the millennial age group. Capturing a new, younger audience is essential for the growth of any nonprofit, and utilizing cryptocurrency can unlock a new, tech-savvy donor base.
Cryptocurrency and blockchain also offer improved security compared to traditional methods. With blockchain, all transactions are immutable. This means that they cannot be changed or reversed.
This can be beneficial for nonprofits as it reduces the risk of fraud and theft. Additionally, it can help speed up the donation process as there is no need to wait for bank approval.
5. Tax Benefits for Donors
The IRS views cryptocurrency as property, which may be taxable if sold at a profit. The amount of taxes depends on how long the owner possessed the currency before selling it. If taxpayers donate their cryptocurrency to charity instead of exchanging it for cash, they can avoid paying capital gains taxes while still taking a deduction for the full donation amount.
As an example, If a taxpayer sells Bitcoin and donates the after-tax money to a charity, the capital gains will be taxed as short- or long-term capital gains based on how long they kept the Bitcoin before selling it.
Depending on their taxable income, long-term capital gain rates of 0%, 15%, or 20% will be imposed if they hold the asset for at least a year. Capital gains that occur in a short period of time are taxed at ordinary income tax rates between 10% and 37%.
If the taxpayer itemizes deductions, they can deduct a certain amount of money for each dollar donated. Otherwise, they are entitled to the $300 (single) or $600 (married filing jointly) above-the-line charitable deduction under the Taxpayer Certainty and Disaster Tax Relief Act of 2020.
How to Get Started Using Crypto, NFTs & Blockchain for Your Nonprofit
If you’re interested in using cryptocurrency, blockchain, and NFTs for your nonprofit, there are a few things you need to do to get started. Here’s a step-by-step guide:
1. Choose a Cryptocurrency
The first step is to choose a cryptocurrency that you want to use. There are many different types of cryptocurrency, so it’s important to research and select the one that’s right for you. Alternatively, creating your own cryptocurrency is also an option. This can be a good way to get involved in the crypto community and build support for your nonprofit.
2. Set Up a Blockchain Wallet to Accept Direct Donations
Once you’ve chosen a cryptocurrency, setting up a blockchain wallet is next. A blockchain wallet is an online account that allows you to store, send, and receive cryptocurrency. There are many different types of blockchain wallets, so choosing one that’s right for you is important. Some popular options include Coinbase and Exodus.
Accepting crypto or NFT donations directly rather than through a marketplace will allow you to avoid paying extra fees. Additionally, it will also give you more control over the donation process.
Vice versa, accepting through a marketplace will ensure a streamlined, user-friendly, and low-fee donation process for your donors. A wallet will still need to be utilized if you plan on storing any crypto or NFTs for the long term.
Payment processors such as The Giving Block and Engiven assist nonprofits in receiving donations to their personal wallets, allowing them to keep crypto as an investment if they want. These businesses handle basic transactional operations like automatic conversion to cash and tax receipts.
3. Use an Intermediary 501(c)(3)
As a nonprofit, you should be designated as a 501(c)(3) organization, but if you’re not comfortable handling cryptocurrency directly, you can use an intermediary 501(c)(3) organization. These organizations will accept cryptocurrency on your behalf and convert it into cash.
By adopting cryptocurrencies via another 501(c)(3), such as donor-advised funds (DAFs), charities aren’t required to take custody of the asset. This considerably reduces the legal, accounting, and administrative hassles of accepting cryptocurrency. The intermediaries then pay out organizations in cash in accordance with their tax obligations.
Once you’ve received donations, you can use them to fund your nonprofit. There are many different ways to do this, but one popular option is to use them to pay for expenses such as salaries, rent, and marketing.
Using crypto, blockchain, and NFTs for your nonprofit can be a great way to fundraise and accept donations. However, it’s important to do your research and understand the risks before getting started. By following the steps and weighing the benefits vs. risks outlined in this guide, you’ll be on your way to accepting cryptocurrency donations in no time.