It seems like news headlines about digital currency—another name for cryptocurrencies like Bitcoin—pop up on a daily basis. With so many people talking about this, I’ve been asking myself if I should be taking part in the conversation. I'm new to the topic myself, and frankly, skeptical about the value of jumping on this trend before some issues are worked out.
But I also don't want to miss out, or allow our audience to overlook an important trend. How is a nonprofit leader supposed to sift through the hype and determine whether this is worth her attention?
I talked to several people with experience and expertise in this area and asked them their thoughts on digital currency and nonprofits. Here's what they had to say.
What is cryptocurrency/digital currency?
This video gives an easy-to-follow explanation of how Bitcoin and other cryptocurrencies work. It turns out, the idea isn’t all that crazy—like most other currencies throughout history, digital currency assigns value to something that is used as a proxy and can be exchanged for something else. Just like the U.S. dollar was once a proxy for gold (using the gold standard), with cryptocurrency, a digital claim serves as a proxy for dollars.
How can cryptocurrency help nonprofits?
People I spoke with gave a number of reasons why nonprofits are exploring digital currencies.
- Accepting cryptocurrency, whether as donations or payments, appeals to a young, affluent, tech savvy audience.
- Transaction fees can be lower fees—for example, BitPay is offering a 1 percent transaction charge compared to credit card fees of 3 percent or more.
- It's a chance to jump on a trend that is getting media attention, and by so doing, to differentiate your organization.
- There is a promise of transparency, with the ability to track how money flows through the Blockchain, the digital ledger that records cryptocurrency transactions. (Though to be perfectly honest, how to actually access this data and make any sense of it remains a mystery to me.)
War Child Canada is one early adopter of Bitcoin for donations. Brock Warner, their Director of Community Giving and Innovation, told me he first took interest in this in 2014 at the suggestion of a peer in the fundraising community.
"At War Child, we’re always interested in opportunities to be early to market,” he said, “because once some of our larger peers in the humanitarian sector decide to invest in an audience or market, they can do it in a big way."
So far, donations have been relatively small and sporadic, Brock said. While War Child was early to market, it has not invested in any advertising promoting cryptocurrency donations.
“I’ve tried to list us as a willing recipient wherever possible, and am open to talking crypto with anyone that asks,” he said, adding that most of the inquiries from potential donors were about whether War Child Canada converts Bitcoin to Canadian dollars upon receipt. (It does.)
Bitcoin might be the best known cryptocurrency, but it is not the only one. War Child Canada also has a “wallet,” which is where the digital keys used to receive or spend cryptocurrency are stored, set up for ETH (Ether Tokens or Ethereum) in case a donor wishes to use that currency.
What challenges do nonprofits face related to cryptocurrency?
Nonprofits have a number of options for embracing cryptocurrency, and those options are full of uncertainty. Which should you accept—Bitcoin, something else, or multiple digital currencies? It's not easy to predict which will gain prominence in the future, and deciding which to accept can feel like a shot in the dark.
Should you create a mining pool of people who earn cryptocurrency for your organization by volunteering their time or processing power to validate transactions? Should you issue your own private digital currency?
In addition to this fog of choices, there are other concerns, including the following:
- Confusion about how to handle cryptocurrency in your accounting system; how to value assets held in cryptocurrency; and whether to acknowledge it as cash or noncash gift for donors.
- Choosing a service provider or intermediary to help you accept cryptocurrency and validate that the funds are going to the right places. There is uncertainty about how to determine who is trustworthy or legitimate, and about which add-on services are required or valuable.
- Reports of nonprofits having to wait, sometimes for months, to activate an account with processors.
- Concerns about fraud and abuse, enabled in part by the fact that transactions are anonymous.
- Volatility of the currency exchange rates.
War Child Canada has had its ups and downs with digital currency. It chose a Canadian exchange as a service provider, and though things went well at first, problems began around 2015.
“Withdrawals were frozen for periods, and communication and customer service was not helpful when we needed it most,” Brock said. At that point, War Child Canada stopped accepting cryptocurrency donations until the Pineapple Fund—an anonymously funded philanthropic gift of 5,057 Bitcoins valued at more than $86 million in December 2017—put it back on the radar.
“About a dozen people here emailed me to ask, ‘Hey, do you know about Bitcoin, and did you hear about this Pineapple Fund?’” Brock said.
What are the first steps to get started with cryptocurrency?
Next, set up a donation page. War Child Canada has a separate donation page for this purpose. Then, consider doing a soft launch with a small group or with little fanfare. Once you are comfortable that everything is working smoothly, let your audience know. Consider how to target appeals to those most likely to use cryptocurrency.
Want to learn more? Idealware and GuideStar are partnering to offer a free webinar on June 7, What Do Nonprofits Need to Know About Digital Currency? Expert panelists will answer questions and share their enthusiasm for the potential of digital currency—but we will also include a healthy dose of skepticism and address the realities and risks.
Many thanks to Brock Warner of War Child Canada for being a nonprofit tech pioneer and sharing his story. War Child’s mission is to help children in war-affected communities reclaim their childhood through access to education, opportunity and justice.