Traditional nonprofit financial management may look askance at Bitcoin, Ethereum, LiteCoin, Dash and other cryptocurrencies, but love them or hate them, crypto is here to stay. It provides a secure alternative to traditional currency and can be tracked and monitored in a public, transparent way.
What Is Cryptocurrency?
Cryptocurrency began in 2009 with the release of a white paper that outlined Bitcoin, the very first cryptocurrency. Bitcoin is now just one of hundreds, perhaps thousands, of blockchain-based ‘coins’ that transmit value through proof of work, proof of stake, or other forms of blockchain mining.
Blockchain technology itself is more than cryptocurrency. Blockchain is a continually growing record that consists of blocks of code. Each block, once confirmed, is permanent and unalterable. It is a decentralized record in that the code that powers a blockchain is held on multiple computers worldwide. Most blockchains are public and open for verification and build-outs. One of the most famous blockchains aside from the one that powers Bitcoin is Ethereum. The Ethereum blockchain is used to build something called smart contracts, which are contracts that eliminate the need for third party verification.
If you think this is all just a passing fad, think again. While the run up of Bitcoin prices is reminiscent of other financial bubbles in the past such as the real estate or internet stock bubble, blockchain technology is now being used to test recording real estate deeds and records in Sweden, secure email communications through a company called Envilope, and enable secure, transparent records in many areas including healthcare, real estate, and more.
Cryptocurrencies and Nonprofits: Expanding Donations
Nonprofits can expand their donation avenues by accepting Bitcoin and other cryptocurrencies. To do so, you’ll need to open an account on a recognized cryptocurrency exchange. Since there is no official registration of exchanges akin to the stock exchange, you will need to do additional due diligence to find some of the better-known exchanges.
Legitimate cryptocurrency exchanges have a KYC or know your customer process in place to verify identification. Expect it to take 7 to 10 days to complete the KYC process.
Once your nonprofit is registered with an exchange, it has a wallet address. Wallet addresses are the public code, usually in the form of a QR code graphic or a long string of letters and numbers, that funds are transferred into. Once transferred, the transfer cannot be reversed. The exchange will deduct a percentage of the overall fee once the currency is in your virtual wallet. You can then exchange cryptocurrencies into dollars or other currencies and transfer that amount into your bank account.
For nonprofit financial management, be sure to keep accurate track of all financial transactions on cryptocurrency exchanges. Taxation laws and reporting laws around cryptocurrencies are constantly changing and evolving, and you may need your records handy to comply with the law when it comes time to reporting income. As of 2014, the IRS considered cryptocurrencies as property for tax purposes, but recent statements make it sound as if they are leaning towards regulating it like a security. Clear guidance is still lacking.
Using Cryptocurrency as a Marketing Tactic
Lastly, consider targeting specific individuals or groups who may wish to donate using Bitcoin. Fortunes have been made over the past decade thanks to the stratospheric rise in BTC value and other currency values. Create and build a list of cryptocurrency leaders and solicit donations through direct, personal outreach.
Millennials and Generation Y and Z individuals are all more comfortable using cryptocurrencies than their older counterparts. These young people may already own Bitcoin or other coins and wish to use them for donations. If your nonprofit accepts cryptocurrencies as donations, you can send specific promotions to this demographic and include that QR code to make donating easy and fast for them.
Accepting cryptocurrency as a donation may seem far-fetched but many nonprofits are experiencing the benefits of this new technology-facilitated money. It’s secure, irreversible from the donor’s side, and fairly easy to set up to accept. Why not give it a try?
Beck & Company
Since 1987, we have helped many nonprofits in the Washington D.C. area and along the Eastern seaboard with their accounting and financial management needs. We provide audit, tax, accounting, and consulting service that addresses all aspects of a small to mid-sized nonprofit organization’s business. Contact us or call 703-834-0776 x8001.