Much of the growing interest in bitcoin and other digital currencies focuses on individual financial gain and financial innovation. At the same time, there is an exciting trend toward leveraging cryptocurrencies for philanthropic purposes. Not only are hundreds of charities accepting bitcoin and other digital currency donations, but new philanthropic entities are emerging which utilize digital tokens and their underlying cryptography-based technology, called blockchain, in powerful and creative ways. These bold experiments have the potential to transform and upend the philanthropic sector.

Bitcoin fundraising

In recent years, an increasing number of charities and foundations have been trialing bitcoin donations. These include such well-known organizations as the Red Cross, Save the Children, United Way, Heifer International, and the Electronic Frontier Foundation. Once established, an online “wallet” allows charity institutions to accept bitcoin and other cryptocurrency donations and to exchange them for fiat currencies such as the dollar. In some cases online wallet providers offer 1 percent processing fees for nonprofits, compared to the 2 percent or more required by traditional donation processors. This means that potentially 99 percent of donations can end up in the pockets of charity organizations or donation recipients. Bitcoin donations to charity are also tax deductible and offer donors the added benefit of avoiding capital gains taxes on the dollar amount value of their cryptocurrency donations.

Hundreds of millions of dollars worth of cryptocurrencies are donated to a range of charities each year, and crypto-giving is on the rise following the recent jump in cryptocurrency values. Fidelity Charitable, which houses the nation’s largest donor-advised fund, reportedly received $28 million in cryptocurrency donations in 2020; more than double the $13 million received in 2019. 

In addition to direct digital currency donations, there are a variety of other innovative projects underway in the emerging “crypto-philanthropy” space.

Among these are new crowdfunding platforms such as Bitgive and Bithope, which allow donors to make cryptocurrency donations to selected charities for their fundraising campaigns—often generating thousands of dollars.

In addition, a number of new platforms that leverage the technology underlying digital currencies (the aforementioned blockchain) are being adapted to address the issue of transparency in giving. Blockchain offers an immutable, secure, and publicly available database of transactions accessible by anyone online. Recently launched blockchain tools like GiveTrack and Alice are able to openly track the flow of donations from donor to donee. According to Raphaël Mazet, CEO of Alice, “[As] donations can be made conditional to impact, and because everything is recorded immutably and transparently, anyone can verify what charities have achieved.” 

Charity coins

Beyond cryptocurrency donations and tracking, a number of social purpose digital coins have been created to support specific nonprofit programs and endeavors. A project based on the digital token Munchcoin, for example, claims to have raised $2.7 million for a variety of charity projects, including a recent campaign which secured over $250,000 for the nonprofit Charity:water. Through its “Milk and Butter tokens,” another project has raised $460,000 for nonprofits with a particular focus on food and hunger issues. 

Foundations and donor-advised funds

Foundations have also gotten into the crypto-giving game. The San Francisco Foundation and Silicon Valley Community Foundation (SVCF) openly accept cryptocurrencies from their donors. In late 2017, it was estimated that SVCF held the equivalent of $4.5 billion in cryptocurrencies. 

One pioneering donor-advised fund called Endaoment represents the crypto-driven evolution of the field. Endaoment was built on a blockchain and only accepts cryptocurrency from fund applicants. Unlike with traditional donor-advised funds, payments to charities are transparent and publicly tracked on the blockchain. Thus far, Endaoment has distributed $2 million of its current $3 million in assets. It is perhaps worth noting that the average payout rate for donor-advised funds in 2019 was 22.4 percent, representing a long standing trend of payout rates just above 20 percent.

New opportunities

One obvious benefit from the rise in crypto-philanthropy is the availability of new revenue streams for charity. Because direct-to-charity bitcoin donations are relatively easy to manage, bitcoin presents an attractive first-step opportunity for the giver and receiver. Studies show that millennial givers, in particular, want to have greater control over their giving and greater proof of its impact. Blockchain-based donation systems offer effective responses to both. Importantly, the latest statistics show that 25 percent of millennials in the United States own cryptocurrencies, and that number is only expected to increase. As millennials become the largest group of givers in history, their rising level of comfort with digital currencies and blockchain technologies will likely make crypto-philanthropy more acceptable.

Blockchain-based systems may also help to improve the reputation of charities. In a 2020 article, the Chronicle of Philanthropy warned that “only 52 percent of Americans have faith that nonprofits will ‘do what is right.’”

Many Americans believe that these institutions spend too much of their budgets on overhead and too little directly on programs. Reduced overhead spending due to improved operational efficiencies and disintermediation through blockchain technologies (e.g., direct donor to beneficiary giving) could help restore faith in charitable giving among skeptical givers. This in turn could lead to increased philanthropic engagement and a rise in overall giving.

In addition, new charity revenue streams are coming from increasingly profitable blockchain companies. Recently, a leading blockchain payment provider, Ripple, donated $1.1 million to a coronavirus (COVID-19) emergency fund. The well-known cryptocurrency trading platform, Coinbase, which was valued at nearly $100 billion when it went public earlier this year, has committed to giving 1 percent of profits, equity, and employee time to charitable activities. 

In the future, more charities and even foundations could produce their own cryptocurrencies, the sale of which could enable a new sustainability model. A charity token exchange, developed exclusively for the buying and selling of charity tokens, may one day bolster a new market-based approach to philanthropy in which both philanthropists and charities make money from trading digital currencies or other blockchain-based digital assets.

Challenges

Despite numerous opportunities, there are certain challenges that could slow or inhibit the growth of crypto-philanthropy. First, digital currency donations and blockchain anchored philanthropic systems are relatively new and often user unfriendly. To date, there is still limited awareness and interest in crypto-philanthropy among individual givers, charities, and foundations. The social sector is not known for innovation and risk-taking, and it will likely take years before adoption reaches a tipping point. 

Second, the cryptocurrency market is still extremely volatile and largely unregulated, with wild swings of currency values sometimes 10 percent or more on a daily basis. Those charities choosing to hold onto bitcoin or other digital currency donations in hopes that their value will rise, or those dependent on them for predictable revenue streams, need to have thick skins. (Note: The challenge of predictability can be mitigated through the use of nonprofit crypto donation tools and certain donor-advised funds that offer immediate conversion to fiat currencies or stablecoins once a donation is made.)

The future of crypto-philanthropy

In the short-term, it is unlikely that cryptocurrency and blockchain platforms will significantly disrupt or displace traditional philanthropy, but they will drive further innovation and experimentation in the sector. New experiments in giving, such as fundraising campaigns and auctions leveraging Non Fungible Tokens (NFTs), will undoubtedly influence the space. 

As donations through bitcoin and other digital currencies become more acceptable and commonplace, crypto-philanthropy will (slowly) grow. The expansion of specialized crypto funds established by large charity funding institutions like Fidelity Charitable and a growing number of nonprofits accepting cryptocurrency donations will help popularize and expand cryptocurrency giving. No doubt there will also be more testing of blockchain managed giving and tracking which, if successful, could establish a new norm for transparency in philanthropy. Among donors, the further implementation of these tools could lead to new expectations regarding who should have greater control over funding flows (the giver or the giving intermediary?) and raise demands for proof of impact. Ultimately, as givers and beneficiaries interact more directly, we may see diminished roles for charities, aid agencies, and foundations—in some cases even the removal of these entities from the philanthropic equation.

On the flip side, if greater transparency in giving and impact does lead to increased confidence in charities, millions (or even billions) of dollars more could be generated for the social sector.

Now is the time for philanthropists, foundations, and nonprofits to come together with social entrepreneurs, blockchain visionaries, and technologists to collectively experiment with and guide the direction of crypto-philanthropy. The future of giving is for all of us to imagine and create, built on our common desire to give back.

For more resources on crypto-philanthropy and blockchain for the social good, see here. You can also gain a deeper understanding of cryptocurrency and how it can be leveraged in the nonprofit sector by joining my webinar with Candid on Thursday, September 30, “Cryptocurrency and Nonprofits: What You Need to Know.Register for the webinar.

Disclosure: The author of this blog post, Paul J. Lamb, serves on the Board of Directors of the Bitgive Foundation.

About the Author(s)

Paul J. Lamb (he/him) Owner, Man on a Mission Consulting

Subscribe to our blog

When we publish a new blog post, you’ll get notified by email.

Interested in being a guest writer for our blog? Learn how