Cryptophilanthropy
Crypto-philanthropy is the term used by charity foundations and investors to describe the rising trend of cryptocurrency donations. Such blockchain-based charitable endeavors guarantee increased transparency, reduced costs, and cut taxes.
Why is blockchain technology the best alternative for charities and non-profits to raise money and accept donations?
The three defining characteristics of blockchain technology that contribute to its immutability are decentralization, cryptography, and consensus. In a blockchain network, each time there is a transaction involving digital assets, its specifics are recorded to a block that consists of data, hash, and hash of the previous block. Depending on the blockchain type, different types of data are present in a block. The data for a bitcoin transaction would be the transaction’s specifics, like the sender, receiver, and coin count. A hash is a distinctive piece of encrypted data that is used to identify a block and its contents. To generate a new hash for the following block in the chain, this hash is processed along with the new transactions. Each block links to the one before it via its hash, so even the smallest change to any aspect of the data would cause all the hashes to change, rendering all the blocks after it invalid and false.
Since the blockchain’s blocks are all back-linked in time and kept track of by multiple P2P nodes, it is extremely unlikely that anyone could alter the data or corrupt the network. In order to hack the bitcoin blockchain, one would need to do more than just hack a single block; they would also need to hack all of the blocks before it, as well as redo the proof-of-work chain on all of the peer-to-peer network’s computers. This is practically impossible. In cryptographically secure cryptocurrency systems, owning a bitcoin grants you access to digital keys (a set of public and private keys) that prove your ownership and control over the money.
By tracking donations through multiple layers, blockchain technology can be used to create a completely transparent charity system. This would make it possible for donors to track how their money is used and make sure it gets to the intended recipients.
Transaction costs
Enormous administrative costs in a charity are a red flag. Charities and non-profit organizations invest a significant amount of money in marketing and fundraising initiatives. Additionally, the usual expenses related to processing donations and conducting banking transactions are higher. By doing away with financial intermediaries like banks, blockchain-based platforms enable charitable organizations to harness the power of peer-to-peer networks. Both transaction costs and settlement times would be drastically reduced as a result.
Skyrocketing crypto donations
Last year was the largest ever for crypto donations by far. According to Fidelity Charitable, the financial services giant’s nonprofit that advises donors on charitable giving, around 45% of cryptocurrency investors donated to charities in 2020, compared to 33% of general investors. Fidelity Charitable received around $331 million in cryptos compared to $28 million in 2020. In its annual report, Giving Block, a crypto donation platform, reported $69 million in total donation volume last year, a massive 1,558% spike from 2020.
The ease of transferring cryptos to any part of the world allows charitable organizations to have donors globally. Many international charity organizations have started accepting crypto donations. UNICEF launched a new financial vehicle, CryptoFund, to deal with cryptocurrencies. Big organizations such as the Red Cross and Greenpeace have also started accepting crypto.
Read More: https://www.coindesk.com/layer2/2022/04/05/how-crypto-is-changing-philanthropy/
Protecting donors’ anonymity
Nonprofits find it easier to target existing donors than to find new donors. As a result, donors often prefer to remain anonymous as the pressure to give increases. Similarly, donating a big amount may require the completion of know-your-customer (KYC) and other personal identification requirements.
Donating in crypto helps donors preserve their anonymity even while donating millions of dollars. However, such anonymity might not last long as many countries increase their crypto regulations.
As of 2021, more than 1,300 nonprofits accepted crypto donations. Crypto philanthropy is inspiring young people to give by enabling direct donations and cause-based impact investing in unprecedented ways. In turn, the switch from organization-focused to cause-based funding will encourage crypto adoption among small nonprofits. These changes could open a new world of opportunity for nonprofits and disrupt traditional forms of giving.
Attractive tax deductions
Donating cryptocurrencies to non-profits is tax deductible in the U.S. U.K., Canada, Australia, and New Zealand, among other countries. However, converting crypto to fiat can trigger capital gain taxes.
By donating an appreciated long-term asset directly, an investor can deduct the fair market value of the crypto at the time of a contribution. For example, If you bought your crypto for $1,000 and it appreciated to $2,000, you can deduct the $2,000 value.
If you convert $2,000 to fiat, you have to write off 20% of the $2,000 paid in taxes from the donation amount. As a result, investors can save at least 20% to 30% on taxes.
