Blockchain/Crypto/Web3 and the impact on the not-for-profit sector
The rise of Blockchain and Web3 have made crypto a modern necessity for fundraising. With cryptocurrency rapidly growing in popularity, the time for refusing crypto donations and other forms of unique assets, like non-fungible tokens (NFTs), has long passed. As its adoption increases and it becomes a catalyst for new generational wealth, Crypto is becoming a topic of interest among donors and a more popular form of donation.
Revolutionizing the way we transact, crypto has proven a game-changer for many, but for the Not-For-Profit (NFP) sector, it has to potential to be particularly problematic. A key concern for non-profits is whether they should accept cryptocurrency donations directly or use a third-party platform.
Before we dive into the impact of crypto on non-profits, let’s review some of the basics.
What is cryptocurrency?
Cryptocurrencies are digital currencies; while pounds or dollars exist as physical money, crypto is a digital medium of exchange. As it functions through computer networks rather than banks, it’s not regulated by a central authority. This makes it potentially problematic as no government or bank can uphold and maintain a cryptocurrency.
What are blockchain and web3
Blockchain is a ledger for recording transactions carried out in various currencies. It works across a business network where multiple AIs talk to each other to validate or transact. This provides a shared and immutable record of crypto transactions. Web3 is an idea for a ‘next generation’ World Wide Web, which readily incorporates more modern concepts like cryptocurrency, blockchain tech, and decentralization.
Cryptocurrency and non-profits
What does all this have to do with fundraising for non-profit organizations? Simply put, the changing and increasingly digital landscape of finance requires not-for-profit organizations to be open to donations in the form of cryptocurrencies. However, the lack of regulation where crypto is concerned presents challenges when it comes to security, as well as the longevity of a donation.
The dollar may fluctuate, but it would take an unprecedented catastrophe to render it worthless. The same is not true of cryptocurrencies, the value of which can soar or plummet on the whim of a Tweet from Elon Musk (among other esoteric and highly unpredictable events).
Direct cryptocurrency contributions
That unpredictability is a genuine cause for concern for NFPs. To accept direct contributions in the form of cryptocurrencies or NFTs, a charity must open its crypto wallet and take direct ownership of the asset. This allows the charity to benefit from the digital asset’s appreciation but, conversely, to suffer from its drops in value.
The upshot is that a charity can find itself suddenly losing large amounts of fundraising due to accepting cryptocurrency and other unique assets.
A charity can use a third-party platform to avoid leaving their crypto wallet vulnerable while accepting donations in crypto form. This enables them to only take ownership of the funds in the form of a flat currency, allowing them to sidestep the volatility of digital assets neatly.
The downside is that the third party may convert crypto into a flat currency only to have the value of the crypto current skyrocket. The charity is left with the crypto's value at the conversion point.
Anonymous donations are a concern as well. Unlike checks or credit cards, it is much easier to send donations anonymously using cryptocurrency. This appeals to those who don’t want their donations to be tracked back to them, but it exposes an organization to inadvertently accepting funds from untoward sources. This raises another question:
Do these currencies align with non-profit charitable missions?
Non-profits are inherently in business for the mission rather than the money. There is an inherent danger with crypto and other digital assets that may not align with a charity's ethical and moral standpoint.
For example, an environmental organization may be concerned about accepting a cryptocurrency that uses large amounts of fossil fuel in its mining.
How to handle cryptocurrencies in the non-profit sector
So, should NFPs refuse crypto donations? The world has changed, crypto has rapidly gained traction and popularity, and Web3 - a world in which cryptocurrencies are even more readily available, accepted, and supported - is rapidly becoming a reality. Any charity’s fundraising efforts will be increasingly hindered by refusing cryptocurrencies. In the future, this will become even more pronounced.
The good news is that technology is also evolving to make the use of crypto safer; current concerns over security and currency fluctuations will likely become less severe in time. However, how can non-profit organizations handle crypto and other digital assets?
Establish a cryptocurrency process
Non-profits must consider updating their Gift Acceptance Policy and establishing their process for accepting cryptocurrency.
Although this is likely to be on everyone’s agenda at some point, each non-profit organization is unique. Some organizations may find that their limited resources are better focused elsewhere.
Establish when currency will be converted
NFPs also need to establish whether they will immediately convert cryptocurrency or NFTs to Fiat currency or hold these assets either as an investment or programmatically (such as a museum displaying NFT artwork).
Decide if you’re handling crypto directly or using a third-party
Finally, NFPs must decide whether the NFP will work with a third-party platform or open their wallet and manage these assets directly. Using a third party is demonstrably safer in safeguarding the charity’s assets, yet it also robs the charity of some potential crypto carries.
Final thoughts on not-for-profit crypto fundraising
At face value, these may seem like straightforward choices. However, the best course of action will vary depending on the NFP in question. It is critical to consult with a trusted professional advisor to understand the risks and opportunities of these types of technologies before organizations venture into them.
HLB’s NFP team of experts can help a wide range of non-profit organisations to fulfil their purpose by supporting NFP leaders and boards with their compliance needs, governance issues and strategic decisions. Contact us today so we can help design tailor-made solutions to help meet your NFP objectives.