How Crypto Is Changing Philanthropy – CoinDesk

Tanvi Ratna, a CoinDesk columnist, is the founder and CEO of Policy 4.0, a research and advisory body working on new policy approaches for digital assets.

Crypto philanthropy differs significantly from traditional ways of giving. These differences are changing donor demographics, funding models and even the reasons for giving.

The rising frequency of these crypto donations suggest this method of giving will play an enduring role in the nonprofit sector and perhaps transform philanthropy. The availability of crypto for giving has already spurred new waves of younger people to consider philanthropy and helped smaller charities compete for donations, but these may only be first steps as digital assets embed themselves more firmly in our lives.

Tanvi Ratna is the CEO of Policy 4.0, a research and advisory body working on policy approaches for digital assets.

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.

Crypto donations help nonprofits that are unable to get funding due to government restrictions. In 2010, WikiLeaks, an international non-profit that publishes news leaks was blacklisted by the U.S. Visa (V), Mastercard (MA) and PayPal (PYPL) blocked its funding. Now, WikiLeaks receives millions in crypto donations. Despite this unprecedented growth, cryptocurrency philanthropy remains a niche form of giving and differs from traditional approaches in many ways.

The pool of cryptocurrency users is, on average, much younger than traditional donors to philanthropy. Over 60% of cryptocurrency users are under the age of 40. In the U.S., the average age of crypto users is 38 whereas the average age of donors is 64.

United Way, an international charity organization, started accepting crypto in 2014. Analytics data from its website show that the average user is 45 to 65 years old and 80% are female. Meanwhile, the average age of visitors to United Way’s crypto donation site is 25 to 35 years old and 80% are male. Cryptocurrency is drawing younger people to philanthropy in large numbers.

Most cryptocurrency donations come from young, tech-savvy adults who support causes receiving more attention online. These donors may read heartfelt stories and bond emotionally to particular events. For instance, narratives shared on Twitter related to the Russia-Ukraine war have led to about $100 million in crypto donations to help Ukraine.

Similarly, social media became a COVID-19 helpline with global reach when India struggled with the second wave of the pandemic, also leading to crypto donations. Among the donors was Ethereum co-founder Vitalik Buterin, who gave around $1 billion to India’s COVID-19 relief in shiba inu (SHIB) tokens that soared in value around the same time.

In 2021, the Tor Project, a popular non-profit for internet freedom and privacy, received 58% of its donations in cryptocurrencies. This largesse reflected crypto donors’ affinity for such causes as data privacy compared to others.

To be sure, some crypto donors may often be puzzled about which non-profit or cause they should support. But this challenge is common in philanthropy.

Recently, Giving Bock has introduced impact index funds or cause funds. These funds will help donors make informed decisions and potentially open them to a wider range of opportunities than they might otherwise have considered..

Traditional philanthropy has focused more on popular non-profits. Many donors have been more inclined to international charity organizations skilled in communicating their success, but the trend may be costing smaller and equally outstanding organizations who could also use the support.

Cause-based funds on crypto donation platforms cover different areas including education, disaster relief, food and the environment. Donors can support a particular cause rather than choosing a specific non-profit organization with the non-profits receiving an equal share of the donated amount. This structure gives smaller non-profits equal footing, and ensures that the wider cause receives more attention than larger, more popular non-profits.

Donors may find crypto philanthropy appealing for various reasons. Crypto investors can avoid capital gains tax through donations. Donating long-term appreciated assets directly can also unlock additional funds for charity, and there are potential savings for donors and non-profits on transaction fees that are embedded in traditional financial services platforms.

Transaction costs for receiving crypto donations areless than those for credit or debit card, which was the preferred method of giving for 63% of donors worldwide, according to the 2020 “Global Trends in Giving Report.” According to Charity Navigator, the processing fee on credit card transactions – a direct deduction from the charity amount – can range from 2.2% to 7.5%.

Meanwhile, a normal wire transfer of $2,000 from the U.S. to India may cost $30 to $50 extra in transaction charges. The gas fees for the same amount when transferred through the Ethereum blockchain can be around $10 to $15. Moreover, there are other blockchains with even smaller fees. Also, the transaction time in crypto can be as low as a few seconds or minutes, whereas, cross border transfer of fiat takes hours or even a few days.

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 a long-term appreciated 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 $2,000 paid in taxes from the donation amount. As a result, investors can save at least 20% to 30% on taxes.

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.