In 2021, crypto philanthropy saw a massive surge, with cryptocurrency donations rising by 16 times and reaching $500 million in the United States alone, the Web3 tech company that specializes in crypto philanthropy, Givepact, told Technopedia.

While platforms that specialize in crypto donations are yet to see another repeat of the 2021 bull run, the chief operating officer of Endaoment, Zach Bronstein, noted that crypto investors continue to drain their Donor Advisor Funds (DAFs) and give their remaining dollars to charities.

“Folks are excited to get the contributed dollars to the charitable recipients, and are using this slower period of blockchain activity to focus on making impactful and meaningful gifts.”

What is Crypto Philanthropy?

Crypto philanthropy is very similar to other forms of charitable giving, with the only major exception being the type of asset donated.

“The recipient has to understand all of the mechanics of holding a wallet, knowing how to transfer the token to and from an off-ramp or exchange, as well as keeping it secure and safe,” the co-founder of Bracket Labs, Pelli Wang, explained.

Givepact’s Maule added that in many instances, one of the most exciting parts of crypto donations is that, on average, crypto donors tend to give 82 times more money than “cash” donors, which could amount to $10,500 per donation.

“We have noticed a trend that schools, universities, and other research and higher learning institutions typically find themselves at the top of this list. I would argue that donors here are not just excited to give back to their college or university but rather are interested in supporting interesting and potentially greatly impactful research that’s being carried out. This is very much in line with the ethos of the Web3 space, to find funding opportunities that can translate not just to doing some good, but to being able to do some good that was previously unattainable,” Endaoment’s Bronstein said.

In 2022 alone, the company saw $22.8 million in crypto donations, with the average donation size being $43,000.

Crypto Philanthropy Pros and Cons

Crypto donations are processed at a much faster rate than traditional donations, the author of NFT: From Zero to Hero, Anndy Lian, told Technopedia, which could come in handy in times of emergencies.

In addition, the fact that crypto is borderless allows individuals to make crypto donations to charities worldwide, regardless of their location.

Lian said:

“The transaction costs for receiving crypto donations are lower than those for credit cards, debit cards, and wire transfers. This means that more of the donation goes directly to the cause.”

Bracket Labs’ Wang added that because cryptocurrency transactions are transparent, donors can openly see how much funds were collected for a certain cause.

On the other hand, cryptocurrencies remain a niche. Digital assets are highly volatile, which could also push many individuals against opting for crypto donations.

“The greatest challenges with crypto donations are fluctuations and regulations. The price of cryptocurrencies is highly volatile, which affects the value of donations. So, nonprofits need to be strategic about converting their bitcoin payments. When it comes to regulations, different regulations depend on the jurisdiction, which makes it complicated because the organizations need to navigate the procedures and comply with the laws,” a founder at Coin Data Flow, Alexandr Sharilov, told Technopedia.

What About Tax Implications?

One of the biggest advantages of crypto philanthropy is the tax breaks the donors get and the tax credit, Sharilov explained. This means that in many cases, donors are eligible to get a charitable contribution deduction when filing their tax returns at the full fair market value of the cryptocurrency that they donated at the time of the donation.

Wang noted that while tax deductions are one of the biggest reasons why many donors would opt for a crypto donation as opposed to cash, each county recognizes the value of cryptocurrencies differently.

In the US, for example, the Internal Revenue Service (IRS) treats digital assets as property for tax purposes meaning that donating digital assets is not a taxable event, and donors can claim a charitable deduction for the fair market value of their donation, Lian explained.

Companies specializing in crypto philanthropy are also keen to educate the public on how easy it is to contribute to charitable causes using digital assets.

“What is key here is explaining to folks that donations of crypto are treated just like donations or stock or property – if you have held the asset for over a year, you can deduct the current market value of the asset (if you have held less than one year, you can only deduct the cost basis of that asset). While of course, this is not tax advice, clearly donations of appreciated assets can create additional deductions for donors, and the non-profits reap the rewards of the appreciation by receiving additional funding!”

The Future of Crypto Philanthropy

Companies specializing in crypto philanthropy are bullish, betting that the field will continue to prosper in the years to come. Maule compared the current rate at which crypto adoption is growing to how the internet was in 1998.

“The interest in crypto is expanding, and we’re just at the beginning of seeing this take off. If $500 million in crypto was donated in 2021 with limited pathways to give, we are betting on a future that projects crypto donations will exceed $10 billion within a decade.”

Edaoment’s Bronstein added that even in the bear market currently faced by the cryptocurrency space, the company has seen over $52 million donated on its platform, with the metrics continuing to grow.

“Put this together with the fact that new folks are onboarding into web3 daily, and large organizations like Coinbase are working to tackle the crypto UX problem – we are sure to see many more folks join us in this space in the next few years, which will in turn lead to additional crypto donation activity, especially as folks learn how easy it can be, and the benefits that can be wrought.”

Making Crypto Philanthropy More Accessible

From UNICEF to the Rainforest Foundation, a number of charities have started to accept crypto donations showing just how easy it is for charities to “jump onto the trend”.

Lian and Sharilov both explained that organizations can start accepting crypto donations in two easy ways. Either through a hands-off approach by leveraging a crypto payment processor in the likes of Givepact or Endaoment to accept the donations on their behalf or through a hands-on approach by holding the crypto donations in a wallet controlled by the organization itself.

Bracket Labs’ Wang noted that before charities get involved in the Web3 space, they must make sure a member of their team is familiar with the crypto world.

“There are many benefits to tapping into the crypto/Web3 audience including higher average donations; younger, higher earning donors; potentially less fees to process. However, you need to make sure you have: a wallet provider or custodian; an off-ramp or exchange; tax/accountant; ID or KYC/AML provider and a security/compliance monitor.”

Source: https://www.techopedia.com/crypto-philanthropy-how-digital-assets-are-driving-charitable-giving