The Era of Cryptocurrency-Based Philanthropy

Cryptocurrency donations are a revolution on many levels. With funds like The Giving Block receiving over $2.4 million in a day, crypto modernizes the non-profit market. We can attribute this growing benevolence to 3 primary advantages.

Bypassing the capital gains tax:

The capital gains tax is a convoluted process but to simplify it: capital gains are the difference between the purchase price and the selling price. If a taxpayer sells their Bitcoin and donates after the transfer, the income is subject to a capital gains tax. The IRS can impose these expenses depending on how long an individual held the asset before selling it. To increase the amount of money going toward their select charity, cryptocurrency owners are finding innovative and charitable ways to utilize this technology. The number one donor-advised fund globally, Fidelity charitable, reported that tax savings were a driving force behind their recurring crypto gifts. The unregulated loophole in the tax system has a plethora of implications for the future of the NGO market. With crypto donations growing in value by nearly 583% from 2020-2021, analysts predict that such numbers are only on the rise. 

However, the government can stifle this movement with its intervention. By naturally wanting to preserve the value of their fiat currency, the Treasury Department argued that “Cryptocurrency poses a significant detection problem by facilitating illegal activity broadly including tax evasion.” These assertions may instill fear into benefactors and charities, but donations will keep coming as long as the crypto market is decentralized and unregulated.

Blockchain increases transparency in donations:

Currently, 35% of Americans say that they have little to no confidence in charities, with 68% arguing that it’s essential to have evidence that the charities’ programs are effective. Unfortunately, many prospective donors stay on the sidelines due to mistrust kindled through bad actors in the non-profit industry. However, due to the blockchain’s secure, systematic, and immutable tendencies, users can easily track the movement of their money. When examining countries in which the risk of corruption is high, crypto’s privacy is a valuable feature that brings in more donors. A recent report determined that transparency can result in non-profits receiving over 50% more contributions than their counterparts. According to this research, there was a direct link between actively shared information and more extraordinary fundraising results. In essence, with crypto, donors can see where their money is being used, incentivizing them to continue providing for the cause, and supplementing their trust for the charity. On the other hand, intermediaries comparable to banks and governmental processes complicate the donation process when dealing with fiat currencies, planting seeds for future suspicion.

Decreasing Transaction Costs:

Crypto, often referred to as the wild-west market, is characterized by its unregulated nature, allowing for low transaction costs. This benefit is evident when charities send tokens/coins to those in need. As seen in government currencies, regulation tracks every transaction and requires information like the name, address, and time of payment, thus increasing costs. Since crypto does not have to go through these problematized processes, donors conserve more capital. These low trading costs are significant for two reasons. Firstly is the decrease of investor flight as many business people fear such fees. With a more expansive community, the money invested in charities proliferates, directly saving lives. 

Secondly is remittances and transfers to the poor. Some of the largest charities, such as United Ways, provide remittances to people worldwide. Fortunately, crypto allows individuals to elude these transaction costs and supply distributed money toward the cause instead of otherwise needless expenses. We can quantify this as for every 1 percent that we decrease transaction costs; there will be 1.6% more remittances. These savings are ideal for huge charities such as United Ways, as they would have more money to spend on causes such as starvation, disasters, and poverty. 

What Does This Mean for the Future: As more people comprehend the opportunistic and modern forms of donations, cryptocurrency will dominate NGO philanthropy. Furthermore, establishments can leverage smart contracts to trigger and donate to charities when they meet a specific profit goal.