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Cryptocurrency and the Community Foundation Field

January 29, 2019

BitcoinWhen you hear words like bitcoin, cryptocurrency, or blockchain, what comes to mind? For many, it's technologies that are difficult or impossible to understand. For others, it's the critical components of the infrastructure that will drive commerce in the future, both online and off, as well as the method by which most data, including charitable spending data, will be tracked. Regardless of your view, one thing is certain: cryptocurrencies such as bitcoin, undergirded by blockchain technology, will continue to proliferate and be embraced by the philanthropic sector. In fact, they already are.

In December, the Chronicle of Philanthropy reported that an estimated five hundred to a thousand nonprofits in the United States are poised to accept some form of cryptocurrency, having established accounts with payment service providers like Bitpay. Meanwhile, a handful of well-known nonprofit organizations — including DonorsChoose.org, the American Red Cross, and Fidelity Charitable — have already begun to accept crypto. Indeed, some experts believe that blockchain, and the digital currencies based on it, could fundamentally change the way philanthropy is transacted. For donors, the dual benefits of avoiding capital gains and being able to track a donation through to its intended beneficiary are of great interest. Whatever the use case, it's clear that some holders of cryptocurrency are ready and willing to mobilize their digital assets in support of charitable causes.

CF Insights, a service of Foundation Center, recently conducted a short survey to learn more about the extent to which community foundations have engaged in these types of digital transactions, and we've published the results in A Scan of Community Foundations Accepting Cryptocurrency Gifts (10 pages, PDF). In analyzing the responses, three takeaways became clear:

1. A growing number of community foundations are putting processes in place — quickly — to accept cryptocurrency. Of the 122 community foundations that responded to the survey, 27 (or 22 percent) said they are equipped, or have already begun, to process gifts of cryptocurrency such as bitcoin, with most of this activity having taken place over the last two years. Another 48 community foundations told us they have plans in place to begin accepting digital assets in the not-too-distant future.

Fig.1.1_CF Insights_fdns accepting crypto

2. Several community foundations began accepting cryptocurrency in response to a donor's request. Part of the value a community foundation provides to donors is their nimbleness and ability to respond to donors' changing needs. For the Community Foundation of Western Nevada, this meant becoming familiar with the steps necessary to process a bitcoin donation during the busy year-end giving season. At the St. Paul and Minnesota Foundations, it meant staff responding to a donor's request to accept a donation of bitcoin after speaking with peers and experts and evaluating the associated risks. For both organizations, cryptocurrency was another method for turning a portion of an individual's wealth into a charitable gift, and their ability to quickly add a state-of-the-art tool to their respective toolboxes at the request of donors demonstrate their value as vehicles for private philanthropy.

3. There are pain points and challenges in accepting donation of cryptocurrencies that community foundations need to be aware of. It shouldn't come as a surprise to hear that equipping your organization to accept donations of cryptocurrency comes with its own set of challenges. Several respondents to our survey cited the risk of hacking as a concern (and a few respondents even requested not to be identified in any communications because of that concern). Others ran into problems when they tried to establish organizational accounts on some of the popular cryptocurrency transaction platforms, claiming that some platforms requested copies of board members' personal documents, including passports. The Chronicle article notes the decision by many in the nonprofit sector to wait until more regulation is in place before they jump into the crypto space.

The most cited concern by far, however, was the price volatility of bitcoin and other cryptocurrencies. When CF Insights launched its survey in July, the value of a single bitcoin was roughly $8,000. By the time we had collected survey responses and signed off on the design of the report, its value had been nearly halved, to $4,200. And by New Year's Eve, its value had dropped to just under $3,700. As I write this sentence, the value of a single bitcoin has slipped further, to $3,400, and where it goes from here is anyone's guess.

To learn more about community foundations and the intriguing world of blockchain and cryptocurrency, check out A Scan of Community Foundations Accepting Cryptocurrency Gifts. In it, you'll read about some of the other digital assets that community foundations are accepting, the platforms they are using, and the value (in range form) of the gifts they have accepted to date. At the same time, pay attention to what one of the survey respondents told us: the "infrastructure to receive, hold, transact, and report on crypto gifts is nascent and rapidly evolving. Vendor solutions and foundation procedures will probably look different over time" as the technology continues to spread and evolve. As it does, CF Insights will look to conduct follow-up research to learn more about what community foundations are doing to adapt to this brave new world.

David Rosado is members services manager for CF Insights, a service of Foundation Center.

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