If you still think of Bitcoin as a trading instrument, think again. An increasing number of people are using this and other digital currencies for day-to-day payments and even… donations.
Fidelity Charitable, the charity arm of Fidelity, has confirmed that $106 million in donations have been received in cryptocurrencies since it began accepting this form of payment back in 2015.
The organization believes that the number of cryptocurrency donations is closely tied to market prices. According to last year’s annual report, the pace of crypto donations has reduced by half following Bitcoin’s slump in early 2018.
“We see cryptocurrency donations rise along with increases in the value of cryptocurrencies in the marketplace,” a company official told CoinDesk.
This is not a surprising behavior. When cryptocurrency prices decrease, people hold on to them in hope of future recovery. Another factor weighing on the overall contributions is the reduced value of tax deductions donors can claim.
Tax Deductions — The Case For Crypto Donations
Sure. Charity is about helping others without waiting for anything in return. Yet, most donations come along with some exciting tax benefits.
If you are based in the United States, you’re probably aware that the IRS considers Bitcoin and other crypto-assets as property for tax purposes. This means you’d have to report capital gains to Uncle Sam. If you bought BTC when it was less than a dollar per unit, then that’s a huge tax.
Of course, there’s a way around — the charity way. Instead of cashing out your Bitcoin and tax capital gains, for instance, you could donate it to charity through a donor-advised fund like the above-mentioned and get an instant tax deduction for the entire donated amount.
Example: back in 2017 you bought 10 BTC at $1,000 each. Now, you’ve decided to lock your gains at $10,000 per unit. Well… you had a good run after all. If you opt to cash out your earnings, you’ll have to pay the long-term capital gains tax that goes up to 20%. Ouch. Alternatively, you could donate your cryptocurrency and collect a sizable tax deduction.
What Charities Do With Cryptocurrencies?
Good for you! You’ve made a move and decided to donate some of your crypto. So, what happens now? While each organization has its own policies, Fidelity Charitable and other similar funds accepting cryptocurrencies cash it out almost as fast as received.
In most cases, charity organizations partner with cryptocurrency exchanges to convert digital currencies to cash and that way avoid market volatility.
Crypto Can Do Even More For Charity
One of the greatest features of cryptocurrencies is their ability to move across the world instantly and for a ridiculously low cost. That’s possible because of their underlying distributed ledger technology — blockchain. This technology eliminates the need for intermediaries, accelerating transactions, reducing costs and ultimately increasing efficiency.
If you think about it, charities are intermediaries too. But that doesn’t mean blockchain technology will leave them out of business. Instead, this technology has the power to improve the overall process of receiving money and distributing among those in real need.
According to the Chronicle of Philanthropy’s June 2018 report, the percentage of Americans donating money to charity has fallen from 66 percent in 2000 to nearly 50 percent in 2018. This trend is a combination of various factors, including the appearance of new options to contribute to social causes, rising infrastructure costs of non-profit organizations, lack of trust in them
By incorporating blockchain technology and cryptocurrencies to their structures, charities could minimize the burden of administrative costs, reach a wider audience of potential donors, provide higher accountability, increase transparency and even show donors the impact of their gifts.
Organizations such as the Blockchain Charity Foundation are already showing the immense opportunities of crypto philanthropy. Founded by Binance, one of the world’s largest cryptocurrency exchanges, this peer-to-peer donation platform leverages blockchain technology to create a community of donors and recipients, making donations feel closer to crowdfunding.
Benefits Of Blockchain-based Philanthropy
The charity sector can largely benefit from accepting crypto donations. Among a vast list of distinctive benefits, we could highlight the following:
Moving digital currencies across borders is fast, secure and affordable. This is a big advantage for charities to promote their causes all over the world, not just locally.
Cryptocurrencies are trackable and each transaction is recorded on a public ledger, making the entire process transparent and accountable for donors.
Distributed ledger technology eases data sharing and storage. Implementing blockchain solutions could translate into big savings and therefore, more funds being distributed for good causes.
The Bottom Line
Blockchain philanthropy remains an experimental way of donation, but it’s already showing a promising outlook for donors and charitable organizations. As more people jump into digital currencies and blockchain technology is adopted by a larger number of companies, we could expect new, more efficient ways to help others.