Crypto philanthropy is different from traditional methods of giving. Indeed, these differences are altering funding models, donor demographics, and reasons for philanthropy.
The growing frequency of crypto giving indicates that the method is likely to play a major role, especially in the non-profit sector and change philanthropy. The availability of cryptos has brought to the fore a new generation of young philanthropists and assisted nascent charities to compete easily for donations. It is an indication that cryptos are about to get more into our lives.
The Rapidly Growing Crypto Donations
2021 broke the record of being the year with the largest donations. Fidelity Charitable, a respected financial services non-profit that advises donors on philanthropy, said that about 45% of crypto investors gave donations to charities in 2020. This is significantly higher than the 33% received from general investors. Fidelity Charitable got USD 331 million through cryptos compared to USD28 million from fiat currency.
The ease of transferring cryptos across the globe is making it possible for charitable organizations to get more support. It is because of this that even large charities have started adopting cryptos. UNICEF has already launched a digital financial vehicle, CryptoFund, to handle cryptos. The Red Cross and Greenpeace are also supporting crypto.
Cryptos Make It Easy and Quick to Respond to Issues Raised on Social Media
Many crypto donations are from young people who support cases that receive attention online. The donors might identify a heartfelt situation and emotionally get connected to it. For example, challenges faced by people in the Russia-Ukraine war have resulted in more than USD100 million in crypto help.
Social media was also a COVID-19 helpline with crypto donations helping a lot of people in different parts of the world. One example is India. Vitalik Buterin, the Ethereum founder, donated about USD1 billion to India’s COVID-19 relief.
Transaction Costs in Cryptos are Low
One of the reasons why donors prefer cryptocurrencies is to avoid capital gains tax via donations. Indeed, providing long-term crypto-assets can also help unlock more funds for the receiving entity. This might not be possible in traditional investing methods.
When a charity receives donations via cryptos, the cost is lower compared to traditional methods. According to Charity Navigator, processing credit card or wire transfer transactions can range from 2.2% to 7.5%. Therefore, sending, say, USD 2,000 from the USA to India using a wire transfer could cost about USD40.
However, the gas fees for sending the same amount through Ethereum would be about USD10 to USD15. You might even get blockchains with smaller fees. Again, transactions are completed in seconds when using cryptos, while fiat can last for hours or days.
Cryptos donations also help reduce tax deductions and keep donor identities anonymous. Unlike banks that require know-your-customer (KYC) protocols, donors are able to send millions anonymously. However, new regulations are likely to reduce anonymous operations.
In 2021, there were over 1,300 nonprofits that accepted cryptos for donations. The shift is likely to open a new path for non-profits and disrupt the conventional methods of giving.