Since the pandemic began in 2020, we’ve seen a significant shift in using technology for convenience, including the way money is exchanged. Cryptocurrency is slowly becoming more widely accepted as a method of payment. As more wealth continues to be created through cryptocurrency, crypto donations in the nonprofit sector are steadily increasing.
Is your nonprofit equipped to accept crypto donations? And more importantly, should you be accepting crypto donations? Keep reading to find out what it is, how it can be used, and if it’s right for your nonprofit.
What is cryptocurrency?
Cryptocurrency is a digital currency that is encrypted and decentralized. Since it’s not a physical currency, it can only be used on the internet through various platforms, such as BitPay and Coinbase. It is encrypted using cryptography, which makes it more secure since it cannot be counterfeit or spent more than once. Cryptocurrency is cheaper and faster to use because there’s no central authority that controls its value.
With the rise of crypto, there are now thousands of different cryptocurrencies available to purchase at the click of a button. The two most popular cryptocurrencies are currently Bitcoin and Ethereum.
How is cryptocurrency used?
Many people use cryptocurrency is mostly as an alternative investment. It is extremely popular among investors who are willing to accept high risk for large potential profits.
Another use for crypto is using it to make purchases. There’ve been numerous technological changes within the past two years. Although it’s still not widely accepted, it has helped to bridge the gap between cryptocurrencies and traditional currencies.
In the past, both consumers and merchants needed a crypto platform to exchange and process crypto for goods and services. This barrier limited the number of merchants accepting cryptocurrencies. Now, large payment processing companies, such as Mastercard and PayPal, created that missing link between the two types of currencies. Cryptocurrency holders can now use a debit Mastercard or their PayPal account at thousands of retailers worldwide – anywhere Mastercard or PayPal is accepted.
Pros of accepting cryptocurrency
Expanding your donor base
Accepting cryptocurrency donations can attract donors who may be more technology-focused or have recently accumulated a lot of wealth from investing in crypto. There are a wide variety of platforms that have made crypto even more accessible to the average person. Between 2020 and 2021, there has been a 583% increase in cryptocurrency donations within the nonprofit sector. With the popularity of crypto rising, accepting crypto donations allows you to keep up with this trend.
Generating profits
Another advantage of accepting and holding cryptocurrency is the earnings potential. There have been significant price increases for alternative investments since Bitcoin was created. For example, Bitcoin’s starting price was $0 in 2009 when it was first created, but now has a current market value of approximately $47,000! There aren’t many other investment opportunities that will generate profits of 47,000 times your initial investment in a short period.
Cons of accepting cryptocurrency
Volatility
Despite crypto’s very high returns, you should keep in mind that investment returns come hand-in-hand with risk. Typically, high-return investments are the riskiest, and crypto is no exception to that. Some of the largest declines in Bitcoin’s value were between 50% to 99%. You would only be left with $10 to $500 if you invested $1,000 and sold it during a decline. Although the value of cryptocurrency is on the rise in the long term, you will need to prepare for the market downturns as well.
If you decide to accept crypto donations, it’s important to have an investment strategy for volatile holding assets. For smaller organizations that may not have an investment analyst, it may be suitable to convert crypto assets into cash as soon as possible, before the value has any chance of decreasing. However, for larger organizations with an investment analyst who can forecast crypto trends, it may be more beneficial to hold onto crypto assets longer to gain year-over-year profit.
Should you accept crypto donations?
There’s no one size fits all solution. Ultimately, it is up to how your nonprofit prefers to operate. If crypto continues to gain popularity in the investment and payment industries, your nonprofit can consider it. Some factors to keep in mind while making this decision are the demographics of your current donor base, your organization’s ability to afford additional payment processing fees for crypto, and the overall risk tolerance of your organization when it comes to accepting and holding very volatile assets.
For more information on how to implement crypto donations, keep an eye out for part two of our Cryptocurrency 101 series. In the meantime, click here if you’d like to learn more about how Donor Compass™ can help you build a fundraising strategy for your nonprofit organization.