Charities are looking to turn to cryptocurrencies to boost donations, increase transparency, and reduce operational costs
An increasing number of charities have developed the technology to accept donations through digital cryptocurrencies, such as Bitcoin.
Bitcoin was once a niche form of currency and it is now the ninth most valuable asset in the world. Other popular forms of cryptocurrency include Ethereum, Litecoin, Cardano, Polkadot, Stellar, and Binance Coin.
Cryptocurrencies presents huge opportunities for charities to boost income and donations, through accessing an increasingly popular form of currency that can be transferred easily. It can also present challenges, however, such as around security and complexity.
Here we will look at the benefits and challenges for charities using cryptocurrencies as part of their digital transformation, as well as some examples of those in the sector already tapping into this digital form of currency.
Cryptocurrencies are digital currencies that are decentralised, which means they are used by those involved in the transaction rather than a centralised government.
This leads to a key benefit of lower costs. Dealing with cryptocurrency transactions is far more cost-effective than dealing with traditional currency, which require banks and other third-party financial firms that charge fees. There are other cost savings, too. Cryptocurrencies are not tied to geography so currency conversion costs are not needed.
Another benefit is transparency. Cryptocurrencies operate using Blockchain technology, which involves the distribution with each block in its chain of distribution recorded with a cryptographic signature. This makes it easy for those in the chain to see when changes are made, and currency transactions can be traced.
For example, a donor making a gift can see through the block chain how that money is being used at any time. This works to increase public trust in charities.
While the transaction itself and the amount of money being donated is transparent, cryptocurrency donations can be anonymised with relative ease. This makes it hard to see who is donating.
Ethical challenges arise. Charities must ensure they are not accepting money from individuals or organisations that are criminal, have reputational issues, or are involved in activity that does not match a charity’s core beliefs and values.
According to the Charities Aid Foundation report Giving a Bit(coin): “Even when donations do not come from sources that fall foul of the law, there may still be questions about their moral status that present a challenge for charities.”
Another challenge is how cryptocurrencies are produced. This process, called ‘mining’, involves considerable processing time and power from computers.
This situation needs to be monitored to ensure the environment is not being damaged by the power needed to mine cyptocurrency. Increasing the use of renewable energy would mitigate this risk.
Cyptocurrency mining now reportedly uses nearly as much electricity as Argentina and Bitcoin’s energy consumption has more than quadrupled over the past four years.
A wide range of charities, including Save the Children and RNLI, now accept cryptocurrency donations. This move particularly helps those in the international aid sector to react more swiftly to global events, as well as generally boosting donations.
One UK charity to accept cryptocurrency donations is Helping Households Under Great Stress (HHUGS), which supports families impacted by terrorism, national security, and extremism legislation.
It is the first Muslim charity to accept Bitcoin donations. The charity said: “At HHUGS, we are always looking for ways for people to support us with ease. That’s why we’re now accepting Bitcoin donations.
“As the first Muslim charity to accept Bitcoin, we are ahead of the curve. We hope through such an innovative currency as Bitcoin that we can open up new avenues for people to support HHUGS and reach new donors and supporters.
“From our observation of future trends, it seems likely that we will receive digital currency as a donation at some point and we want to be prepared for that eventuality.”
In 2020, the Children’s Heart Unit Fund received a donation of £38,000 in cryptocurrency, thought to be the largest cryptocurrency donation to a UK charity. The donation came from two donors from the US to the charity’s COVID-19 response pandemic.
CHUF Director of Fundraising and Operations at CHUF said: “We are beyond grateful and really overwhelmed by this generosity in our time of need.”
This large sum was donated via the online platform The Giving Block, which is well known in the US but not widely used in the UK.
Dan Bainbridge, one of the two cryptocurrency donors to CHUF, said: “I was a heart operation baby and have been personally supported by CHUF all of my life. I’ve always wanted to give back and now working in cryptocurrency I saw an opportunity to help CHUF get setup to accept cryptocurrency donations (bitcoin and Ethereum) online.”