The downsides of cryptocurrencies

The price of Bitcoin, the world’s most popular cryptocurrency, has rocketed from little over $6,000 a year ago to more than $60,000 today. It’s made some people very rich indeed. It’s also attracted the interest the likes of Tesla founder Elon Musk and donations can be made in the cryptocurrency to a range of charities including Save the Children and RNLI.

But if your charity is thinking about accepting donations in cryptocurrencies, it is very important to ensure that you are aware of the considerable downsides of this type of fundraising initiative, as well as the benefits.

Environmental impact

The first thing to consider is that cryptocurrencies, particularly Bitcoin, have an enormous negative effect on the environment. That’s because behind every Bitcoin is a huge infrastructure of computers involved in Bitcoin “mining”.

These computers, working all over the world around the clock, consume a vast amount of energy. According to the University of Cambridge’s Bitcoin Electricity Consumption Index, Bitcoin is now responsible for more energy consumption than entire countries such as The Netherlands or Argentina.

The overwhelming majority of this energy is not generated from renewable sources like wind, so the amount of carbon dioxide that is released in to the atmosphere because of Bitcoin mining, and therefore Bitcoin’s effect on climate change, is significant.

That alone may give pause for thought. But for charities that are directly involved with environmental issues, it may be difficult to reconcile the harm that Bitcoin mining does to the environment, and the implicit endorsement of that harm by accepting funds in Bitcoin, with the aims of the charity.

Security concerns

On a more practical level, cryptocurrencies such as Bitcoin can be a considerable cyber security risk for charities when it comes to storing them. That’s because cyber criminals are particularly attracted to cryptocurrencies because of their high value and the fact that they can be used anonymously.

For that reason, many types of malware are designed to search infected computers for cryptocurrencies, and to send any that they find to the malware authors. Any charity storing donated cryptocurrency on a computer that gets infected with this type of malware could lose all of these donations with almost no chance of getting them back.

Some cryptocurrency exchanges store Bitcoins and other currencies on behalf of their clients, but there have been a number of examples of clients losing large amounts of money after these exchanges have fallen victim to cyber attacks, fraud, or other criminal activity.

Perhaps the best-known example of this is the Mt. Gox exchange, which went out of business after 850,000 of customers’ Bitcoins, now worth about $51 billion, went missing presumed stolen.