Using Cryptocurrencies for Charitable Donations: Pros and Cons
The benefits and drawbacks of using cryptocurrencies for charitable donations photo
By: Natali

The benefits and drawbacks of using cryptocurrencies for charitable donations

Table of Contents

Blockchain brings new opportunities to philanthropy. It opens doors to new charity options around the world. But still, many people are afraid to use it. So today I want to show you how cryptocurrencies are able to benefit all parties involved: charity organizations, donors, and people who need help.

I do believe that crypto will make an impact on charity, making it more accessible. It eliminates intermediaries, so the affected will get even more help in less time. Charities will become even more transparent, showing how they distribute donor funds. And donors can help people from different regions without any difficulties.

Benefits of Using Cryptocurrencies for Charitable Donations

A decision to use cryptocurrencies will be a great solution for all parties. Digital money is transparent and anonymous, so donors can send funds without revealing their personalities. They can see how funds spend their money. All crypto transactions are recorded on a public blockchain which is impossible to delete or modify.

Using crypto, charities can get donations from people worldwide with the lowest possible fees. There are no intermediaries, such as banks or other financial institutions. Usually, charities should wait 3+ days to use donations. In international money transfer cases, banks check every transaction for at least 12-24 hours. Cryptocurrencies can reduce waiting time to 1-2 hours.

In some countries, crypto donations offer significant tax advantages. In the USA donors can deduct the fair market value of their crypto donations from a taxable income.

Charity funds can use smart contracts to automate the distributions, so donors can be 100% sure they are donating strictly to the intended cause. It eliminates fraud and corruption risks. This fairness contributes to every party involved. Donors are not afraid to provide their money. At the same time, recipients know they will get the finances to change the world for the better.

The Water Project, a non-profit organization providing access to clean water in sub-Saharan Africa, launched a Bitcoin Water Campaign in 2014. Binance Charity Foundation launched the viral campaign “Lunch for Children” to provide meals to students in unprivileged schools back in 2019. Those projects show the potential of cryptocurrencies in charity, so it becomes acceptable as one of the payment methods in regular charity funds.

The American Red Cross, Human Rights Foundation, Trevor Project, and Wikimedia Foundation use the Giving Block platform to accept cryptocurrency. Crypto donations help HRF fund the Hong Kong pro-democracy and Free Tibet movements. The Trevor Project uses crypto donations in TrevorLifeline (LGBTQ 24/7 crisis hotline) and TrevorSpace (LGBTQ online community)


Drawbacks of Using Cryptocurrencies for Charitable Donations

But, as I like to say, everything in our world has drawbacks. As for today, crypto is still not a perfect solution to get donations. Charity organizations should consider the following features of such contributions.

Crypto is still a volatile asset that can drastically change its price a few times in less than a month. And it’s quite a challenge for charities, as they need to plan their budgets. The most reasonable solution for it is stablecoin usage. Their prices are pegged to actual currencies, such as Tether (USDT) to the US dollar.

The lack of regulations and taxation laws can be frustrating for charity organizations. So, many people are afraid to donate because they don’t know how to do it legally. And it leads to limited acceptance, which results in a lack of interest from the government and slow implementation of crypto-laws. Some charity organizations may be a money laundering business. It’s unpleasant to hear, but it is still a harsh truth. Crypto is widely known for its anonymity, so many people could link those two facts together, starting to think that all charities that use crypto are scams. But it's not true, as we saw in the previous section. Many big trustworthy funds use crypto as one of the donation methods. But it will be a challenge for small independent charity funds.

And last but not least on this list are security concerns. It’s impossible to hack a blockchain, but it’s achievable to hack a wallet if the owner shares the password to a hot wallet and its private key. Charity organizations should hire tech-savvy accountants to reveal the crypto potential in their organization.

Case Studies and Real-World Examples

Those possible crypto drawbacks may scare you. And I totally understand it. But they are not scary to our next heroes. They believed in the crypto potential of the charity. You can provide their cases as examples of trustworthy crypto/charity cases.

Water Air raised $50K in crypto to provide clean water to the developing countries. The American Red Cross raised $1+ million in cryptocurrency to help victims of the Texas winter storm in 2021. The nonprofit organization Save the Children raised $2+ million with various crypto to help children affected by the global food crisis.

Those campaigns have helped to raise awareness of cryptocurrency and show its potential even to non-tech-savvy people. It is becoming a more and more acceptable donation option.

Best Practices and Recommendations for Using Cryptocurrencies for Charitable Donations

Once you decide to donate money with crypto, it will be better to play it safe. Do your own research to find out how to do it legally in your region. Select a reputable charity. It can be a big or small fund. Its size doesn’t matter. The only thing that matters here is their good reputation and good track record of using donations most effectively. That way you can ensure that your donation will actually help people in need.

If you are a member of the charity organization, show your trustworthiness by providing all receipts on your website. So every potential donor could see that you are worthy of trust. Set a unique donation address with a new wallet that will be used only for donation purposes. Don’t use an already existing account, even when it’s an account of the CEO. People can track a wallet’s history with AML tools. If they see that this account was used for non-charity purposes, it undermines the credibility immediately.

Educate your donors about crypto and about the industry where you are working. If you help the LGBTQ+ community, educate donors about equity and LGBTQ+ history. If you are helping victims of natural disasters, educate donors and followers about sustainability, climate change, and how they can impact. Any party should use a secure wallet, like Defiway one. Those wallets have multi-level protection to store your funds securely and save them from hacker attacks and possible theft. Don’t share private keys with anyone. They are only yours! Don’t share your passwords, and store them only in a trustworthy password manager. Regularly back up your wallet.

Charities should be transparent with donors by showing them how they use their donations. On the other hand, donors should choose only transparent funds. If you have even the slightest shadow of doubt in the organization, don’t risk your money. Choose a trustworthy alternative. Don’t get caught in phishing scams or money laundering schemes.

Final Thoughts

Cryptocurrency is a new and innovative way to donate to charity organizations. As for 2023 it still acts as a novelty, but eventually, it will become more and more standard practice. Crypto donations are fast and secure. They have lower fees than usual financial institutions, so more money can be spent on those in need.

Blockchain allows donors to track how charities spend their money. Especially, when charities use the help of contractors which accept cryptocurrencies. Crypto can be used to help people in developing complex financial systems. In some countries, it gives significant tax advantages to donors. All those actions raise crypto awareness and its potential to make a positive impact. Thus, more and more people start to use crypto, and governors will see the possibility to construct crypto laws. So, crypto becomes more acceptable to people afraid of crypto due to the lack of regulation.