Cryptocurrency made headlines over the past several years as bitcoin jumped in price then plummeted. Now on the rebound, the ubiquitous altcoin (short for “alternative coin”) is just one of hundreds of cryptocurrencies listed on exchanges such as Bitifinex, Binance, and Kraken.
Are cryptocurrencies “money”? Do they have intrinsic value? Can you accept them as gifts to your nonprofit? Here’s our guide to accepting the new money as gifts to your organization.
What Is Cryptocurrency?
Cryptocurrency is a term for digital money. This money isn’t backed by a government. Instead, the coinage occurs on a digital transaction called the blockchain. Each coin has its own blockchain, which is a permanent, public, and immutable ledger of transactions.
Any company, individual, or entity can launch a cryptocurrency. The field is currently unregulated, with no global standard, so it is ‘buyer beware’ when purchasing cryptocurrencies. Typically, each coin launches with a lengthy white paper which details the purpose of the coin, the blockchain it is based on, and the plans the company has for its future. Most companies launching cryptocurrency also produce a website which links to the exchanges the coin is listed on and where you can buy or sell it. The exchange also contains the current trading volume and value for any coin.
When a new coin arrives on the trading scene, its value is set by the number of coins minted on the blockchain. As trading demand rises and falls, value increases and decreases similar to stocks or traded commodities like gold or silver.
Can Nonprofit Accept Cryptocurrency as Gifts?
Yes, but it is essential to research any coins offered as gifts and designate the gift appropriately in your accounting system. The U.S. Treasury classifies altcoins as intangible property or a commodity. Don’t let the term “coin” or “cryptocurrency” confuse you – these are not legal tender like dollars, euros, or pounds, but intangible property, more akin to patents, trademarks or similar intangible assets.
To accept cryptocurrencies as gifts, you will need to update your nonprofit’s policies to state your position on digital money. Then, the nonprofit will need a digital wallet. Because cryptocurrency is a digital asset, it must be transmitted electronically into a virtual ‘wallet’ which stores the coins securely. Then, after the transfer is confirmed on the blockchain (which may take up to several days), you can exchange the coin for the currency of your choice or hold it in the digital wallet to see if it increases in value.
Each wallet includes a private “key” and a public key which unlocks the wallet for transfers. Setting up two-factor authentication is a smart move for any online transaction requiring high security, but especially crucial for cryptocurrency. There is nothing backing your altcoins; if they are stolen, and they can be, then you have no recourse as you would if a bank failed. There is no such thing as FDIC insurance on cryptocurrency.
Like any digital asset, cryptocurrencies and related secure information, such as keys to unlock the wallet, can be compromised, especially if the computer where the data is kept is linked to the web. You may wish to upgrade security or store everything in a cold computer (one not connected to the internet) to prevent hackers from breaking in to steal the information.
Banks sometimes freeze accounts that accept cryptocurrency. To prevent your accounts from being temporarily frozen, you may wish to establish separate bank accounts for cryptocurrency gifts and another for your organization’s general needs.
It’s a cliché to say that young people are more open to using cryptocurrency than other demographics, but it is true. If your organization serves the 20-something crowd, consider adding crypto to the list of assets you can accept as gifts. Although it may seem strange to accept alt currencies, it’s no stranger than people donating funds with credit cards. It’s just a new way of thinking about money and donations.
Welter Consulting bridges people and technology together for effective solutions for nonprofit organizations. We offer software and services that can help you with your accounting needs. Please contact Welter Consulting at 206-605-3113 for more information.