Category

Cryptocurrency

How Should Your Nonprofit Handle Cryptocurrency Assets?

By | Accounting, Cryptocurrency, Donations, Nonprofit | No Comments
person holding tablet and touching virtual screen with finance and bitcoin graphics

Cryptocurrency presents many challenges to nonprofits that accept it as payment or donations. Crypto such as bitcoin, ether, and the many other digital assets on the blockchain, are becoming ubiquitous with everyone from college kids to grannies dabbling in the new financial asset. And while regulations are being discussed, companies and organizations are left struggling to understand how to track and manage it. Here are the challenges and some advice for nonprofits interested in accepting or utilizing crypto assets.

What Is a Cryptocurrency?

Cryptocurrency, or crypto, is a digital asset tracked on the blockchain—an immutable public register of transactions that enable anyone to track the original and transfer of the asset. While you may know the major “coins” from the news such as bitcoin or ether, there are hundreds of other coins on the market.

Challenges of Cryptocurrency

Crypto is a new category of financial asset and one that regulators continue examining to determine how to account for them. Are they investments (like stocks or bonds) or assets (like gold or silver)?

In addition to challenges understanding classification and the rules governing such classifications, there are additional challenges inherent in accepting them either as payment or donation, including:

  • Highly volatile value: Unlike fiat currency, which offers a stable store of value (despite inflation), the value of digital assets varies widely from day to day, even hour to hour. This makes it difficult to estimate and track over time.
  • Incompatible with ERP setup: Crypto values are tracked to the 16th decimal place, which is completely incompatible with ERP systems set up to track dollars, euros, and other common currency.
  • Difficulty tracking: GAAP rules require tracking of assets on a cost basis (the initial purchase price of the asset), the fair value of their holdings, and the book value. This is impractical with digital assets due to their volatility, but clear guidelines are lacking from regulators.

Forming a Crypto Asset Strategy

Given the many challenges, you may be wondering why your organization should even consider accepting cryptocurrencies. Donors may wish to contribute to your organization using crypto, and this is a valid reason to consider adding it as a donation method. To do so effectively, you’ll need to create a crypto asset strategy to guide your staff in handling such assets.

  • Learn first: As with any new technology, platform, or asset, it’s important to learn all you can about it before diving in. Discuss adding cryptocurrencies to your organization with your accounting team and outside CPAs (if you have one) to understand their point of view.
  • Research payment gateways: Cryptocurrency payment gateways enable you to streamline transactions. Bit Pay and others offer ways in which you can send and receive crypto in the easiest manner possible.
  • Discuss with your board: Your board needs to be fully behind the project to add crypto as a payment or donation method. Bring the issue to your board and ensure a thoughtful discussion by sharing industry statistics and information with them. Some board members will be unfamiliar or even put off by the news from the crypto world and may need some additional information prior to engaging in a discussion.
  • Engage stakeholders: Bring the issue to your internal teams, too. Ask representatives from each department to be on a committee or group to investigate adding crypto to your organization. It’s vital to hear from every department that may be impacted by the decision.

Keep in mind that if you do proceed with crypto, you may need to customize aspects of your accounting system as well as internal controls to adjust to this new method of payment.

Cryptocurrency seemed like a fad when it appeared in 2008, but it’s still going strong. If it looks like an opportunity for your organization, begin exploring it today.

Welter Consulting

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 us for more information.

Cryptocurrency Donations: Unraveling the Mystery

By | Cryptocurrency | No Comments

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.

Security

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.

Banking Concerns

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

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.

Is There Any Value for Nonprofits to Accept Cryptocurrency?

By | Cryptocurrency, Nonprofit | No Comments

Bitcoin, Litecoin, Dash, Ethereum…. what in the world is going on? It’s cryptocurrency, the blockchain-based value system that’s taking the world by storm and transforming much of the business world. That includes the world of nonprofits who find that accepting cryptocurrencies may increase their donor base and donations.

What Are Cryptocurrencies?

The world of cryptocurrency was created in January 2009 when a pseudonymous author, Satoshi Nakamoto, published a white paper in an obscure online forum. “Bitcoin: A Peer to Peer Network” set forth the proposition that a distributed ledger could enable peer to peer transactions in a public, secure, and unalterable method. Blockchain technology developed out of this paper and has been quietly revolutionizing many industries including real estate, finance, and even email delivery.

Cryptocurrency was  born out of this invention and remains a controversial outcome. Unlike fiat or hard currency such as dollars, euros or yen, cryptocurrency isn’t issued by a central bank, government or authority. Individuals or companies with enough money and computing power can develop their own blockchain and issue a coin called a cryptocurrency which is then traded on an exchange. The value of the cryptocurrency fluctuates according to the supply and demand for it.

Are They Legal?

Yes, they are legal to own, buy, sell, and trade – in most countries. Some countries, such as the United States, haven’t yet issued a final decision about how to account for cryptocurrencies on your taxes or in your general ledger. Are they assets, securities, or commodities? No one is quite sure and both the SEC and the IRS have weighed in on the issue with various statements that tend to confuse the public more than offer clarity.

  • The IRS indicates that individuals and companies should treat cryptocurrencies like property for U.S. tax purposes.
  • The SEC appears to consider cryptocurrency exchanges as trading platforms similar to exchanges for stocks. They are taking a hard line on the subject.

Because the world of cryptocurrency changes rapidly, it is important to research it on your own before embarking on a plan to accept cryptocurrency through your nonprofit and to keep up to date on tax laws and SEC rules that may follow the publication of this article.

Benefits of Accepting Cryptocurrency for Nonprofit Organizations

Cryptocurrencies appeal to younger donors, so if your nonprofit targets the under 35-crowd, it’s natural to accept cryptocurrencies. By doing so, you’ll open up possible donations to many more people. Some people have accumulated a great deal of money by trading cryptocurrencies and would gladly donate it directly to a nonprofit if they could find a way to do so. As an early adopter of this policy, your nonprofit stands to gain more in donations and add newcomers to its donor base.

First, to accept cryptocurrencies as donations, you’ll need to set up a wallet. A virtual wallet enables you to accept and send cryptocurrencies. Each wallet has: 1) a public address which you can publish with confidence so that donors can send money into it; and 2) a private address to set up a method of changing cryptocurrency into fiat currency and depositing it into your organization’s bank account. This is completed on a cryptocurrency exchange.

Cryptocurrency exchanges deal with one or more cryptocurrencies and enable you to exchange the currency into another or into fiat currency and then transfer it into your bank account. You will need to complete a KYC process for your organization to ensure legal compliance. After completing the KYC process, you’ll then set up your bank account information in the exchange system to transfer money to and from your account.

Exchanges charge a fee to accept cryptocurrency and change it into fiat currency and those fees can add up quickly. Each exchange does state its fees upfront and these are usually calculated as a percent of the transfer.

Once you’ve set up your account and wallet, you’ll be able to generate a QR code which looks like a square, funny-shaped barcode. This code can be placed on your website or onto invoices. The numbers on the code are used to move cryptocurrency into your wallet online.

Once you are accepting cryptocurrency through your nonprofit organization, keep careful records of the assets coming into the exchange from donors, any fees to exchange the currency to fiat currency, and other fees. These should be included in your accounting records and kept on file for reference as you are preparing year-end filings.

Accepting cryptocurrency donations may seem like a big effort, but it’s on par with setting up a cart system on a website to accept PayPal or similar donations. And who knows? Maybe you’ll increase donations thanks to the appeal to a younger, tech-savvy generation.

Welter Consulting

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.

Choosing the Right Payment Processing Service to Accept Online Donations

By | Budget, Cryptocurrency, Donations, Fiscal, Fundraising, Nonprofit | No Comments

Most nonprofits accept donations through their website. If you don’t, you are missing out on many potential donations. Donors motivated to respond to an online solicitation, email, or news articles about the cause your work supports may wish to donate immediately rather than write a paper check and drop it in the mail. Accepting online donations provides a simple, easy pathway for people to give when they are able and motivated to do so.

Yet with so many choices of online payment processors, credit card payment gateways, bank payment systems, third party payment processors, and now even cryptocurrencies, what’s a nonprofit to do?

We’ve tried to make it as easy as possible for you to understand the many possible methods of accepting payments and help you sort through both the pros and cons of each. When you’re ready to proceed, if you still have questions, please call Welter Consulting at 206-605-3113. We are happy to help.

How Online Payment Systems Work

Nearly everyone reading this has purchased something online, so you should be familiar with how online payments work from the consumer end. The consumer end is called the “front end” or the “interface.” The shopping cart system is fairly straightforward, with variations to allow for different goods or services purchased. An online clothing retailer may have a spot for discount or coupon codes; a nonprofit may have a spot to share a message if the donation is in honor of someone.

Behind the interface or shopping cart  is a complex network of information shared by multiple parties to complete a credit card transaction online.

Encryption

Encryption means coding the information sent over the internet so that it cannot be ready unless someone has the key to decode it. After clicking “pay” or “order”, your credit card information is encrypted for security purposes. It then goes to an aggregator or a bank processor.

Aggregators

 An aggregator is a company that processes payments. As the name implies, aggregators collect payments from multiple entities such as merchants, nonprofits, and others to accept credit card payments and bank transfers without the need to set up a special merchant account. The aggregator makes an agreement with the merchant bank and batches multiple companies under their account for processing. In return, they assume a greater risk since they are dealing with multiple entities and may charge more for their services.

Acquirer (Bank)

 Merchant accounts are created by a merchant bank (called an acquirer). The bank settles and deposits the funds from the transaction into your bank account. They are responsible for ensuring that payment is rendered to your account once the transaction is approved.

Cryptocurrency Wallets

 Yet a third payment method available to nonprofits today is cryptocurrency. Bitcoin, Ether, LiteCoin and many other alternative payment methods are all potential forms of donation. Accepting donations in such coins is a slightly different process than accepting direct payments.

Cryptocurrencies are sent via the blockchain. An exchange facilitates sending and receiving cryptocurrencies. Senders can transmit their currency to the receiver’s wallet, a unique address that can be shared on your site to accept payments.

To set up a wallet, you’ll need to create an account with an exchange and submit information to pass KYC (know your customer). Cryptocurrencies received through the exchange can be changed into dollars or other government-backed currencies and deposited into your bank account. The exchange subtracts a fee for the transfer, which varies according to the exchange.

Pros and Cons of Each Payment Method

There is no clear-cut, single answer about which payment method is best for a nonprofit. You’ll need to weigh each factor in your decision.

Aggregators

 Pros:

  • Easier and faster to set up an account since aggregators tend to accept all types of businesses including new nonprofits.
  • Aggregators tend to be on the alert for fraud even more readily than banks because they accept riskier clients.
  • Better for small nonprofits with lower volume of monthly transactions.

Cons:

  • Charge a higher fee than banks.
  • Less customer support and service.

Merchant Banks

Pros:

  • Better for established nonprofits.
  • Better if you have higher volume of monthly transactions.
  • Better customer service than aggregators.

Cons:

  • Higher fees.
  • Pickier about who they accept, so if your nonprofit is new, banks may turn you away.
  • Tends to be better for high or steady volume, so if you can’t predict donation volume yet, may be costly.

Cryptocurrency Exchanges

 Pros:

  • Adds a new donation method to your nonprofit.
  • High appeal to young donors – millennials, Generation Z, etc.
  • Extremely high level of security through the blockchain.
  • Transactions cannot be reversed by the donor.
  • Transparency on both ends – donor can see that you received the money through blockchain confirmation.

Cons:

  • Fees can be high on some exchanges.
  • Nonprofit must pass KYC.

Clearly, there’s no “one size fits all” when it comes to processing donations. Thankfully, there are plenty of choices, and you can use what suits your nonprofit the best. Sorting through your choices may be the most complex part of the process, but if you need help, please contact us.

 

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.