Cryptocurrency has been flooding most news sites throughout the last few years, enough so that charities have begun accepting cryptocurrency contributions and doing their charitable work in cryptocurrency. Why? There are some major benefits to using cryptocurrency, but there are also a few risks that need to be understood and examined before jumping in.

The Basics of Starting

Platforms such as Bitgive and BitHope make it easy for charities to begin accepting cryptocurrency, simplifying the process of opening an account and getting started. These middlemen platform services are specifically for charitable organizations and social impact, but there are also more general options such as Coinbase and BitPay. These platforms have fewer technical barriers to overcome than if your charity implemented a platform for accepting cryptocurrency contributions from scratch.

Through these platforms, you can not only accept cryptocurrency contributions, but also begin using them. You can directly fund and manage products using cryptocurrency or exchange that cryptocurrency into a fiat currency such as U.S. dollars.

These services will help you to begin accepting cryptocurrency donations quickly, but before you jump in head first, it’s important to understand the underlying risks and benefits of blockchain technology and cryptocurrency.

Benefits of cryptocurrency

There are many direct benefits to cryptocurrency, but there are also indirect benefits. Because cryptocurrency donors are afforded a tax benefit for donating in crypto and there are still a limited number of uses for tokens in the marketplace, your charity will gain access to a new, growing number of donors.

Security

A direct benefit that charities will experience by accepting cryptocurrency donations is security. Cryptocurrency operates on blockchain technology, making it immutable or unchangeable and secure. Blockchain transactions are checked by multiple, outside sources before the transaction can go through.

This decentralization is part of what makes the blockchain so secure. Instead of a centralized agency checking transactions, such as a bank, the transaction is verified by a node or user of the blockchain who maintains a record of all or some of the transactions on the blockchain. Once they’ve verified that the sender has the funds and the right to send the funds, the transaction can be completed. The node takes a small fee for performing this task. In general, transaction on the blockchain are cheaper and faster than any other digital transfer made.

Another security feature of blockchain and cryptocurrency is its immutable nature. Immutable is simply a fancy word to describe the fact that the blockchain cannot be changed or amended. Once a transaction is listed on the blockchain, it cannot be removed. This acts as a security feature because anyone can check the roster of every transaction that has happened on the blockchain and no one can make changes to past transactions.

Because blockchain is both immutable and decentralized, it provides a level of security and trustworthiness that not all banks or other money management agencies have. This sense of security has drawn investor to cryptocurrency and many of those investors are interested in donating funds through this new secure method of contribution.

Tracking

The decentralized nature of the blockchain means that anyone can examine and trace the exchange of cryptocurrency. This offers charities an interesting opportunity: allow donors to track their unique contributed funds. Donors could literally track the token they contributed to your charity and what it gets used for.

Currently, many charities that accept cryptocurrency aren’t making use of this potential benefit. Many charities see that the infrastructure for using cryptocurrency isn’t yet built up enough and will immediately off-ramp tokens into a fiat currency such as U.S. dollars. For those that are holding on to the cryptocurrency contributions they have received, there’s a unique opportunity to offer contributors.

Each crypto exchange is recorded on the blockchain, a decentralized digital ledger. This means that when a charity uses a token, it can be tracked by anyone. If the token is exchanged for fiat, the ability to track the funds is terminated. The ability to track and offer transparency will interest donors who want to know how their money is being used.

This also offers charities a way to give crypto donors the exclusive benefit of seeing exactly what projects their money is going to support, and when that money gets used. Some of the technology to support this benefit is still being developed and must be a choice by the charity. One of the tools that might make tracking easier is our Causes product, currently in development, and Alice, which states their goal as bringing transparency to social funding.

Appeal to broader Demographics

Accepting cryptocurrency opens the doors to accepting donations from a broader base of contributors. Many early adopters of new technology and millennials are interested in donating in cryptocurrency, but don’t have many options of charities they can contribute to. Be one of the few and you’ll see new contributors.

By accepting cryptocurrency, you also open doors to a more global audience of international donors. International contributors are interested in donating in cryptocurrency because it reduces or gets rid of international exchange rates and high transfer fees.

Accepting cryptocurrency contributions can open the doors to new demographics of contributors who may otherwise not donate to your charity.

Risks associated with cryptocurrency

For many charities that have already adopted the use of cryptocurrency for contributions, the benefits far outweigh the risks of cryptocurrency. Though the benefits are far greater than risks, it doesn’t mean you should walk in blind to accepting cryptocurrency contributions. It’s important to understand the security of the many cryptocurrency tools on the market and the volatility of the asset.

Tools

Blockchain technology is highly respected for its secure nature, but you’re only as secure as the tools you’re using to manager your cryptocurrency.

Though blockchain itself is very secure, the tools used to interact with the blockchain may not be. Cryptocurrency wallets have a history of being unreliable and hacking scandals are more frequent than crypto enthusiasts would like you to believe. It’s important to seek out secure, trusted tools when you begin using cryptocurrency. For wallets, there are quite a few on the market such as myCryptoWallet and MyEtherWallet. But be sure to do your own research and find a product that works for you and has a good reputation for security.

In conjunction with the tools used to manage cryptocurrency, another issue faced by many cryptocurrency holders is user error. Who among us has ever forgotten a password? I bet everyone. For a traditional website, you just hit the “reset your password” button and all is good. It doesn’t work that way with cryptocurrency wallets. If you lose your private key, you’re simply out of luck. Without the key, there’s no way to regain access to your funds. Full stop.

It’s important to keep your private key in a secure, digital and hard copy. You also need to have a legacy plan in place. If you’re managing the cryptocurrency wallet for your charity, make sure that someone else knows where the private key exists and how to access the wallet.

The first step to protecting your cryptocurrency is to understand the potential problems and pitfalls of the technology used to manage it.

Volatility

The value of cryptocurrencies has been known to fluctuate. This volatility can make cryptocurrency holders nervous as something that had value yesterday may not retain that value tomorrow. And, depending on how you look at this asset, the volatility can be a benefit or a risk.

For charities that off-ramp cryptocurrency to fiat immediately, most of this risk it mitigated. When you receive cryptocurrency, it should have the same value as when you off-ramp it. That being said, changes can happen quickly and it’s possible that the cryptocurrency will lose value before you can off-ramp it into fiat currency.

Over the long term, most cryptocurrency holders are seeing it as an appreciating asset that will increase in value over time. Unfortunately, similar to stocks, cryptocurrency can go up in value, but it can also go down. To mitigate your risks of holding onto cryptocurrency, you should look to invest in and accept stablecoin cryptocurrencies such as Dai stablecoin and TrustToken.

If you’re interested in accepting cryptocurrency contributions and possibly using that cryptocurrency for charitable projects, it’s important to be aware of the volatility of the asset. Be strategic about how much cryptocurrency your charity is holding on to.

This can be of benefit to charities that hold and then off-ramp to fiat, but it can also mean the crypto loses value if the market dips before the off-ramp can happen. Over the long term, most of the time people holding appreciating assets will see their asset increase in value, but be aware that the market can also dip, so be strategic with how much crypto you hold.

Accepting crypto can open new markets to charities for bringing in contributions, but it’s important to understand the technology before jumping into the deep end. Once you do understand the benefits and pitfalls of accepting cryptocurrency contributions, you can use them to your advantage and be on the lookout for any issues that may arise.

And, you won’t be alone. Some the world’s largest charities are already accepting cryptocurrency.