Should Your Organization Accept Bitcoin Donations?

Nonprofits that have held off on accepting contributions in Bitcoin may have to rethink their stance following United Way’s recent move to accept such donations. Yet reasons exist for caution in accepting Bitcoin and other “crypto” currencies.

In September, charity giant United Way Worldwide began allowing donors anywhere in the world to make Bitcoin donations to United Way’s Innovation Fund. The fund is used to update the charity via “technology, relationships and efficiency.” Donors can make contributions directly from digital Bitcoin wallets by using Coinbase, a Bitcoin payment platform.

Learn the Bitcoin basics

Bitcoin differs from traditional currencies because it’s decentralized — the currency isn’t printed or backed by a central government. And Bitcoin is sold on unregulated exchanges.

Additionally, the individuals and businesses that create Bitcoin are allowed to keep some of what they create as payment for the service.

Consider global access, possible tax benefits

Accepting Bitcoin or other crypto currencies may be attractive for some not-for-profits. Pluses include:

  • The ability to accept donations of any size from people worldwide who don’t have easy access to global financial systems,
  • Low- or no-cost transactions — for example, the Coinbase platform used by United Way issues no charge for the first $1 million in transactions and a 1% fee for additional transactions, which is less than what most credit-card companies charge merchants, and
  • The fact that the IRS considers Bitcoin contributions to be donations of property (not cash), which, as United Way’s website points out, can allow donors to deduct appreciation that could otherwise be subject to capital gains tax.

Donors who use Bitcoin should consult their tax advisors about how to properly record the donation on their personal tax returns.

Using Bitcoin donations is becoming much easier. Bitcoin is accepted by many online retailers, such as Dell Computers, Newegg and Overstock.com. And the easiest way to convert Bitcoin into specific goods or services that your nonprofit needs is through a gift card company. The gift cards you purchase from companies such as eGifter, iTradeBTC and Giftcard Zen can be used at most major retailers.

Beware of the risks

Despite the possible benefits and increased popularity, all isn’t silver with Bitcoin and other crypto currencies. For example, the Silk Road Internet marketplace, which used Bitcoin, was shut down by the FBI for illegal drug trafficking in 2013. Money laundering also has been linked to crypto currencies, because of greater anonymity in payment transactions.

Nonprofits also should think twice about holding Bitcoin as an investment. This can be risky due to huge fluctuations in value and its lack of liquidity.

Find out more

Other high-profile digital currencies — some claim more stability and efficiency than Bitcoin — include Namecoin, Litecoin, Peercoin and Quark. Quark has drawn publicity because of its intense security measures. It’s important to do your research before deciding whether to accept crypto currencies and which one(s) to accept.