Support for causes and entire countries with cryptocurrencies is growing rapidly

Cryptocurrencies and NFTs offer many opportunities for the development of charitable organizations. Donating crypto can reduce taxes. Learn more!

Crypto philanthropy

Until a month ago, over 54 million dollars were raised through the initiative "Help for Ukraine"

The topic in a nutshell

  • Cryptocurrencies and NFTs offer many opportunities for the development of charitable organizations.
  • Donating cryptocurrency can eliminate capital gains tax and even reduce taxes.
  • How much are crypto donations in the last year and what are their disadvantages?

In May 2021, one of the creators of Ethereum, Vitalik Buterin, donated $1.2 billion in cryptocurrency to the India Covid Relief Fund. In one blockchain transaction, the entrepreneur transferred 50 trillion SHIB tokens to the covid relief fund, which is the brainchild of Indian tech entrepreneur Sandeep Naiwal. He is best known as the co-founder and COO of Polygon, a protocol that aggregates scalable Ethereum solutions on the blockchain. Earlier in April, Buterin donated about $600,000 in Ethereum tokens to the fund.

At the height of the war in Ukraine, tens of millions of dollars were donated in the form of cryptocurrencies to help the country. Ukraine's Minister of Digital Transformation Mykhailo Fedorov recently announced on Twitter that over $54 million worth of crypto funds raised through the Help for Ukraine initiative, an all-crypto donation initiative from people around the world, were spent on buying bulletproof vests, medicine, night sights and even vehicles for the Ukrainian army.

These are just some examples of the booming crypto-donation segment worldwide. 2021 wasn't just the year of crypto institutionalization and new all-time highs (but also a record-breaking year) — it also turned out to be the biggest year yet for crypto philanthropy.

According to research by The Giving Block, the volume of crypto donations on the platform grew to $69.6 million in 2021, compared to $4.2 million in 2020. The volume of crypto donations increased by 1558% or nearly 16 times in the same period. Average crypto donations also saw a 236% increase, from $3,109 in 2020 to $10,445 in 2021. It turns out that cryptocurrencies and NFTs offer many opportunities for charity development and fundraising. Using cryptocurrency, it is possible to track funds via blockchain, meaning donors will be able to see in detail how the charity has spent their donations. This makes it possible to make a clear connection between the donation and the charity it funds, which could improve donor engagement and motivate more people to participate.

According to a study conducted by Fidelity Charitable, those who invest in cryptocurrencies would also be more likely to donate to non-profit organizations. Most of the world's largest charities — including the Red Cross and the United Way — accept cryptocurrency. One of them is UNICEF, which in 2019 created its CryptoFund to accept donations in cryptocurrency. Since 2018, has been working to alleviate poverty through direct cryptocurrency donations from the community. The platform was founded by Coinbase CEO Brian Armstrong.

For 2022-2023, experts predict a huge increase in crypto philanthropy. For example, The Giving Block, a platform that directs cryptocurrency donations to nonprofits, expects to raise $1 billion in donations this year.

The Giving Block is the most popular crypto donation solution that provides a platform for non-profits and charities to fundraise with Bitcoin and other cryptocurrencies, find crypto donors, receive funds raised instantly, and become part of a network of crypto media partners in support of their missions. On their platform, you can easily find your cause and receive a document for your crypto donation.

What are the benefits of crypto donations?

The last thing that donation brings is financial gain - on the contrary, with it, a person part with a part of what he owns. However, when supporting a cause, project, or life, the positive emotional effects for the giver are much greater. Moreover, in a purely libertarian plan, which somewhat also provides the ideological basis for DeFi (decentralized finance) - a system without a state, regulators, controls, etc., the donation is accepted as the answer to the absence of taxes, for example.

In purely financial terms, the donation can bring tax relief, regardless of whether it is in fiat money or in crypto.

Benefits of using a Charitable Remainder Trust (CRT) with your crypto (US Only)

Benefits of using a Charitable Remainder Trust (CRT) with your crypto

A Charitable Remainder Trust (CRT) is a very effective tool for many reasons, including tax savings, income generation, asset preservation, and, most importantly, helping a charity.

A CRT can be created in various ways depending on the initiator's imagination and needs. By selling your cryptocurrency through a Charitable Remainder Trust, you might increase your lifetime earnings on a $1 million capital gain by an additional $2.5 million.

The CRT is primarily intended as a charitable giving method rather than a tax planning tool. The IRS stated in IRS Notice 2014-21 that cryptocurrencies should be taxed as property. There has been no change in this stance. Therefore, if one disposes of cryptocurrency, whether for service, another coin, or fiat cash, it is a taxable event. In other words, the taxpayer selling an asset like ETH will usually lead to a financial gain or loss on the sale.

The most significant advantage to the tax treatment of cryptocurrency is that the wash-sale rules don't seem to apply. Although the IRS hasn't publicly stated its opinion on this case study, many critics have taken the IRS's silence as such. They effectively enable a taxpayer to remove some of the taxpayer's earnings and harvest losses.

In summary, the benefits of a charitable remainder trust are numerous. You can store your assets in the trust, take an immediate tax deduction, postpone paying taxes on gains made inside the trust, use the trust's income for your benefit, and then donate a portion of the trust's assets to charity at the end of its term. It allows you to support yourself financially while simultaneously pursuing your charitable objectives.

What are the disadvantages of crypto donations?

There are specific issues surrounding the transparency, volatility, and environmental impact of producing cryptocurrencies, or NFTs. For cryptocurrency, the transaction log often only shows the user's online profile, so people can hide their true identity if they wish. Of course, charities are used to handling donations from anonymous sources. However, the lack of transparency means that cryptocurrencies can be used to hide illegal activities.

Charities must be able to account for where donations come from and show that they have undertaken reasonable due diligence on their donations to ensure they are not used to launder money or transfer money to criminal enterprises. Cryptocurrencies make achieving these two things more difficult.

Cryptocurrencies can be extremely volatile because there is a limited supply, a lack of a centralized banking system, and the ability for countries to introduce laws that affect their value. Bitcoin's value fluctuated significantly last year following China's crackdown on cryptocurrency mining and trading in the country. This volatility means that the value of a donation can change significantly, potentially overnight, leading to difficult decisions about whether to accept the donation in cryptocurrency or request that it be converted.

Dozens of NFT projects pledge a portion of their sales proceeds to charity to give one more reason to buy their product. Another question is how many of them keep their promises. Hopefully more and more of them.

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