Building on its past work with blockchain, UNICEF will use cryptocurrencies — beginning with Bitcoin and Ether — to fund open source technology that benefits children and young people, including startups in the blockchain space.
A growing number of nonprofit organizations accept donations in cryptocurrency, but UNICEF is the first U.N. agency to accept “crypto as crypto without converting it,” said Chris Fabian, who co-founded UNICEF's Innovation Unit and leads UNICEF Ventures.
“Crypto is scary altogether for nonprofits, and converting it right away is generally the only way they’re willing to touch it.”— Alex Wilson, co-founder, The Giving Block
“Others have taken crypto and immediately converted it into euros or dollars. As soon as you do that, it’s like taking the thing and disconnecting it from the internet, or taking the electricity out of it. It’s a dumb block of value.”
There are more than 50 million cryptocurrency users, according to The Giving Block, an organization that helps nonprofits accept cryptocurrency donations. Some of them, particularly those early adopters of cryptocurrency who now have highly appreciated assets, are looking to donate in order to reduce their tax burden, make an impact, and drive more interest in cryptocurrency.
Despite market turmoil and regulatory squeezes, the development sector needs to start being more open to the opportunities offered by Bitcoin and other cryptocurrencies, says Ray Youssef, CEO of Bitcoin marketplace Paxful, Inc.
Nonprofits are taking notice. Since the launch of the UNICEF Cryptocurrency Fund, Fabian and his colleagues have heard from a number of international NGOs asking for advice on how to do something similar. Nonprofits considering cryptocurrency fundraising can learn from some of the early adopters — on which currencies to accept and whether to hold or convert the donations.
Getting into crypto
Disaster response organization Humanity Road became interested in cryptocurrency fundraising after learning about the Pineapple Fund. In December 2017, an anonymous donor set a goal of giving away 5,057 bitcoins, worth $86 million at the time. The donor announced the Pineapple Fund in a post on discussion website Reddit, and within six months, the funds were distributed, amounting to $55 million due to a drop in the crypto market.
After seeing the Reddit post, Christine Thompson, president and cybersecurity lead at Humanity Road, approached the board to see what they thought about pursuing the opportunity.
“Our board was cautiously open to the idea,” she said. “But cryptocurrency continues to have this black cloud over it because of illegal activities.”
Understanding the risks, both real and perceived, Thompson and her team took precautions. They created a separate account in their bookkeeping to receive Bitcoin. They also did extensive research before selecting a wallet — a digital tool that can store, send, receive, and sometimes exchange cryptocurrencies.
“When choosing your wallet, be sure to check wallet provider factors such as compatibility with your operating system, privacy rules, fees, vulnerability risk, control over your money, and even transaction validation processes, such as centralized or decentralized,” Thompson said.
She recommended a resource from Bitcoin.org that can help organizations assess which wallets meet their needs.
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Still, if Thompson could go back in time, she would have requested approval from the board to purchase as well as accept cryptocurrency, so that the organization could test its own payment processor, she said.
After launching its cryptocurrency donation system, Humanity Road became aware of an attempted crypto donation in the six figures. But the donation was rejected because the user had to request to go above a certain threshold. While Humanity Road addressed the problem after the first transaction failed, the donor never attempted to make the same contribution.
Deciding between currencies
Save the Children was one of the first nonprofits to accept cryptocurrency, starting in 2013, and it now accepts Bitcoin, Bitcoin Cash, Ether, Litecoin, and Zcash.
“Nonprofits should consider the tax implications, the financial implications, and potential reputation risks of accepting cryptocurrency and any volatile or speculative gifts,” Ettore Rossetti, senior advisor of social strategy and digital innovation for Save the Children, told Devex via email.
Save the Children treats cryptocurrency as a donation, not an investment vehicle, so the organization immediately exchanges it to fiat money, he explained.
Nonprofits accepting cryptocurrency have to understand “anti-money laundering” and “know your customers” regulation used to safeguard trading platforms, especially as they relate to large, anonymous donations, and ensure that cryptocurrency is addressed in their gift acceptance policy, Rossetti said.
Alex Wilson, co-founder of The Giving Block, noted how large NGOs can get a marketing boost that makes the effort that goes into accepting cryptocurrency donations worth their while. He and his team are trying to onboard more organizations ahead of Bitcoin Tuesday, which will coincide with Giving Tuesday on Dec. 3, and the organization will provide financial and marketing support for participating nonprofits. But Wilson explained that there are thousands of cryptocurrencies, and nonprofits must tread carefully in selecting which to accept.
For example, he has seen examples of cryptocurrency vendors approaching nonprofits saying they are the next Bitcoin, when they may never actually increase in value.
Fabian of UNICEF said the agency will follow the Principles for Digital Development, guidelines a range of partners agreed to for best practices in technology for development, in deciding which cryptocurrencies it will accept.
“We will not ever work with a platform that doesn’t fall under that rubric,” he said.
Nonprofits say the Libra Association is critical for the new digital currency to realize its potential — and just one example of efforts to explore emerging technology for financial inclusion.
Ether and Bitcoin are built on public and permissionless blockchain platforms, so they align with the emphasis on open source in the Principles for Digital Development. The launch of Libra, Facebook’s digital currency, will likely drive nonprofit interest in cryptocurrency fundraising. But because it is a centralized virtual currency, rather than a permissionless decentralized network, Libra is not likely to meet the criteria of the UNICEF Cryptocurrency Fund.
To hold or to convert?
Crypto donors tend to be a tech savvy group, and they want to see nonprofits not just accepting, but also holding onto and transacting in crypto, The Giving Block’s Wilson said.
“We’re not doing this just to promote Ethereum,” said Aya Miyaguchi, executive director of the Ethereum Foundation, which is connected with Ethereum, a cryptocurrency and decentralized computing platform. “We want to create a better world with this technology.”
The Ethereum Foundation made the first contributions to the Cryptocurrency Fund, and Miyaguchi said she is hopeful the Cryptocurrency Fund will inspire more nonprofits to consider raising crypto.
But crypto “isn’t mainstream yet,” Wilson said. “And people in crypto want nothing more but for crypto to go mainstream. So every time a nonprofit says, ‘We’re going to start taking crypto donations,’ they get so fired up and excited. That’s the first step and anything beyond that is even better. Accepting it is one thing. holding onto it or using it is a whole other level. With each level, the donor community gets more and more excited.”
Most nonprofits that accept crypto donations immediately convert them to cash, he said, due in part to the volatility of this currency, which can go up or down in value quickly and unexpectedly.
“Crypto is scary altogether for nonprofits, and converting it right away is generally the only way they’re willing to touch it,” he said.
Thompson of Humanity Road said every nonprofit has to identify their comfort with volatility, since the price of Bitcoin, for example, can see 10 times the changes in price as compared to the U.S. dollar in a relatively short time frame, which can mean huge gains or losses for nonprofits that hold on to crypto.
“You might want to say, ‘Well I’m going to transfer 80% to cash and hold 20% in case it goes up,” she said.
As with determining the right level of risk for investments, the right level of risk for holding cryptocurrency donations versus cashing them out will differ for every nonprofit, Thompson explained.
Wilson said he hopes that as nonprofits become more comfortable with crypto, more and more will keep that currency as crypto, as UNICEF is doing, rather than convert it to cash.
“Then they can use crypto in the way it’s meant to be used,” he said. “They can send money across borders more quickly and cheaply.