How Do Cryptocurrency Donations Work?

Some charities are accepting Bitcoin and other forms of cryptocurrency from their supporters. Here’s how that process works:

Step 1

The donor acquires cryptocurrency — digital or virtual assets designed to be used on the internet — typically by linking a credit-card or bank-account number to an exchange that enables the holders of those assets to buy, sell, and manage them. Cryptography, the writing or solving of codes on a computer, is used to secure and verify transactions and to create new cryptocurrency units.

Bitcoin is the most valuable and best-known cryptocurrency, though there are thousands of other “altcoins,” many of which can be exchanged for U.S. dollars or other currencies.

Step 2

A secure digital wallet, which is an app on the donor’s computer or mobile device, holds the cryptocurrency assets.

Step 3

The charity that hopes to receive cryptocurrency gifts must also establish a digital wallet or an account with a company like BitPay, which acts like a service that processes credit- card donations.

Step 4

The charity’s digital wallet — an account with a third-party vendor — accepts a transfer of cryptocurrency from the donor’s digital wallet.

Step 5

Vendors like BitPay immediately convert the cryptocurrency gift into U.S. dollars and deposit it in the charity’s bank account. If using its own digital wallet, the nonprofit can either convert the gift into dollars by selling it on a cryptocurrency exchange or hold it as an investment or to spend directly.

Because the value is so volatile, most charities choose to convert cryptocurrency gifts to dollars.