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How Do Cryptocurrency Donations Work?

By  Debra E. Blum
December 4, 2018

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

man

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.

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

man

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.

phone

Step 2

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

card

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

bill

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

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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.

switch

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

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A version of this article appeared in the December 4, 2018, issue.
Read other items in this Cryptocurrency and Nonprofits package.
We welcome your thoughts and questions about this article. Please email the editors or submit a letter for publication.
Fundraising from IndividualsInnovationMajor-Gift FundraisingDigital FundraisingTechnology
Debra E. Blum
Debra E. Blum is a freelance writer and has been a contributor to The Chronicle of Philanthropy since 2002.
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