Making Bank

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When the Landon School’s headmaster and development team pitched him on a $100,000 endowment gift last spring, Ted Rogers, while eager to make his first significant donation to his alma mater, said he’d consider it.

Then a quick-thinking fundraiser pointed out that Rogers could make his gift in Bitcoin, and the donor jumped at the offer, promising to give twice as much as the school had asked for.

Bitcoin is a type of cryptocurrency, known as digital or virtual assets, designed to work as a medium of exchange. The fundraiser, Lucas Metropulos, owned some himself, and Rogers had moved from a career in the traditional financial-services industry to head the “digital wallet” company Xapo, which allows users to give and receive cryptocurrency. Metropulos had started researching what it would take for the private boys school to accept cryptocurrency and was ready to offer Rogers the option.

After Rogers’s pledge, Metropulos worked with the school’s business office to set up an account with Bitpay, a Bitcoin payment service that works like a credit-card processor, and sent Rogers an invoice for $200,000, the amount he had agreed to give. The invoice included a QR code that Rogers could scan into his cellphone, initiating the transfer of his Bitcoin to Bitpay, which exchanged the currency into U.S. dollars and deposited it into Landon’s bank account.

With that, the nearly 90-year-old Washington-area school entered the still-rarified world of crypto-philanthropy. “I simply could not have made the gift in the size and in the [short] time frame that I wanted if Landon had not accepted Bitcoin,” Rogers wrote in an email to the Chronicle.

André Chung for the Chronicle

$113 Billion in Digital Coin

Spurred by tech-savvy donors’ wishes, breathless headlines, and a handful of high-profile gifts in the past year, charities are buzzing about whether to get in on the cryptocurrency action — and, if so, how. Even with lingering public skepticism about the legitimacy and security of cryptocurrency — and some of the people and internet sites that trade in it — a growing number of groups think it’s worth a look. Fundraisers are teaching themselves about digital assets; talking with board members about the risks and rewards of handling an asset known for its mystery and market volatility; and examining gift-acceptance policies, especially to tackle concerns that crypto donors are anonymous unless they choose to reveal their identity.

The best guesses say there may now be 500 to 1,000 nonprofits in the United States with the ability to handle cryptocurrency. In other words, these charities have already established an account with a service like Bitpay or created a digital wallet to allow them to accept those assets, then find an exchange to convert them into fiat, the crypto world’s term for U.S. dollars and other government-backed currencies.

The potential for such charitable giving is significant: The top 100 cryptocurrencies were reported to have a market value of nearly $113 billion as of late November.

Among the groups that have received digital assets, the riches vary greatly. The American Red Cross, which was among the early adopters, has received 57 Bitcoin gifts, totaling roughly $33,200, since 2014.

In March, the crowdfunding website DonorsChoose.org received its first cryptocurrency gift and what is believed to be the largest such gift to any nonprofit to date — $29 million worth of XRP from the company Ripple, which developed the asset. Since then, DonorsChoose has received three more cryptocurrency gifts, each valued at less than $100.

Indeed, the number, size, and value of cryptocurrency donations peaked at the end of 2017 and the beginning of 2018. The anonymous Pineapple Fund led the way, showering $56 million in Bitcoin on nearly 60 charities at the end of last year.

Bitcoin is now valued at about $3,700 per coin, down from a nearly $20,000 high late in 2017. That means early investors in Bitcoin and other altcoins may still be holding large gains, but many have lost money or are waiting for the market to rebound before making any moves.

“We’ll continue to see many fewer donations unless there’s another run-up,” says Jim Supple, a New York accountant who owns more than 10 types of digital coins and made a couple of crypto gifts last February, when values were high.

IRS Guidance

As with any asset, Supple notes, the most favorable time to donate cryptocurrency is when it has gained value and the donor not only feels flush but is also in a position to take advantage of the tax benefits from donating assets that have risen sharply in value. The Internal Revenue Service has not given much guidance on the subject, but it did issue a notice in 2014 that “virtual currency” should be treated as property for federal tax purposes. That means cryptocurrency gifts are like stock, art, and real-estate donations: The donor gets to write off the full value of the assets, not just the original purchase price.

Nonprofit officials and other observers say the lull in market activity is giving charities time to gear up for the next spike in value — and the next flurry of cryptocurrency donations.

“This is a real thing for fundraising, an opportunity to meet some donors where they are — or where they might be soon — which is what we all try to do,” says Michael Thatcher, chief executive of Charity Navigator, which in August started accepting Bitcoin. “Everyone should move toward it at their own pace and comfort level, but it is definitely something we all should consider as an option for donors.”

New Services

Accepting cryptocurrency gifts may be getting easier, too, as new services are popping up to meet the growing interest. Among them:

• Network for Good, a donation-management business, is about to expand BlockGive, a pilot program that allows donors to go to one website, choose any charity, and make a Bitcoin gift. The contribution would go into Network for Good’s donor-advised fund, then would be exchanged through Bitpay and sent in U.S. dollars to the recipient. The charity that receives the money would not have to be involved at all in the process.
• Coinbase, a platform for businesses and individuals to buy, sell, transfer, and store Bitcoin and a handful of other altcoins, has been adding new payment services and tools this year that nonprofits can use to boost their ability to accept cryptocurrency donations.
• Engiven, expected to be introduced by the end of the year, would help charities set up digital wallets to accept Bitcoin, plus all types of other altcoins, and create a widget on their websites to make it easy for donors to give.

But while the on-ramp to the cryptocurrency world is beginning to smooth out, it may still be bumpy for nonprofits contemplating how to solicit and handle donations made with assets they might not fully understand — and which carry a sticky reputation for being misused.

Cryptocurrency was widely introduced in 2009 with the release of Bitcoin, starting out as a specialized trading ground for tech insiders and an open door to illicit online marketplaces.

Hundreds of new altcoins — defined as any digital currency besides Bitcoin — along with hundreds of international exchanges have been created since then. But while millions of people have bought and sold cryptocurrency, many view it as too unregulated, volatile, or mysterious to touch.

Mystery Donors

Indeed, digital currency was created as a sort of a peer-to-peer electronic cash system with no controlling authority. Instead of a central server or central bank, transactions are made, verified, and stored via a blockchain, a public ledger that keeps track of everything that’s ever happened within the network. But for the end users, the people with digital wallets, it comes down, simply, to entries in a database, similar to the numbers account holders see in their bank accounts or investment portfolios.

For nonprofits, it can be the same, just another asset to accept from donors who want to support their mission. Still, many organizations are staying away or taking a wait-and-see approach. Some believe cryptocurrency is too technically and financially complicated to handle or that the risks of security breaches and investment losses are too great. Others want to see more guidance from the IRS, the Securities and Exchange Commission, and other regulators before jumping in.

And the anonymity built into the system, the idea that donors’ identities are completely obscured, keeps others away.

Though transactions on the blockchain are associated with the public addresses of both the sender and receiver, the network never reveals the people to whom the addresses are linked. This poses a challenge for fundraisers: Besides compliance issues — the IRS requires charities to identify some donors on a confidential part of their informational tax returns — organizations generally want to know who their donors are so they can thank them and continue to cultivate them.

“We have no personal connection with the donors, and we miss that,” says Peter Chasse, founder and president of the Water Project, which helps areas in sub-Saharan Africa gain access to clean water.

Loose Regulation

Anonymous gifts made with cryptocurrency might raise additional concerns: Digital assets have been at the center of some well-publicized incidents of money-laundering, support of terrorism, and other criminal activity.

“We’re still in an environment where government regulators haven’t figured out how to regulate,” says Erich Mische, executive director of Spare Key, a Minnesota nonprofit that helps financially stressed families facing health issues pay their housing costs. “We don’t want to get caught up in a situation where you get a knock on the door and find out that someone who gave you a significant donation is on some list that makes things problematic.”

Spare Key was an early adopter, accepting cryptocurrencies starting in 2014. It received about $10,000 from more than 30 donors over a year and a half but decided to suspend the program to rethink some of its gift-acceptance policies, especially concerning anonymity.

One of Spare Key’s biggest crypto gifts came from Ryan Kennedy, who created the now-defunct exchange service Moolah for the cryptocurrency called dogecoin. Kennedy was known to Spare Key, which used Moolah to take dogecoin payments for its 2014 gala and online charity auction. A couple of years later, Kennedy, who was serving prison time for other crimes, was charged with fraud, theft, and money laundering in connection with Moolah and another exchange he ran.

“Unsavory characters like that are the exception,” Mische says, “but they are a reminder that there is still some way to go in terms of better regulation, better security, better oversight.”

Cultivating Crypto Donors

Spare Key expects to start accepting cryptocurrency again in the next six months or so, this time requiring donors to submit their names and addresses.

That shouldn’t be a problem, according to officials at United Way Worldwide. United Way also started accepting crypto gifts in 2014. It received a $1 million gift plus 387 other contributions totaling nearly $10,500 — all anonymous — before it suspended its program for a couple of months this past summer. It restarted in September with a new gift-processing vendor and a systematic way to ask donors if they’d like to share their name and contact information.

“We had a hypothesis in 2014 that cryptocurrency donors wanted to remain anonymous, that that was part of the whole appeal,” says Edwin Goutier, United Way’s senior director of innovation. “We’ve learned since then that some are into the privacy, but others want to have a relationship with the nonprofit and want to learn about the tax advantages.”

United Way is creating a new approach to working with crypto donors, Goutier says, that will include a streamlined process to obtain tax receipts and a special email series that will highlight the work of United Way’s Innovation Fund, which focuses on new technologies that advance nonprofit work.

SENS Research Foundation, which studies anti-aging science, sends a customized newsletter about twice a year to the 100 or so email addresses it has that are associated with cryptocurrency gifts, even though it doesn’t know the identities of all of the donors. To spread the word about its interest in accepting crypto, the group hands out keychain fobs featuring the QR codes associated with its digital-assets wallets. And in the coming months, it plans to host a dinner event to talk about cryptocurrency issues for supporters who might be interested in the subject.

“It’s not all futuristic and mysterious,” says Lisa Fabiny Kiser, vice president for operations. “It’s a lot like fundraising has always been.”

As usual, nonprofits have to tell their story in a way that appeals to potential supporters, then simply be ready to accept the cash or asset the donor is interested in contributing, says CJ Orr, a fundraising consultant in Washington. And like in a major-gifts campaign, when fundraisers might research who in their network likely owns appreciated stock from, say, Amazon or Apple, “old-school research can target people who have Bitcoin or these new kinds of assets.”

That’s how Landon School’s Metropulos went into the meeting with Rogers, and it was top of mind when he met informally with a group of young alumni In New York recently.

“We’re at happy hour and I ask, ‘Who has alt-currency?’” Metropulos says. “And eight or nine out of the 10 guys said they do.”