Fundraising: The opportunities and risks of crypto-donations

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Original language of the article: German

Current development: Crypto Relief Fund for Covid-19 in India

Digital currencies such as Bitcoin or Ether have gained value and acceptance worldwide. Aid organisations such as the "SOS Children's Village Switzerland" foundation already accept Bitcoin donations. However, cryptocurrencies still enjoy a niche existence in the Swiss donations market. Fundraiso looks at the opportunities and risks of crypto donations for non-profit organisations and provides tips.

Bitcoin is the world's best known Cryptocurrency. The "digital coin" Bitcoin is called this because information about the owners and the transfers are secured cryptographically - i.e. encrypted - on computers. Crypto money can be transferred electronically from computer to computer with the help of software. There is no longer any need for a bank to make payments.

All payments are stored in the blockchain

And this is how a payment with a cryptocurrency works: An owner of digital money puts an amount in a kind of digital letterbox and locks it with a code. Then he sends the recipient a digital key to open the letterbox. All transfers are stored in an electronic "cash book", the so-called Blockchain. The owners of the currency remain anonymous in this database and the data cannot be falsified, according to experts.

Bitcoin: From 1 to 55,000 US dollars within ten years

Launched in 2009, Bitcoin achieved an impressive increase in value. On 9 February 2011, buyers had to pay exactly one US dollar for one Bitcoin. Around ten years later, one Bitcoin is worth over 55,000 US dollars. According to the market observer CoinMarketCap the Bitcoin market capitalisation was around 870 billion euros in April 2021. Non-profit organisations that rely on donations are increasingly looking to benefit from the global boom in cryptocurrencies.

UNICEF accepts crypto donations

A prominent example is the internationally active United Nations Children's Fund (UNICEF). In October 2019, the organisation launched the so-called Cryptocurrency funds launched. The fund uses the Blockchainto make donation flows transparent. By keeping cryptocurrencies in their original form, UNICEF, donors and recipients, as well as the public, can always understand where money goes and how it is spent.

UNICEF wants to "gain experience with digital currencies".

According to UNICEF, the system offers "an unprecedented level of transparency in funding and NGOs". The fund accepts the cryptocurrencies Bitcoin and Ether. According to UNICEF, the fund is primarily intended to "gain experience with digital currencies". According to UNICEF, cryptocurrencies offer "transparency, efficiency and full digitality". The donations in the Cryptocurrency Fund are used as cryptocurrency. There is no exchange into conventional currencies. According to UNICEF, this is due to "people's desire to see their donations in action as cryptocurrency."

Aid agency "Jugend eine Welt" is a pioneer in crypto-fundraising

The internationally active aid agency "Youth One World" in Austria is one of the pioneers in crypto-fundraising. The organisation has been accepting crypto donations on the website since 2017. www.bitcoinspenden.at. In contrast to the UNICEF fund, the organisation converts the donated Bitcoins promptly into the "analogue" currency, the euro. In this way, the organisation wants to avoid the impression that it is speculating with the highly fluctuating Bitcoin currency.

Swissfundraising: Crypto donations are not (yet) an issue

At Swissfundraisingthe professional organisation of fundraisers in Switzerland, crypto donations are not yet a big issue. Roger Tinner, Managing Director of Swissfundraising, says: "We have not actively managed the topic of crypto donations in our association. There are no official recommendations, working papers or internal expert groups so far."

No ZEWO guidelines for crypto donations

Martina Ziegerer is Managing Director of the Foundation ZEWO. According to Ziegerer, ZEWO has not yet developed guidelines for dealing with crypto donations. However, non-profit organisations are increasingly turning to the topic of digital payment methods. The relevance of the topic of cryptocurrencies could therefore also increase for ZEWO. So far, however, ZEWO has not planned any concrete measures.

SOS Children's Villages is a Swiss crypto-donation pioneer

Despite the lack of ZEWO guidelines, one well-known aid organisation in Switzerland with the ZEWO seal of approval already accepts crypto donations: The Foundation SOS Children's Village Switzerland in Bern. It has already been offering the possibility to donate Bitcoins and 11 other cryptocurrencies via a special website since August 2020. At SOS Children's Villages Switzerland, a prompt conversion of crypto funds into Swiss francs takes place. The Danish crypto payment provider Coinify handles the donations for the organisation. One drawback for the donors: Crypto donations are not tax-deductible in Switzerland.

Crypto donations for tech-savvy philanthropists

Thomas Roth is Team Leader Marketing and Communication at SOS Children's Villages Switzerland. He writes to Fundraiso: "With our decision to do crypto-fundraising, we want to open up new target groups and donation platforms. There are many philanthropists among crypto-savvy investors and e-sports enthusiasts. These are the people we want to reach out to."

"Bitcoin donations increase transparency"

Thomas Roth sees various advantages in cryptocurrencies: "Blockchain technology increases the transparency of donation flows. This counteracts corruption and inspires trust. Direct donations to NPOs eliminate expensive bank fees. In addition, donations outside national borders are facilitated. This makes us more flexible in emergency relief actions."

"The big flow of donations fails to materialise"

However, according to Thomas Roth, crypto donations still make up a very small share of the donation pie at SOS Children's Villages Switzerland. Thomas Roth says: "We are talking about a low four-digit amount, of which over three quarters were donated in Ethereum and about 15 per cent in Bitcoin." Through targeted initiatives in the areas of Venture Philantrophy and eSports However, the aid agency wants to gain a foothold in the digital currency market.

Cryptocurrencies are (still) energy guzzlers

Despite undeniable advantages, only a few Swiss NPOs offer the possibility of crypto-donations so far. One human rights organisation known to Fundraiso is at least already working on a crypto-donation project. One reason for the reluctance is probably the high energy consumption for the production of cryptocurrencies. A lot of computing power is needed to make transfers secure. According to calculations by experts, the cryptocurrency Bitcoin alone consumes more than Energy as New Zealand and Belgium together. Environmental organisations in particular are likely to be put off by such facts. At least a solution to this problem is emerging: with the further development of the cryptocurrency Ethereum a more environmentally friendly crypto coin is created.

Note: Of course, cash production or digital bank transfers also consume energy or resources.

Bitcoin discourages small donors with high fees

But there are still pitfalls in fees as well. So-called Miner provide the computing power for transfers. In return, they are rewarded with fees in the form of bitcoins. The more transfers there are, the more computing power is needed. The fees shoot up and not infrequently crack the 30-franc mark - per transfer. Transfers for cryptocurrencies such as Dash, Litecoin and Ethereum are significantly cheaper.

Cryptocurrencies have a dubious reputation

It is also a fact that cryptocurrencies are also used for money laundering and as a means of payment on illegal marketplaces. Especially for non-profit organisations, crypto donations thus pose a reputational risk. Blockchain technology, on the other hand, helps in the Fighting corruption and making donation flows more transparent. The reason: with cryptocurrencies, financial transactions can no longer be manipulated retrospectively. And: Money laundering is also carried out with conventional money.

Friedbert Ottacher: Aid agencies should be "ready for crypto donations".

Friedbert Ottacher led together with Jasmin Güngör in Austria workshops on crypto-fundraising. He is active in development work. Among other things, he coordinates programmes of the Austrian relief organisation HORIZONT3000 in Africa. He says on the topic of crypto donations: "We are in a transitional phase in which many things are uncertain and positioning is difficult. Yet we are already in the second crypto wave. The initial Wild West atmosphere is gradually being replaced by a broader acceptance of cryptocurrencies. Aid agencies should start dealing with the topic now. Then they will be fit when the willingness to donate increases".

Bitcoin payments are becoming more and more accepted

Digital currencies such as bitcoin are becoming increasingly widespread in Switzerland. This is demonstrated by the following examples: In the canton of Zug, the crypto stronghold of Switzerland, taxpayers can already pay their taxes with Bitcoin. At the French insurance company AXA insured persons are also allowed to pay with Bitcoin. In addition, transfers with bitcoin have been possible for years across all Swiss SBB ticket vending machines possible. The only requirements are a so-called Bitcoin wallet and a Swiss mobile phone number.

Bitcoin is the currency of big donors

However, the high fees for Bitcoin transfers are likely to deter small donors. According to development expert Friedbert Ottacher, Bitcoins are "digital gold", but smaller Bitcoin donations are rare. Jasmin Güngör is an expert for digital means of payment at the Austrian aid organisation "Youth One World». She sees the cryptocurrency Bitcoin primarily as a Hope for major donors. She calls the so-called Pineapplefund as a prime example. An anonymous person donated crypto money worth 55 million US dollars to a total of 60 aid organisations.

Alternative cryptocurrencies for small donations

Cryptocurrencies like Litecoin, Stellar or Dash are increasingly being used as a means of payment. They score with low fees and short transaction times. These digital currencies are better suited for small donations. Offering several cryptocurrencies on a donation website can therefore make sense.

Conclusion: Whatever a non-profit organisation decides: At the very least, fundraisers should look into the new developments and seriously consider the option of crypto donations. Or to put it in the words of Friedbert Ottacher: "An experimental approach to crypto money is important to realise its full potential as a fundraising tool".

Author: Bernhard Bircher-Suits, FundCom

Crypto donations: Tips and tricks for fundraisers

Separate donation channels: Experts recommend that organisations set up a separate donation website for crypto donations. Such websites also offer SOS Children's Village Switzerland and Youth One World an. Potential donors should be informed about all aspects of donating with cryptocurrencies from A to Z on such crypto donation websites.

Secure donations on an external wallet ("hardware wallet")The following applies to cryptocurrencies: Without a digital wallet, there is no access to the blockchain. The safest way is to use an external wallet in the form of a physical USB stick. Important: The identification keys must never be given out of one's hand.

Know your target group: Studies show that typical cryptocurrency owners are under 35 years old, male and tech-savvy. Crypto donations are therefore a good way to reach this target group. Donation topics should ideally be technology-related.

Use channels of the crypto community: With traditional donation mailings, you are at the wrong address with the crypto community. The placement of donation postings on sites like www.btc-echo.de increases visibility. But individual crypto-influencers on YouTube and social media channels are also suitable as crypto-donation ambassadors.

Posted in Crypto Donations

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