pexels-photo-315788Does your nonprofit allow donors to make contributions via Bitcoin or another form of digital currency? A growing number of nonprofits now accept them. If your nonprofit has been considering adding this new form of payment to your list of options, but you aren’t quite sure if its right for your organisation, the following overview highlights key features and benefits, along with a few of its drawbacks so you and your NFP board can make a more informed decision.

What is Cryptocurrency?

Cryptocurrency is an alternative payment method that is not issued by a country’s central banking system and whose value is not secured by a physical commodity or other asset, such as gold or oil. It is a virtual currency that uses encryption to control the number of units that can be created, protect the identity of the sender and receiver, and, to verify the number of units being transferred between the parties involved in a specific transaction.

One of the first digital currencies to be created was Bitcoin. It’s so popular, that sometimes this name is used to refer to the entire cryptocurrency market. There are, however, many other types. Bitcoin, Bitcoin Cash, Litecoin, Dogecoin, Ethereum, BAT, NEO and Ripple XRP are currently the most well-known of over 1,600 cryptocurrencies that can be created, owned and exchanged today.

Benefits of Accepting Bitcoin and Other Digital Currencies

Since cryptocurrency transactions do not involve currency issued by a country or its central bank, it offers a natural hedge against losses in value due to inflation, which typically affects monies issued by central banks who can decide at will to print more money, or remove money from circulation, to control its value. These types of transactions also offer both the sender and receiver complete anonymity, which is an attractive feature to many investors.

One of the primary reasons why so many NFPs are considering adding it to this list is that accepting digital currencies may open the door to accepting major donations from key donors a nonprofit would not have otherwise been able to reach. In 2015, Bitcoin was trading at just under $200 before rapidly climbing into the thousands of dollars for a single coin. This dramatic growth in its valuation created many cryptocurrency millionaires overnight. Often, these individuals are looking for ways to make a difference with their newfound wealth, but face difficulty in finding nonprofits and other organisations that will accept digital currencies.

Regardless of the amount of the donation, most cryptocurrencies offer the promise of fast payment times, with transactions being processed in minutes or hours versus the industry standard one to three business days that credit card, and check processing companies demand before they make deposited funds available. This gives your NFP fast access to a quick infusion of cash if you’re running close to, or over your budget, and need to cover the cost of operations or to fund time-sensitive projects. Accepting Bitcoin and other alternatives can reduce the increased cost to process payments involving exchange rates and offers lower rates and merchant fees than many credit card payment processors and banks.

Potential Downsides of Alternative Currencies

There are some potential drawbacks that nonprofits should be aware of before they take the plunge and begin accepting alternative currencies. One of the risks associated with this type of payment method is that their values tend to fluctuate dramatically, making currencies highly volatile. At the end of 2017, for example, Bitcoin was trading at nearly $20,000, and in October 2017 has been valued between $8,800 and $9,000.

While a growing number of retailers and vendors accept Bitcoin and other digital monies, there are still a limited amount of companies and organisations that accept it, so your nonprofit could experience some difficulty in redeeming these currencies for cash.

Finally, there are potential tax consequences for accepting Bitcoin and similar cryptocurrencies, as well as using them to pay for goods and services. For example, the Australian Tax Office (ATO) treats these currencies as assets when calculating the Capital Gains Tax (CGT). If your nonprofit becomes involved in “mining” which is the process of using blockchains to encrypt and create, or “mine” new coins, it is treated as a business activity and taxed accordingly. You can learn more about changes you may need to make to your recordkeeping and reporting when you accept cryptocurrencies by reading the ATO’s recent guidance on Tax Treatment of Cryptocurrencies.

While cryptocurrencies have both advantages and disadvantages for nonprofits, the importance of some of these concerns is greatly reduced when you stop to consider that Bitcoin and other alternative digital currencies promise to be the first wave of a dramatically changing future. Innovative, future-forward boards and their nonprofits might wish to consider what types of digital currency they are open to accepting to remain ahead of the curve so that you aren’t left behind by a growing trend of unique, diverse ways to send money and pay for products and services.