We’ve all seen the word “anonymous” printed in annual reports and plastered on the walls of museum lobbies, standing in for the names of generous donors who choose not to be identified. Most of the time we don’t bat an eye, and we accept that that’s the way things are. Some donors are modest, some are private, and some are a little of both.
But what about in a new form of giving, without any decades-old precedents as a frame of reference? That’s the situation crypto philanthropy finds itself in. As an emerging form of charitable giving, many nonprofit organizations are eager to adapt by accepting donations in the form of Bitcoin and other popular cryptocurrencies. They face several barriers to entry:
- Setting up a way to accept crypto donations
- Learning about the crypto fundraising landscape
- Grasping the nature of blockchain-based transactions
- Understanding their reporting and compliance-related responsibilities
The last two of these topics are of special interest to charitable organizations, particularly their board members and CFOs. From a legal standpoint, it’s fair for them to wonder what happens if they receive an anonymous crypto donation, or if they’re responsible for tracing the donor’s identity.
In the sections below, we’ll cover the main issues surrounding the topic of privacy in crypto philanthropy, from the way a blockchain records transactions to what donor-advised fund (DAF) programs need to know about compliance and reporting crypto donations.
Transactions on the Blockchain
Are all transactions on the blockchain private? It depends on how you define privacy. The exchange of blockchain assets like cryptocurrencies occurs between two digital wallets, and each wallet has a “public key,” which is a unique string of numbers. Once a transaction is confirmed it is recorded on the blockchain, and the public key information is a part of this data.
Unlike in the traditional banking system, data on the blockchain is publicly accessible. This setup makes transactions nearly impossible to revise or tamper with because of the decentralized nature of blockchains, which are supported by a network of nodes that validate each transaction. To change what is recorded in a blockchain, you would need your change validated by a majority of the nodes. (There are currently over 12,000 nodes in Bitcoin’s blockchain, to give you a frame of reference.) But your digital wallet does not need to be linked to your legal name or social security number, which means that your personal identity is not required for blockchain-based transactions.
Most users see this setup as a good thing. Blockchains were designed to give anyone access to this new financial system, including those who would otherwise face insurmountable barriers to entry in traditional finance (e.g., inadequate funds, low credit, lack of human rights). The immutability of the blockchain is a sign of a healthy, functioning financial ecosystem, which is a major reason why more than 220M people choose to use crypto today.
Private Crypto Donations
When nonprofit organizations take interest in accepting Bitcoin and other crypto donations, they usually want to know what kind of donor behavior to expect. Since most crypto users conducting transactions on the blockchain are pseudonymous by default, it follows that they would approach their philanthropic activity in a similar fashion.
To that end, many crypto donors prefer not to share their name, address, or phone number with nonprofits they support. If they want to receive an acknowledgment of their gift for tax purposes, they may share an email address. This may baffle fundraisers, who often know the identity of “anonymous” donors who simply wish for the public not to know their identity.
This makes cryptocurrency users perfect candidates for DAFs. Donors with substantial assets that they hope to use for charitable giving while maintaining their anonymity will be interested to hear how a DAF can fit the bill.
Compliance and Reporting in Crypto Donations
Organizations that want to enable crypto donors to deposit assets into DAFs also need to follow the proper reporting guidelines. As with any charitable gift processing, nonprofits and charities should ensure that their crypto donation processes comply with legal requirements in their country, state, and/or city.
Oftentimes, nonprofit organizations seek out a payment processor to collect online donations. Among the key benefits of doing so is that processing services frequently allow organizations to accept donations from outside of the U.S., thereby expanding your potential donor base. But even more essential, these processors make reporting and compliance easier.
In the case of crypto donations, a service like that offered by The Giving Block can help your organization accept donations in multiple assets, including Bitcoin, Ether, Dogecoin, and many other leading cryptocurrencies. Without a processor, for nonprofits with limited bandwidth, trying to accept crypto donations without support of a processing service can be a laborious task.
For DAF programs, Ren has partnered with The Giving Block to enable donors to contribute cryptocurrency assets into DAFs. Working with a DAF program administrator like Ren helps nonprofits adopt cryptocurrency as a fundraising stream by offering tax reporting, contribution processing, grant processing, trust administration, technology, and accounting services.
Still have questions about security and compliance with crypto donations? Having questions is normal, so let us help your DAF program take advantage of the opportunity to reach one of the fastest growing donor demographics.
