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Why some charities are rethinking cryptocurrency donations

Accepting a bitcoin gift might get you that new hospital wing, but resisters worry about a predatory, planet-killing scheme

Bitcoin and other cryptocurrency donations are tempting for some charities, but not all. (Dado Ruvic/Reuters)

After years of building up a fringe project that large segments of the population don’t truly understand, investors holding cryptocurrency like bitcoin and Ethereum see a path to mainstream acceptance through charitable giving. These investors, in many cases, are sitting on windfalls as large as 1,000 times what they put in — which can lead to charitable thoughts, whether from gratitude or guilt or the benefits of using such donations to defray the tax costs of enormous capital gains.

And while the acceptance of cryptocurrency donations doesn’t make the idea of blockchain-based money any more understandable, it does require that charities join the cryptocurrency world.

Crypto-donations began in earnest in 2017, when one anonymous donor used 5,104 bitcoin to create the Pineapple Fund. The fund disbursed bitcoin valued at more than $55 million to 60 charities. Those coins, worth more than $200 million at today’s exchange rates, went to a range of causes: international aid, local environmental protection, libertarian legal arguments and life-extension research. Last May, the University of Pennsylvania received an anonymous $5 million donation in bitcoin for its Center for Innovation in Finance at the Wharton School. The Giving Block, a company that provides back-end support to more than 1,000 charities accepting crypto-donations, reported donations last year with an exchange value of nearly $70 million, up from $4.2 million in 2020, a rate of growth much higher than the increase in price of the currency itself. (The average donation last year, it said, was more than $10,000.)

Crypto-donations may not rival the billions donated through financial instruments like stocks and bonds; still, their sudden emergence is striking. And it follows an arc familiar in disruptive innovation, whether that’s been oil drilling, leveraged buyouts or pharmaceutical drugmaking — but sped up for the digital age: First they ignore you, then they laugh at you, then they hope you’ll build a hospital wing.

Yet as fast as crypto-donations have come on the scene, a determined resistance has emerged within some charities. The resisters see digital currencies as a predatory scheme in which newer investors’ money is used to enrich earlier, wealthier investors; additionally, they point to crypto’s reliance on tremendous amounts of computing power and electricity to verify transactions, contributing to global warming. Accepting a crypto gift, from this perspective, means endorsing a new financial system even more unjust and destructive than the old one.

Back in 2019, Greenpeace was among the first organizations to reject such donations as antithetical to its mission. This January, the Mozilla Foundation, which supports the open-source Firefox Web browser, announced that it was pausing crypto-donations while it reviewed their “impact on our climate change commitments.” The foundation acted after an innocuous tweet from an official Mozilla account encouraging crypto-donations received a profanity-laced reply from Jamie Zawinski, a Mozilla founder. Zawinski’s tweet, which was liked more than 20,000 times, did not mince words: “Everyone involved in the project should be witheringly ashamed of this decision to partner with planet-incinerating Ponzi grifters.” In an email, he elaborated briefly: “Any organization that purports to be about long term thinking, the open web, or that has any kind of climate-related goals cannot, un-hypocritically, have *anything* to do with cryptocurrencies.”

Inspired by Mozilla’s pause, editors of Wikipedia have been debating a proposal recommending that its parent foundation reject crypto-donations. The Wikimedia Foundation, which received $130,100.94 in crypto-donations in its last fiscal year (less than 1 percent of its total revenue), said it was taking these concerns seriously. And in February, the British branch of the World Wildlife Federation canceled its plan to raise money through NFTs (non-fungible tokens) — another attempt to assign value through digital means — after its members objected. Greenpeace in Europe, in an apparent nod to the controversy, dryly defended NFTs — by which it meant “natural forest trees.”

What’s clear is that these donations are seen by all sides as high stakes — a chance to render a judgment on the worthiness of cryptocurrency. The donor to Wharton went so far as to insist that the University of Pennsylvania hold on to some bitcoin. The university agreed and still owns cryptocurrency, on the condition that the donor ensure that Wharton will end up with $5 million no matter where the price of bitcoin settles. “We feel comfortable holding a small amount as the original gift amount is guaranteed,” John Zeller, the senior vice president of development and alumni relations at the university, wrote in an email.

Five myths about cryptocurrency

In most cases, charities immediately turn digital coins into dollars to avoid the volatility of holding crypto, but even a swift conversion requires engagement with the crypto ecosystem. Presumably, a lawyer has surveyed any legal issues and recommended how long a charity should hold the coins before selling; the charity also needs to choose a method to exchange the coins for dollars and create an account with a marketplace or a service like the Giving Block. Additionally, charities will want to spread the word among their supporters that crypto-donations are welcome. It is this process that makes charities invested, so to speak, in the ecosystem — and where pushback can come quickly.

Rhodri Davies, a researcher in the history of philanthropy at the University of Kent, in England, said that many donors are acting in “a kind of enlightened self-interest” since cryptocurrency “only really has value for everybody if a collective delusion — or belief — continues.” Teasing out motives can be hard, Davies conceded: “I don’t know if it is as simple as people saying they are deciding to do philanthropy as a Machiavellian scheme to make their own holdings worth more; it’s probably that a lot of people genuinely have an ideological belief in cryptocurrency.”

Pat Duffy, who left the nonprofit world to co-found the Giving Block, said in an interview that charitable giving is likely to be the way crypto becomes integrated into the traditional economy. “You’re not going to get a whole lot of pizzas getting bought with bitcoin,” he said. The immediate potential for crypto-charity, by contrast, is enormous. “If people just behaved rationally and gave the amount to offset their tax burdens, there would be tens of billions of dollars, one of the biggest charitable-giving sectors,” he said. “Every major brand would be on crypto.”

Proving Duffy’s point, the Giving Block was just bought by the payments company Shift4 in a deal worth $54 million. In announcing the acquisition, Shift4’s chief executive, Jared Isaacman, said: “Cryptocurrency is quickly moving beyond early adoption and becoming increasingly mainstream as more people want to invest, transact and donate in crypto. We intend to be at the forefront of this movement and leverage The Giving Block technology across the entire Shift4 enterprise.”

Crypto.com, a cryptocurrency exchange based in Singapore, ran an advertisement during last weekend’s Oscars ceremony to encourage donations to help the Red Cross/Red Crescent in Ukraine via cryptocurrency, promising to match up to $1 million. A donor needs a Crypto.com account to make the contribution, which, the company said, would be immediately converted into a stable, dollar-based coin “to avoid fluctuation risks in the value of the donated cryptocurrency.” At the end of the campaign, the currency will be converted to euros and given to the Red Cross. Other exchanges have also been encouraging crypto donations directed to Ukrainian aid.

To be clear, the biggest companies in crypto aren’t making their case to the public through charitable giving or some other practical use, said Davies, the philanthropy researcher. When the public sees a more typical crypto ad, like the ones that ran during the Super Bowl, he said, “they are not going ‘Wow, this is amazing, a new form of money,’ they are going, ‘Wow, this is an investment opportunity that might go up massively.’” The argument, in essence, is FOMO — fear of missing out — as expressed by Crypto.com’s slogan: “Fortune Favors the Brave.”

Cryptocurrencies’ controversial reputation can’t be separated from the huge price increases that are a result of speculation. If bitcoin, for example, wasn’t so valuable because of speculation, it wouldn’t use so much energy — by some estimates 91 terawatt-hours of electricity annually, more than the total consumption of Finland. The mining process, in essence, is a computing competition; if bitcoin was worthless, no one would pay the electric bill to “earn” one. But if one bitcoin is worth $40,000, five-figure energy bills per coin can be rationalized.

Back when the coins were much less valuable, charities found it easier to remain disengaged. In 2011, the Electronic Frontier Foundation, a San Francisco-based organization defending the rights of Internet users, was among the first to accept bitcoin donations. At the time, it acquired 3,500 coins, worth barely $5,000, and began to wonder if holding the asset made sense. In an announcement that June, the EFF said there was too little legal clarity about bitcoin for the organization to feel comfortable exchanging them for dollars. At the time, “we couldn’t treat them as usual assets,” said Kurt Opsahl, the general counsel. Even disposing of them was hard to manage, he said: “We could have potentially crashed the market” in its early days, when there weren’t that many coins and limited interest. Instead, the money was gradually released through something called a bitcoin faucet.

Today, Opsahl notes ruefully, those coins would be worth around $100 million on exchanges. In the interim, the EFF reversed itself on crypto-donations, noting newly established legal clarity and more reliable ways of immediately converting the tokens into cash. When the Pineapple Fund made its donations, the EFF was on the list, receiving a $1 million gift. This time, the group cashed it out.

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