Editor's note: This post is one in a series highlighting sessions for the upcoming Endowments and Finance Summit, held in Washington, DC, on September 6-7. The Summit is where foundation leaders – such as CEOs, CIOs, CFOs, Senior Investment Officers and board and investment committee members – converge to dialogue on trends, issues, best practices and innovations dealing with endowments, financial management, business and other professional challenges.
Have you heard of The Pineapple Fund? Starting in late 2017, an anonymous donor named “Pine” distributed more than $55 million in grants to organizations around the world—all in the cryptocurrency Bitcoin. Today, crypto-philanthropy is on the rise as donations of cryptocurrencies increase: Fidelity Charitable received $69 million in cryptocurrency donations in 2017, up from $7 million received in 2015 and 2016 combined.
What is Bitcoin?
Bitcoin is a cryptocurrency made possible through blockchain, a technology that changes how monetary transactions are executed. What makes cryptocurrencies different from tradtional is that the value of traditional currency is backed by governments or central banking systems, while the value of Bitcoin and other cryptocurrencies is backed by independent users all over the world. We trust in the US dollar because the US government ensures its value; many people have chosen to trust the value of Bitcoin because its value is determined by the demand for the currency.
Cryptocurrency Is Big Money—But It’s Risky
Cryptocurrencies rapidly change value and accepting crypto-donations can be risky for foundations and non-profits for several reasons.
Between January 2015 and May 2018, the value of a single bitcoin increased 44-fold and made millionaires out of early investors. At its peak in December 2017, the market cap of Bitcoin—the value of a single coin times the number of coins in circulation—was over $325 billion. In a matter of months, however, the value of Bitcoin plummeted.
Bitcoin and other cryptocurrency are also susceptible to loss or theft. Once you buy cryptocurrency, you’ll need a password to spend or exchange it. Forgot your password? To ensure the online security and networked trust that make cryptocurrency possible, these passwords are impossible to reset. It’s estimated that users have lost over 3 million Bitcoin because of forgotten passwords—that’s $20 billion dollars at Bitcoin’s peak market value.
Bitcoin is frequently stored in online exchanges or digital wallets, and these cryptocurrency systems are vulnerable to hacks.The biggest cryptocurrency hack—so far—lost users $530 million.
Takeaways for Grantmakers
Grantmakers like Pineapple Fund and the innovative journalism incubator Civil are disrupting the traditional models of giving and looking for grantees who are willing and able to accept these new forms of payment.
But how do foundations accept these gifts? Due to the associated risks – like market volatility and loss-threat—foundations receiving gifts of cryptocurrency are encouraged to liquidate crypto-donations as soon as possible. It’s wise to set up systems to accept payments of Bitcoin and other cryptocurrencies to prepare for possible future donations so that when a gift comes along, it can be used before it loses value. However, developing the internal policies and procedures to effectively accept these digital currencies and finding the right tools and platforms for liquidation can be a challenge.
At the upcoming Endowments and Finance Summit in Washington DC, we are hosting a session to explore and share lessons learned on how foundations can accept cryptocurrency donations. At this session, attendees will learn more about how to make the best use of the opportunites of cryptocurrency and avoid pitfalls by hearing directly from two foundations accepting cryptocurrencies today, the St. Paul and Minnesota Foundations and National Philanthropic Trust.
Even though the Pineapple Fund has stopped accepting applications for grantees, who’s to say when the next cryptocurrency mega-funder will come along?