The Downside of Crypto Donations
Nonprofits and their supporters are turning to crypto to avoid taxmen, middlemen and restrictive lawmakers. Unless they do their homework, nonprofits face restrictions of a different kind.
The Downside of Crypto Donations
Cryptocurrency donations are providing a much-needed lifeline to hard-up charities right now. In many countries, the coronavirus pandemic has triggered massive government support packages for businesses disrupted by national lockdowns. Charities have not been so lucky. In the U.K. one in 10 nonprofits face bankruptcy. In the U.S., one in five donors have said they won’t be giving until this is all over.
Innovative, mainly larger charities are tapping into the thousands of new crypto-rich individuals who’ve lately made a mint from bitcoin. Cutting out their usual fundraising middlemen also means donors can be guaranteed the biggest bang for their bitcoin. The Red Cross, UNICEF and Greenpeace, among others, encourage donors to give using crypto rather than cash and frequently advertise the associated tax benefits. Selling bitcoin and donating the after-tax fiat proceeds usually attracts a capital gains levy. By sending crypto directly to charities this is avoided, plus they receive the full value of the contributions.
Pete Howson is a senior lecturer in International Development at the University of Northumbria.
Specialist donation platforms are stepping up to connect crypto donors with the growing number of small charities trying to get in on the bitcoin boom. But for many small charities, and those in need, the benefits come with intolerable levels of surveillance and control.
Even so, some charities are facing a simple choice: fundraise for crypto or go under.
The whistle-blower nonprofit WikiLeaks would probably not exist today without cryptocurrency. In 2010, Visa, Mastercard, PayPal, Bank of America and others blockaded WikiLeaks from receiving cash transfers. This was in response to the organization’s publication of classified U.S. State Department cables evidencing U.S. war-crimes in Iraq and Afghanistan.
These actions go to show how money transmitters have no expertize or democratic mandate, yet wield all the power as universal arbiters of morality. Crypto enables charities and businesses to subvert these established power brokers. WikiLeaks founder Julian Assange has accumulated nearly $1 million worth of crypto since his arrest last April.
As well as disarming the corporations, crypto giving is also challenging government control over good causes. The Tor Project, Sea Shepherd and Greenpeace are often left with frozen bank accounts. The threat of punitive action can change these organizations’ focus. Frequently, they’re forced to rethink the humanitarian or conservation goals expected by their donors and act instead in the interests of local lawmakers, however corrupt they are. This is not so much the case where crypto is on the table.
The corruption issues don’t end with government lawmakers. With traditional project funding, donors usually just have to trust charities to send the funds to wherever it’s promised. These donors might give money conditionally. They might want their funds to cover aid delivery costs and not just everyday overhead, marketing or for covering the CEO’s massive salary. Promises are often broken, though, and with frequent scandals trust in charities globally is dropping. Using blockchain technology, some crypto‐giving platforms promise to empower donors with more control, transparency and security in fundraising and aid provision.
But recent research at the U.K.’s Northumbria University, looking at the technical specs of crypto-giving projects, shows how a shift in power relations promotes “surveillance philanthropy.”
It works like this. Your everyday crypto enthusiast is rarely an expert in the complex realities of disaster relief and humanitarian aid projects. But with crypto giving, donors are able to remove flexibility from the experts while exerting maximum control over the charities’ actions. This, the research suggests, is not only impacting the charity’s bottom line but the work it can do.
AidChain, for example, perhaps the starkest example of surveillance philanthropy, has developed the aidcoin token, which it aims to be the preferred global method of charitable giving. Using an Ethereum smart contract, donors can track and manage how funds are spent. AidChain incentivizes charities to pay their service providers in aidcoin in order to improve transparency in the tracking process. So far WWF Italy and several smaller charities have signed up.
Similarly, the Promise crypto‐giving platform empowers donors by validating evidence, provided by any participating charity proving the completion of project milestones, before funds for subsequent phases of a project are released. It has partnered with eight charities – including one of the U.K.’s largest charitable trusts, English Heritage – in addition to collaborating with Charity Checkout, a platform available to 2,000 registered charities.
Crypto enables charities and businesses to subvert these established power brokers.
Promise and AidChain enable donors, who may not be in-the-know about the local realities of those in need, to define what constitutes success and failure for a project. Promise’s white paper states, “[I]f a project falters or fails, the funds not yet released can be returned to you as the donor to be donated to a new project”.
Such interventions raise profound questions concerning whether local people or the donor gets to enact their vision of success, and who gets to regulate development projects and how. Donations, though cost‐effective and tax‐efficient for the donor, become highly conditional and inflexible for nonprofits.
Humanity Token adds a further layer of surveillance to the mix. The platform enables donors to restrict those in need from buying anything the donor doesn’t want them to have. Eligible goods and services include, for example, food, shelter, health care and professional courses. Cigarettes and alcohol are going to be off-limits to those who have made the poor life choices that caused their “challenging life conditions.” According to the platform developers’ website, to ensure the poor are behaving in the interest of the donor, they are tracked transparently. Behavior information is then analyzed to provide better support for those who need it.
The cryptocurrency and blockchain development industry is growing. As it does, more innovators, creators and crypto-millionaires will emerge with a willingness to improve other people in particular ways. Larger charities, with the resources to market themselves to the new crypto-rich, will undoubtedly see greater benefits from blockchain technology, compared to smaller, more risk-averse and volunteer-led charities.
But blockchain is problematic. In taking advantage of the enormous opportunities that come from crypto giving, charities need to do their homework, maintain their independence and avoid swapping state-sponsored corporate despots for something far more restrictive.
