Why are web3's affluent donating cryptocurrency rather than cash?

As the Russia-Ukraine conflict rages on, cryptocurrency has become an essential tool for people around the world looking to help Ukraine. The success of crypto-native fundraising campaigns in this context reflects a broader trend of crypto holders giving away their coins to assist charity organizations, which has taken off in a significant way this year.

Charities all across the world are asking for cryptocurrency donations to help Ukraine. Endaoment, a prominent cryptocurrency donation site, claims to have generated more than $2 million for organizations supporting Ukraine since the conflict began in late February. According to a campaign webpage, another crypto nonprofit platform, The Giving Block, has already received $1.5 million in crypto donations and announced a campaign yesterday to raise $20 million in cryptocurrency for its Ukraine Emergency Response Fund, which supports a variety of accredited nonprofit groups such as United Way Worldwide and Save the Children.

Nonprofits aren't the only ones looking to use cryptocurrency as a fundraising mechanism. According to a new website showcasing its relationship with a number of major crypto exchanges, the Ukrainian government has already raised over $54 million in Bitcoin, Ethereum, Tether, Polkadot, and other cryptocurrencies, mostly to pay its military. According to the website, the Ukrainian government's Ministry of Digital Transformation has spearheaded the drive to bring in donations via cryptocurrency, and the new partner organizations will assist in converting these payments to fiat currency and sending them to Ukraine's central bank.

While the Ukraine invasion was undoubtedly a motivator for donors to give away cryptocurrency, the mechanism gained popularity last year across all types of philanthropic initiatives.

Endaoment, which facilitates crypto donations to any 501(c)3 organization in the United States, claims that donation volume on its platform increased 100x last year, from $253,000 to $28 million. According to the Giving Block's annual report, donations increased to more than $69 million in 2021, a 1,558 percent increase from the previous year.

All of this begs the question: why are donors preferring to distribute cryptocurrency rather than cash?

Tax breaks are a big motivator, according to James Duffy, co-founder and CEO of The Giving Block.

"If you want to do something philanthropic and you have appreciated crypto, then appreciated crypto is your most tax-incentivized option to give," Duffy explained.

There is a significant distinction for US-based contributors between sending cryptocurrency to an established 501(c)3 organization and donating to any other cause, such as a foreign government in the case of Ukraine. The former frequently results in a sizable tax gain for the donor, but the latter does not.

Donating cash to a legally recognized nonprofit qualifies as a tax write-off for donors, allowing them to lower the amount of taxes owed by the amount donated to charity. Donating assets, such as cryptocurrency or shares, might be even more beneficial than donating cash because it provides an additional tax benefit on top of the write-off.

Normally, if cryptocurrency holders sold their coins after they had gained in value in order to lock in a profit, they would have to pay capital gains taxes on up to 37 percent of that profit. They normally do not have to pay capital gains tax if they give the coins instead. The dual tax incentive helps to explain why crypto holders, who often want to keep as much of their digital currency as possible in the hopes that it will continue to appreciate in value, are ready to give it away to charities rather than simply donating cash.

Donor-advised funds are a popular vehicle for asset gifts because they allow individuals to receive an instant tax deduction when donating cryptocurrency, other assets, or cash to a designated account that can grow in value over time. The account holder can eventually deploy the cash in the account to NGOs at their discretion and does not have to use all of the capital right away. Endaoment, Fidelity's charitable giving arm, and The Giving Block all provide donor-advised funds that take cryptocurrency.

While tax breaks can sweeten the deal for donors to give away cryptocurrency, according to Duffy, they are not the only motive behind crypto philanthropy. Overall, cryptocurrency contributors are more likely to give higher sums than stock or cash donors, he added.

"If you're in crypto, especially early on, you're definitely interested in being on the cutting edge and wanting to be a part of something that's going to change the world," Duffy explained.

A feeling of identification and community, like with other developments in the crypto world, is crucial to boosting involvement. Savvy organizations are capitalizing on this cultural phenomena, even if the majority of them end up changing the given crypto into currency before deploying it.

"Any nonprofit that develops a platform for cryptocurrency users exceeds the competition," Duffy said.

Despite the fact that some large NGOs, such as Save the Children, have been able to develop crypto donation programs due to their resources and scale, many mid-sized and smaller charities have avoided the option. Crypto donations provide only a minuscule portion of overall charitable giving — according to Giving USA, U.S. organizations alone received a projected total of nearly $470 billion from donors in 2020.

Nonprofits may be cautious to become engaged due to concerns about cryptocurrency's affiliation with fraud and scams, a link that regulators such as US Securities and Exchange Commission chairman Gary Gensler have underlined. Others just do not have the necessary technology or infrastructure to enable cryptocurrency donations.

Small NGOs without a strong internet presence may believe that embracing cryptocurrency is a "lottery ticket" for them, according to Duffy. He cautioned against this line of thought, stating that NGOs with little web presence should "stick to the nuts and bolts" before implementing crypto connections.

According to the yearly reports of both Endaoment and Giving Block, Ethereum was the most popular cryptocurrency utilized for donations last year. Last year, it surpassed other cryptocurrencies to become the most-donated cryptocurrency on both platforms, defeating previous favorites Bitcoin and Chainlink.

However, cryptocurrency donations were not confined to coins; philanthropic NFT projects also gained popularity among donors. Pplpleasr, a popular NFT artist, used the Endaoment platform to contribute the revenues from her art to the Stand with Asians Community Fund. According to the annual reports of both companies, Endaoment and The Giving Block alone saw approximately $20 million in combined NFT donations on their platforms.

Nonprofits, in particular, have the ability to create long-term donation streams. Through an interface with donation API startup Change, Solana-based NFT marketplace Metaplex allows authors on its platform to support charity with periodic royalty payments from their NFT purchases.

Change co-founder Sonia Nigam told TechCrunch that Web3 creators saw NFT donations as an opportunity to "leave a legacy through their work."

"This isn't about traditional generosity; it's about creator utility." "Smart contract technology enables influence to live in the product itself and then donate in perpetuity," Nigam explained.

"We'll see NFT collections go public, and they'll set a goal, for example, that 2% of all secondary sales go to battling climate change for the rest of their lives." Now, the creator's original aim is never lost on any resale, which is what gets people so enthusiastic. "Unlocking recurrent channels of contribution is usually the number one priority for NGOs."

Although bitcoin donations have grown in popularity over the last year, the rapid mobilization of funds to support Ukraine this month in particular may serve as a catalyst for the crypto community to support other causes.
Vitalik Buterin (Ethereum Foundation) at TechCrunch Disrupt SF 2017
In a Twitter Spaces conversation organized by crypto investor Katie Haun's team last week, Russian-born Ethereum co-founder Vitalik Buterin spoke about the potential opened by recent campaigns to help the country.

"I think a lot of people who are really core to [the blockchain and crypto sector] are in the field because they want to support freedom, more democratic ways of organizing, and generally support people's capacity to have their own personal and financial life," Buterin added.

Seeing these rights abused in Ukraine has piqued the crypto community's interest, he says, attributing some of the increased awareness to the fact that many people working on notable crypto projects are Ukrainian themselves.

The success of cryptocurrency contribution drives to aid Ukraine has shown that cryptocurrency may be "a very good vehicle for very fast gathering monies together," according to Buterin.
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