A Bitcoin for Your Thoughts: Virtual Nonprofit Donations by Bonnie McEwan

At the end of last year, I asked several nonprofit experts to name the single most important thing that affected the nonprofit sector in 2013. Here’s what Eric Dubinsky of Dubinsky Consulting had to say:

“Bitcoin is my choice for 2013′s biggest potential impact on the nonprofit sector. While we are only at the beginning stages of exploring this largely uncharted territory...some NGO’s have begun to experiment with...virtual currency. I believe this should be a topic of discussion in every development department that is heavily invested in social media and online fundraising.”

Last week, when the University of Puget Sound announced it had received a donation of 14.5 Bitcoins ($10,000) from Nicolas Cary, CEO of Blockchain, I realized that Eric’s comment was not simply a creative reach, but prescient. I was also aware that, while I knew what Bitcoins were, I had no idea of how they worked, or even if they were fully legal. So I did a little research and here’s what I learned:

Bitcoin was created in 2009 by an individual or group that uses the pseudonym Satoshi Nakamoto. It is a virtual currency, more properly termed digital crypto-currency to denote that it exists only in digital form and is encrypted for security.

It allows people to send money anywhere in the world for free. Totally decentralized, it completely bypasses the banking system. Because it is not controlled by any government or nation, it is considered a disruptive technology.

Bitcoins are easily transferred from users’ virtual wallets using a QR code and a cell phone. This makes it more competitive than credit cards in emerging markets, where one-third of humanity does not have access to banks but does use cell phones.

As you might imagine, those who control the current global financial system are not enamored of Bitcoin (to say the least!)

Nick Cary, the donor mentioned above, owns a company called Blockchain, which provides free digital wallets (accounts) for Bitcoins. He likens Bitcoin exchanges to email. It’s simple, free and easy to use.

The value of a single Bitcoin can fluctuate wildly because it is not tied to an external regulator such as the Federal Reserve. Bitcoin value is determined by supply and demand. A Bitcoin is worth whatever someone will give you for it, usually in goods or services rather than a physical currency.

There are already quite a few online merchants that trade in Bitcoins, notably Overstock.com. Another e-commerce site I found, BtcTrip.com, takes Bitcoins in exchange for airfares and travel packages. There are also a surprising number of nonprofits that accept Bitcoin donations, including the Church of Saint John the Evangelist in Goshen, NY; JURN, a free site where you can search open asccess academic journals in the arts and humanities, and Food Forward, an organization that addresses the problems of factory farming.

Bitcoins can be purchased, sold, traded or ‘mined,’ which is a process done via special computer attachments. They are legal, although there have been cases where Bitcoins were used to conduct criminal activities, notably sales of illegal drugs.

Mention of the government brings up an important consideration for US nonprofits that wish to accept Bitcoins as charitable donations: How should you report them to the IRS? According to The Nonprofit Watchman, a blog on the site of a public accounting firm called Batts, Morrison, Wales & Lee, “Even though bitcoin is a virtual currency, federal tax guidelines do not currently recognize it as cash for purposes of charitable contributions.  Accordingly, until and unless federal tax guidance provides otherwise, nonprofit organizations should treat a contribution of bitcoin as a noncash gift.”

According to Forbes magazine contributor Perianne Boring (who wrote one of the most informative articles on Bitcoin that I could find), the biggest threat to the crypto-currency is government regulation. She also points out that the total number of Bitcoins is fixed at 21 million, but only about 12.3 million have been mined so far. This implies that the coins are free to anyone who can figure out how to mine them. Better get digging, everyone.

Originally published on @BonnieMcEwan - Blog - http://www.bonniemcewan.com/ 2014/02/23/a-bitcoin-for-your-thoughts-virtual-nonprofit-donations/ , Feb. 23, 2014.