Cryptocurrencies are digital assets designed to act as new forms of currency. They are not guaranteed by a central authority, but by a system of peer-to-peer transactions which maintains a decentralised public ledger (i.e. method of record-keeping) known as a blockchain. The best known cryptocurrencies are Bitcoin and Ethereum, but there are many more out there.
Many question whether cryptocurrencies should really be though of as currencies, as few people seem to use them for that purpose. As the Bank of England notes “cryptocurrencies are generally held as investments by people who expect their value to rise.” That value has risen significantly over the last decade, although it is also fallen sharply many times too (including a huge recent drop in the market that saw many crypto gains wiped out). Overall, cryptocurrencies remain a hugely volatile – and therefore risky – type of asset.
What, if anything, does this mean for philanthropy and civil society? As with most new technologies, cryptocurrencies and blockchain potentially bring a range of both opportunities and challenges. It is useful to break these down into three distinct aspects:
“Cryptophilanthropy” refers to the new field of giving wealth made through ownership of crypto. In some cases the gift itself may be made in the form of crypto (which we consider below), but in other cases it might well be turned back into normal fiat currency either prior to donating (i.e. by the donor) or immediately after (i.e. by the recipient). In these cases, the features of crypto itself are less relevant. What is relevant is the simple fact that some people have made money through owning crypto and, as with all other kinds of wealth, there is therefore an opportunity to persuade them to give.
So what is the size of this opportunity? That is of course dependent on the state of the crypto market – as already mentioned that market is currently going through a major downturn, so levels of cryptophilanthropic giving may go down accordingly. There aren’t many objective figures on the current scale of the cryptophilanthropy market, but those that are available suggest that there has been significant growth in recent years, so even if levels decline we are likely to see this form of giving continue for a while yet.
Who are the crypto-donors? Are they just people who otherwise would have made money in a different way, or there anything unique about them? It is obviously hard to answer a counterfactual like this with certainty. It is also hard to get a sense of the overall make up of the crypto donor pool, as the technology, by its very nature, allows people to remain anonymous (and many choose to do so).
We should distinguish between a few different profiles of potential crypto donors too. There are some who are early adopters of Bitcoin or Ethereum and as a result have found themselves sitting on huge (and unexpected fortunes). Since money easily come by is often easier to part with, these people might well be inclined to give some of that wealth away. This was certainly the case with perhaps the most eye-catching example of cryptophilathropy so far, the Pineapple Fund (an $86m fund set up in 2017 by a Bitcoin early adopter known only as “Pine”).
As the crypto market has grown however, many of the biggest fortunes have been made not by those just investing in the assets, but by those who have built platforms to enable others to trade in them. FTX founder Sam Bankman Fried has recently become a major player in philanthropy, Binance founder Changpeng Zhao has given significantly through Binance Charity and BitMex co-founder Ben Delo has signed the Giving Pledge.
There may also be a particular market for cryptophilanthropy among younger people, since is often noted that crypto adoption is far higher among this group. This is unsurprising given that young people tend to be earlier adopters of new technology, and also perhaps because they are part of a generation that has grown up with historically low interest rates and lack of opportunities to buy property, so investment in crypto seems worth the risk.
Some donors who have made money in crypto want to give in this form too. This may be in order to take advantage of tax benefits that come from giving crypto directly (most notably the avoidance of liability for any capital gains made on crypto that has gone up significantly in value). But in some cases it is also because they believe that crypto itself brings particular benefits.
One of these potential benefits is the ability to get resources to places where it would otherwise be difficult to do so because traditional financial infrastructure is lacking, or corruption is ripe. By using cryptocurrency, advocates argue, it is possible to bypass obstacles because it does not rely on intermediaries. There is certainly some evidence that crypto has been used in this way to get money directly to countries such as Ukraine or Venezuela in the wake of crises. However, in general this is still more difficult in practice than it is in theory. For one thing, the usefulness of giving in this way relies on people in the country in question actually being able to accept and use cryptocurrency (which is not true in the vast majority of cases). For another thing, it is increasingly clear that national and international regulators and financial bodies are not likely to just passively stand by and let cryptocurrency owners make their own rules, and they are increasingly taking steps to bring crypto back within mainstream financial systems.
The other potential benefit often cited for cryptocurrency is its ability to enable radical transparency. Since each unit of cryptocurrency (or any other kind of token created on a blockchain for that matter) is in reality a unique piece of computer code, it is theoretically possible to track it all the way through a chain of transactions right back to the point is was created. From a philanthropy point of view, this means that it would be possible for a donor to track the progress of their specific donation through a non-profit and potentially beyond.
Proponents of radical transparency claim that would it give donors more confidence in nonprofit organisations and therefore result in more giving overall. Sceptics, meanwhile, cast doubt on whether it is workable in practice and whether 100% transparency is necessarily a good thing even if we could achieve it. (What about the case, for example, where a donor is giving to support LGBTQ+ rights in a country where homosexuality is still illegal? If this was done in a radically transparent way without suitable safeguards, then the donor might inadvertently give away the identities of LGBTQ+ individuals in that country and enable the government to persecute them). So far, there have been a handful of project trying to make radical transparency a reality, but none has really progressed beyond minimum viable product (MVP) stage, suggesting that perhaps there is not such an appetite from donors after all.
In additional to the benefits that are claimed for donating in the form of cryptocurrency, there are also other applications of the underlying blockchain that some argue could be beneficial for philanthropy and civil society.
One is the creation of Non-Fungible Tokens (NFTs). These are unique digital objects, created as tokens on a blockchain – in much the same way as a unit of cryptocurrency is, but with a far wider range of potential attributes. They have come to public attention in the last few years as a result of a huge growth in the sales of digital artworks in the form of NFTs, but proponents argue that they could have a transformative impact in other areas such as gaming or music too.
For now, the main impact of NFTs on philanthropy has been in the form of a portion of commercial sales going to charity (as has happened in a number of cases) or as a result of nonprofit organisations partnering with NFT creators to create mission-related NFTs that they can sell to raise funds. (As the WWF was considering doing, until a critical backlash forced it to change its plans).
It is quite possible that NFTs in their current form will prove to be a dead end. The market has certainly taken a nosedive recently, which many sceptics have claimed is merely the inevitable bursting of a textbook economic bubble. However, as with many other aspects of cryptocurrency and blockchain, if you get away from specific current examples and think instead about the wider affordance of the technology (i.e. the things it enables you to do), it seems clear that the ability to create unique digital objects could have useful applications in many fields (particularly if the metaverse develops as some predict), so we perhaps shouldn’t write the whole thing off too hastily.
The other non-financial application of blockchain technology that may have relevance for philanthropy is the creation of Distributed Autonomous Organizations (DAOs). These are a new form of organisational structure in which multiple actors can work together, but without the need for any centralised authority or hierarchy. This is made possible through the use of so-called smart contracts: self-executing computer programs that automatically perform functions when given criteria are met, and do so without the need for oversight by a trusted third party.
Some have argued that DAOs may be well-suited to the work of civil society, as they can (in theory at least) allow large numbers of people to work together in an equitable way. At a time when there is much debate about unbalanced power dynamics in philanthropy, and a lot of focus on alternative models of mutual aid (based on notions of peer-to-peer interaction and solidarity), this might have particular appeal.
The idea of non-hierarchical (or “horizontal”) organising is not new within civil society, as many social movements and grassroots groups have employed these kinds of approaches for many years. It is possible, though, that the use of DAOs could make them more accessible, and also allow them to work at a scale that was not previously possible (as non-hierarchical organising has always been constrained to some extent by the limits of communication and coordination). However, it is also possible that we will simply rediscover many of the known challenges that have historically faced efforts to organize horizontally – albeit in new guises. (This is a question I explored in depth in a 2019 conference paper if you are interested in reading further).
There has clearly been growth in cryptophilanthropy in recent years. Yet despite the apparent lure of a new revenue stream (and potentially even an entirely new donor pool), the number of nonprofits actively seeking donations in cryptocurrency or from wealth made through cryptocurrency remains low. Why is this?
One reason is undoubtedly simply lack of awareness and understanding. Nonprofits (on the whole) tend not to be at the forefront of early adoption when it comes to new technologies, so although cryptocurrency has become far more mainstream, and a number of platforms and intermediaries have emerged that aim to make it easier for nonprofits to accept crypto donations, there will still be many organisations for whom this isn’t even on their radar.
Even amongst organisations that are aware of cryptocurrencies however, there still seems to be a high level of wariness about the technology. In part this is probably due to concerns about volatility. Cryptocurrencies are notoriously prone to huge fluctuations in value, and this is likely to be difficult to square with the risk appetite of nonprofit organisations and the fiduciary duties of their trustees. (This is certainly the case when it comes to nonprofits owning crypto themselves, but even if they are planning on turning it into fiat currency as soon as possible the volatility will pose a challenge for accurate financial planning).
Another reason nonprofits may be wary of taking crypto donations is concern about the challenges of knowing where donations have come from. All organisations have a financial duty to “know their customer” and to be able to ensure that any money they receive is legitimate. Many are also concerned about the risks of taking money from ethically dubious (if legitimate) sources. (See our guide to the history of “tainted donations for more). The concern about cryptocurrency is that it is designed to make it easier for users to hide their identity, so doing the required due diligence may be that much harder. There have already been examples of nonprofit organisations finding themselves in precisely this situation, of receiving crypto donations whose source they were not entirely certain about, and which subsequently turned out to be problematic.
A growing number of nonprofits are also concerned about the environmental impact of cryptocurrencies and blockchain. The current model for most blockchains (and certainly for the Bitcoin blockchain, which is by far the largest) relies on something called a “proof of work consensus protocol”, which is hugely energy-intensive. As a result, many critics now point out that the carbon footprint of Bitcoin is now larger than many reasonably sized countries. For organisations with an environmental mission, this may well make engagement with crypto an immediate no-no. But at a time when all organisations are having to think about their environmental impact and the role they play in addressing the climate crisis, it may well be a reason to think twice even for organisations whose core focus is not the environment.
The final reason that nonprofits may shy away from crypto that they are put off by what the Wikimedia Foundation, in explaining its decision to stop taking crypto donations, labelled the “general scamminess” of the whole market. Anyone who has spent any time on the corners of Twitter or other social media dedicated to crypto will probably have some sympathy with this view, as it is clear that in addition to all the people who genuinely believe in the transformative power of the technology there is a whole host of hype-merchants, scam artists and outright fraudsters. For nonprofits who are already wary of crypto for other reasons, this may well be enough to put them off altogether.
Despite all the scepticism about crypto and blockchain, there has undoubtedly been a large amount of wealth generated within the crypto world. Nonprofits who are sufficiently clued up on the technology may feel that the rewards of tapping into the pool of cryptophilanthropy donors are sufficient to make the potential risks worth taking. For many others, however, this will probably remain a watching brief as they wait to see how things pan out over the longer term.
It is, of course, impossible to predict that future. There is no way of knowing at this point whether cryptocurrencies in their current form are here to stay, or if they will disappear or be absorbed into the mainstream financial system. What seems more certain is that the new theoretical possibilities they have opened up when it comes to philanthropy (e.g., radical transparency, disintermediation, large-scale decentralised organising), are ones that people will continue to pursue – although they may not end up using blockchain or cryptocurrency to do so.
Philanthropy has a long and varied history. We’ve created bite-size chapters that you can jump in and out of to better understand philanthropy.