On March 29, the popular crypto charity The Giving Block released its 2023 annual report on crypto philanthropy data based on 2022 usage of the company's platform. While the report presented several curious findings, the most exciting was the statistics on the rise of crypto donations.
"In what came as a surprise to many, crypto philanthropy held strong in 2022, even as top cryptocurrencies like Bitcoin saw their valuations decrease dramatically. In 2022, crypto donors collectively gave $172 per every dollar in Bitcoin's market value - a 41% increase compared to the same figure calculated for 2021, showing that the cryptocurrency giving trend remained stable in what was a turbulent year for crypto markets. This metric is what we call the 'Crypto Philanthropy Adoption Index,'" The Giving Block team highlighted the key trend in 2022.
Tax incentives definitely motivate donors to use cryptocurrencies for their donations. For instance, as long as the tax law of some countries like the USA considers cryptocurrencies as property, donations based on such assets are regarded as non-cash. Moreover, US donors do not have to pay capital gains tax, while donations are tax-deductible.
However, there may be more reasons contributing to the general enthusiasm for crypto philanthropy. According to The Giving Block, "The average crypto donation was nearly 31 times larger than the average online gift size in the nonprofit sector." Compared to previous years, 2022 was also the year with the highest number of nonprofits newly joining The Giving Block.
The exceptional interest in using cryptocurrencies for charity was first noted in 2021 in a study by Artemis Strategy Group for Fidelity Charitable. "Nearly half (45 percent) of cryptocurrency investors donated $1,000 or more to charity in 2020 - compared to 33 percent of the general investor population," the Fidelity report said. In addition, according to The Giving Block, "crypto donors supported all key cause areas, such as humanitarian aid, mental health, children and youth, disaster and conflict relief, animal rescue and rehabilitation, and much more."
Crypto philanthropists particularly invested in humanitarian aid to Ukraine and showed great support for LGBTQIA+ advocacy organizations.
In 2022, the majority of philanthropists (58.1%) used cryptocurrencies for "transformative donations" or those over $100,000, while only 7.7% of donors chose The Giving Block for smaller donations up to $5,000. In general, it seems that cryptocurrencies are more popular for large donations so far.
The past year also showed growing popularity of USDC, a stablecoin pegged to the US dollar. While all-time data from The Giving Block indicates that Ether leads charitable transactions with $44,594,831 donated through this platform, the trend reversed in 2022 and USDC became the top currency used for donations with $22,703,215 compared to $12,353,907 donated through ETH.
Why are cryptocurrencies so popular with donors?
As mentioned earlier, cryptocurrencies may be a better choice for donations due to current tax policies in the US. However, this is only one of the advantages of crypto philanthropy.
The transparency and lack of middlemen in blockchain technology is one of the factors that make cryptocurrencies so attractive to donors. Transactions recorded on a public ledger make it possible to track money use and ensure that it is benefiting those in need.
Another major advantage of crypto donations is the low transaction fees, which allow philanthropists to send more money to recipients.
Finally, cryptocurrencies are a common choice of donors who wish to remain anonymous, as no personal information is required for transactions.
Limitations of crypto philanthropy
While cryptocurrencies can contribute greatly to charity, there are still some factors that make potential users concerned. Mainly, donors are discouraged from crypto transactions because the high price volatility of assets can significantly reduce the funds received within a short period of time. Donors may also not feel safe donating in crypto due to the cybersecurity risks associated with transactions, while the lack of proper regulation offers little protection to cryptocurrency users.
On top of that, despite the proliferation of the technology, the adoption of cryptocurrencies is still limited, partially because of the lack of regulation and insufficient knowledge about the technical aspects of crypto transactions.
Although crypto donations are not free of risks and downsides, The Giving Block's report proves that the benefits of this technology may outweigh its limitations.