Executive Summary

In the wake of the 2020 Coronavirus outbreak, the Italian Red Cross (IRC) launched a virtual-currency fundraising campaign with a goal of raising at least €10,000 to purchase and set up an advanced medical post for pre-triage of COVID-19 cases.¹ Virtual currency donations poured in. In three days, the IRC met its fundraising goal; in a week the organization nearly doubled it, receiving 50 different bitcoin donations—nearly all from anonymous or pseudonymous sources.² Ten days later, the IRC launched a second fundraising initiative.³ This and other examples of virtual-currency charitable giving are emblematic of how donations in virtual currencies like bitcoin can impact civil society organizations (CSOs).⁴

On the other hand, virtual currency donations create new legal challenges around how charities, donors, and regulators should receive, solicit, report, and appraise these donations. Not all of these questions have clear answers; multiple bodies of law often overlap, and the novelty and complexity of some of these technologies has led lawmakers and regulators to take a wait-and-see approach, which has further accentuated existing gray areas.

This report, assembled by the Blockchain Trust Accelerator at New America with the support of the International Center for Not-For-Profit Law, assesses opportunities and obstacles in charitable donations of virtual currencies, and aims to bring CSOs, would-be virtual currency donors, and policymakers up to speed on the emerging trends across a number of different countries. In approaching this topic, we sought to answer a fundamental question: Can a civil society organization accept donations in virtual currencies—and, if so, how? We brought together an interdisciplinary team of public policy scholars, nonprofit experts, and attorneys to create an international survey of how different jurisdictions are regulating virtual currency donations. The results span 10 countries across five different continents: Australia, Bermuda, Canada, Denmark, Malta, Singapore, South Africa, Switzerland, United Kingdom, and the United States.

In approaching this topic, we sought to answer a fundamental question: Can a civil society organization accept donations in virtual currencies—and, if so, how?

As of May 2020, regulators worldwide are still relatively early on in their efforts to develop frameworks around virtual currencies. In the specific context of charities, the legal implications and practical applications are even more nascent. But even at this juncture, we see charities accepting virtual currencies in ways that advance their missions, adhere to best practices, and comply with the law. In many instances, virtual currency donations can be squared with existing laws—be they tax, charitable regulations, anti-money laundering measures, or complex combinations thereof. In some areas, charities and donors would benefit from further adaptation or clarification of the law. But under all circumstances, regulators should continue to allow for the reasonable application of law to virtual currency donations and consider the potential benefits they may have on civil society expansion, innovation, and the advancement of the public interest.

More broadly, while there has not been a concerted effort to catalog those donations—in part because they are frequently pseudonymous and challenging to track—our research found over USD $200 million in publicly-recorded donations of virtual currency. This $200 million is both a significant figure on its own and yet still a relatively small figure compared to total annual charitable donations, which are estimated to reach over $400 billion in the United States alone.⁵

In our research across ten countries, we also observed several broad regulatory trends:

• A wait-and-see approach has led to few or no regulations specific to virtual currency charitable donations, and little momentum towards banning them.
• Overlapping and sometimes conflicting bodies of virtual currency regulation or guidance, which complicates matters for charities and donors alike.
• The bulk of regulators’ attention in the virtual currency space has been focused on protecting consumers, investigating the issuance, sale, and promotion of digital tokens via “initial coin offerings” (ICOs), and prosecuting related scams.
• Some jurisdictions, such as Malta and Singapore, have attempted to position themselves as especially friendly to virtual currency activities and innovation; other bodies, such as the EU, have increasingly tightened regulations for virtual currency companies in a manner that could impede entrepreneurship and drive innovation elsewhere.
• To the extent charitable organizations can accept anonymous donations consistent with existing “know your customer” (KYC) or anti-money laundering (AML) guidelines, we found they should generally be able to continue to accept anonymous donations made using virtual currencies. In some countries, such as South Africa, is it not clear that AML/KYC rules apply to virtual currencies at all.
• A number of countries are exploring the issuance of their own sovereign virtual currency, often known as a Central Bank Digital Currency (CBDC). Depending on how they are designed and where they are launched, CBDCs could be given to a charity (anonymously or not), much like cash or a check today, and may eventually become as attractive a medium of donation as alternative virtual currencies.

Charities and CSOs interested in collecting virtual currency donations should generally adhere to guidelines for the acceptance of other non-cash donations. When in doubt, document (the value and means of donation), disclose (to tax authorities and regulators in compliance with appropriate laws, erring on the side of more disclosure rather than less), or decline the contribution (if there are serious concerns about a conflict of interest or donor motives). Charities starting to accept virtual currencies may also consider partnering with domestic, regulated virtual currency exchanges and/or custodians, in order to streamline processes around asset acceptance, custody, and liquidation.

For donors of virtual currency, best practices are similar to those applicable to donations of equity or property. If donors wish their donations to be tax-benefited, that usually requires giving to a tax-exempt domestic civil society organization (located in the same country as the donor), documenting the donation with a receipt from the charity, and claiming a tax benefit for the donor that year (often in the form of a deduction or a tax credit). As a rule of thumb, donors of higher amounts of virtual currencies hoping to receive tax benefits should obtain at least one independent, written appraisal of the value of their virtual currency donations and retain receipts of the donations.

For policymakers and regulators, putting forth consistent virtual-currency-specific tax and donation-compliance guidance could ease uncertainty and encourage more virtual currency donations. Direct engagement among regulators, industry, civil society, and consumers is often fruitful as well. In addition to less formal regulatory tools—like issuing non-binding guidance, conferring with virtual currency businesses, civil society, and consumers, and improving policy coordination—policymakers should continue to advance black letter law, like regulations, statutes, and case law, that would help both donors and recipient organizations alike in facilitating donations that are compliant with existing law and appropriately tax-benefited, where applicable.

Charities, policymakers, and the citizenry they serve should continue to proactively engage one another and assess where and how the adoption or acceptance of virtual currency can, in fact, advance the public interest. We believe there is ample opportunity for additional research and public consultation on these topics. Among the questions for further inquiry: How should charities accept and custody virtual currency donations—and more generally, should policymakers develop regulations for virtual currency custodians and exchanges that more closely adhere to requirements placed on traditional banks, such as asset reserve requirements, deposit assurances, and regular audits of their holdings? Could regulators, policymakers, and/or researchers play a role in advising charities on these questions, including through the circulation of more detailed best practices, demonstrations, and explanations of security measurements and trade-offs?

We look forward to continuing engagement on these issues by key stakeholders. We hope this research can bring us closer to a world in which virtual currencies best help charities promote the public good.