Currently, NGOs around the world are facing several challenges when it comes to raising funds. The COVID-19 pandemic has forced traditional donors to cut their spending or reprioritize the areas, projects, and organizations they are willing to support. Additionally, governments – particularly in the Global South – are trying to stabilize their national economies by imposing restrictions on international trade, which includes the flow of capital, making it harder and more expensive to send and receive money from abroad.
For these reasons, non-profits are starting to look into unconventional strategies, sources, and types of fundraising. This includes accepting cryptocurrencies as a medium of exchange.
Cryptocurrencies are digital currencies that work using blockchain technology. This technology keeps a record of the financial transactions in a decentralized system. Because of this, peers are able to transact directly with one another, as cryptocurrencies don’t require a central institution (like a bank) to validate the transactions that take place. Once a transaction is registered, it cannot be altered randomly. Individuals don’t require approval from a third party, nor do they need to be holders of a bank account to operate with cryptocurrencies, as these can be sent and received simply from a smartphone or a laptop.
The first cryptocurrency – and most popular one – is Bitcoin. Other famous cryptocurrencies, generally denominated as “altcoins” (alternative coins), are Ether, Bitcoin Cash, Monero, and Tether. Monero (also known as a “privacy coin”) allows for fully anonymous transactions, while Tether (also known as a “stable coin”) fixes its price to that of the US dollar, hence protecting the holder against the high level of price volatility affecting most cryptocurrencies.
NGOs can benefit in many ways from receiving funds in cryptocurrencies:
- It allows them to receive transfers from any part of the world,
- For way lower fees and at a much faster pace,
- From entities that may not have access to a bank account, but would like to contribute to the mission of the NGO.
Step 1: Determine the amount to recieve in Fiat currency and determine what exchange rate will be considered.
If the transfer of funds has to be laid out in a legal contract (for example, in the case of an individual donation), the contract must stipulate:
- The amount to be transferred in Fiat currency (for example, US dollars).
- Which cryptocurrency you wish to receive. Usually, the selected option is Bitcoin.
- How to determine the conversion from Fiat to cryptocurrencies, which requires decisions on:
- Which exchange rate will be used (in this example, BTC/USD);
- Which market will be used as a reference (generally a reputable cryptocurrency exchange, such as Coinbase);
- The day and time at which the exchange rate will be measured (for example, 20 March 2021 at 12:00 CET).
Step 2: Get a digital wallet that allows you to receive the agreed upon cryptocurrency.
Option 1: Get a wallet that is not tied to a cryptocurrency exchange. This option is more secure, but if you wish to sell your cryptocurrencies back to Fiat, you will need to use a cryptocurrency exchange. There are 4 types of wallets:
- Hardware wallets: these resemble a USB stick with buttons and a display to navigate through. Examples include Ledger NanoX and Cobo Vault.
- Desktop wallets: these can be installed on your desktop or laptop computer. Examples include Atomic, Exodus, Bitcoin Core, Electrum, and Jaxx’s Chrome Extension.
- Mobile or “apps” wallets: these can be downloaded and installed on your smartphone. Examples include BREAD, Coinomi, Electrum, and Samourai Wallet.
- Web wallets: these don’t need to be installed and can be accessed from a web browser on your computer or smartphone. Examples include MyEtherWallet and MetaMask.
Options 2: Open an account in a cryptocurrency exchange. This option is less secure, but allows you to buy and sell your cryptocurrencies directly with/for Fiat currency. These websites, which are market places where people buy, sell, and trade cryptocurrencies, “contain” wallets in themselves.
- The most popular exchange is Coinbase / Coinbase Pro.
- The recommended one for beginners is Cash App.
- The recommended one for selling and buying altcoins with low fees is Binance.
For more information on the advantages and disadvantages of each of these options, you can check out this article.
In order to use these platforms, you are required to open an account that involves a “KYC” process (“know your customer”), in which the identity of the person, company, or organization opening the account is verified. Note: Some exchanges do indeed allow organizations, and not only individuals, to open accounts.
Step 3: Share your address with the person or organization sending you the funds.
- An “address” can be expressed as a series of characters (numbers and letters) or QR code.
- To obtain your address, and thus be able to transact with cryptocurrencies, you must go to your digital wallet, click on the icon of the corresponding cryptocurrency (i.e. Bitcoin) and click on “Receive”. This way, you will obtain your address, which you can then copy and share with the person who will send you the funds.
Step 4: Save, trade, or sell the received cryptocurrencies.
- The length of a cryptocurrency transfer varies depending on how congested the network is and the transfer fee the sender decides to pay. The higher the fee the sender pays, the faster the transfer will be. The standard minimum time for a Bitcoin transaction is 10 minutes.
- Once the cryptocurrencies have been received, according to the exchange rate determined in the contract, you have 4 options:
- Keep the cryptocurrencies received.
- Exchange them for other cryptocurrencies. One of the most recommended options is to buy Tether, and protect yourself from Bitcoin price volatility until you decide to sell your cryptocurrencies for Fiat currency.
- Sell them for Fiat currency, to be deposited in a traditional bank account. This can be done directly from your account in the cryptocurrency exchange you are operating with.
- Sell them for Fiat currency to turn directly into cash.
- You can sell them to another person in a face-to-face transaction, who will share his address with you and give you the cash once the transaction is completed. There are websites that connect cryptocurrency buyers and sellers who want to carry out in-person operations, such as LocalBitcoins.com, Paxful.com, and HodlHodl.com.
- You can sell them through a cryptocurrency ATM that will give you cash in exchange. These can be found in some countries of the world, particularly in the Americas and Europe.