Cryptocurrency is a hot topic in the association world as a payment option for membership dues and, more importantly, donations. Of course, we’ve all heard of cryptocurrency, but what is a cryptocurrency, and how does it work? It seems clear that cryptocurrency is confusing to many people, and such terms as mining, bitcoin, dogecoin, or a crypto wallet sound like gibberish. Let’s start with the basics and then dive into cryptocurrency further with a few tips to implement on your website to make it easy for donors who opt to use this payment type.
We recently presented on this topic at the Association Founders Group 2021 EDGE Conference.
What is a cryptocurrency?
Cryptocurrency is as it sounds: a form of currency that is encrypted and secured by codes. Unlike the US dollar, cryptocurrency is not backed by any government or institution – it’s decentralized and can have its value based on the demand in the marketplace. Bitcoin was the first cryptocurrency created in 2009 by an anonymous creator using the pseudonym Satoshi Nak.
There are only two ways to make transactions using cryptocurrency: peer-to-peer (purchasing from someone) or through exchanges such as Coinbase, an online cryptocurrency wallet service.
How do associations fit in with cryptocurrency?
Associations need to understand what kinds of cryptocurrency can be accepted as donations before adding them to their donation options. For example, if your organization wants to accept Ethereum, you should learn about what Ethereum is, how it can be used, and where you can send or receive payments from Etheruem.
Is there one cryptocurrency better or more valuable than another?
There are different cryptocurrency “coins” or cryptocurrency tokens, and they can be valued differently at any time. Some associations may want to only accept donations in a cryptocurrency that has been established as valuable over the long term (for example Bitcoin). Other organizations might prefer accepting cryptocurrency that is just beginning to grow in value and popularity (like Ethereum). Either way, additional research and strategy will be necessary on cryptocurrency value prior to getting started.
How does one “mine” cryptocurrency?
Cryptocurrencies are mined by solving mathematical problems that use computers to solve cryptographic puzzles. These tasks are designed not to be solved by regular computing power and require high processing speeds to mine cryptocurrency (e.g., Bitcoin). This mining process can use a high-end CPU or GPU, but dedicated hardware and software tools are available for assistance.
What are some advantages of cryptocurrencies for associations?
There are several ways that an association could take advantage of cryptocurrencies, including offering donation opportunities and as a form of payment for membership and events. This process is set up using cryptocurrency payment accepting gateways through a website form that funnel into a wallet, converted into cash at the current market rate.
What about the disadvantages?
There can be many challenges that associations face when accepting cryptocurrencies, such as volatility and scaling issues. Volatility refers to how cryptocurrency prices fluctuate. Scaling refers to how cryptocurrency transactions can become slower when many people use it at once, which could create difficulties in paying memberships and donations.
What should an association do if they want to accept cryptocurrency?
Step #1: Register for ID verification
Associations can prepare for cryptocurrency donations by registering for an identification service such as Jumio, Inc., which offers identity verification services. This step is optional, but if you accept cryptocurrency donations and want to make sure that your donors do not have a conflict of interest with the association, it may help to register for an identification service.
Consider also registering for services such as IdentityMind, Inc., which offers identity verification services. This step is optional, but if you accept cryptocurrency from foreign donors, you must register with IdentityMind to comply with the Foreign Agents Registration Act.
Step #2: Get a cryptocurrency wallet
Cryptocurrency wallets are a way to keep donations safe and trackable by donors, who can then monitor their cryptocurrency wallets’ transactions. The cryptocurrency wallets that an association sets up will depend on what type of cryptocurrency they choose (e.g., Bitcoin, Litecoin, Ethereum). The process for setting up your cryptocurrency wallet will depend on the cryptocurrency wallet provider. It typically takes about 24 hours before your cryptocurrency account has been verified and you are ready to accept donations.
Some cryptocurrency wallets will have a monthly fee, some are free to use and most require setting up before they can accept cryptocurrency contributions. It’s important to do research on how cryptocurrency transactions work so that associations know which types of cryptocurrency donations make sense for them since not all wallets offer the same services.
Step #3: Set up your forms on the website to accept cryptocurrency
Accepting cryptocurrency on your website involves a couple of steps.
- First, you’ll need to set up cryptocurrency-compatible forms on your website. This can be done by inserting a cryptocurrency form code into the form plugin on your website. If you’re hosting cryptocurrency donations with an online service like Bitpay, then the provider will provide instructions that outline how their cryptocurrency donations will work and provide the form code that you need.
- Second, you need to set up cryptocurrency donation options with a cryptocurrency service provider. This includes adding a cryptocurrency tier to your account as well as completing any necessary verification steps that are required by the cryptocurrency service providers (such as filling out and submitting an application form).
Be aware of cryptocurrency laws
Though cryptocurrency can seem like a great way to take donations, there are several rules associations should be aware of:
- Many cryptocurrency wallets don’t accept US dollars. This means that if the exchange rate changes and you have fewer cryptocurrencies than expected, it could affect your cash flow on hand.
- There is no cryptocurrency equivalent to the Better Business Bureau. Associations can’t look up cryptocurrency wallets and see reviews or ratings of who has a good reputation.
- There are cryptocurrency hackers out there looking to steal from people, associations included! Be sure that your cryptocurrency wallet is secured with a strong password and two-factor authentication so if any information is leaked, hackers won’t be able to access cryptocurrency.
- You’re also responsible for the safety of cryptocurrency donations and you need to make sure that your association is following all relevant state laws on cryptocurrency donations.
- To prevent any potential cryptocurrency security breaches or hacks, associations should keep only a small amount of cryptocurrency in their wallets at one time.
- Associations should also educate themselves if cryptocurrency donations are allowed in their state. If they’re not, associations need to make sure that cryptocurrency isn’t donated on the association’s behalf and it has been explicitly authorized by a board member or executive director.
- Some states have cryptocurrency donation limits which means you need to be aware of what transactions are allowable.
- Associations should also be aware of cryptocurrency tax implications and potential cryptocurrency taxes that may need to be paid by the association or donor.
Cryptocurrency has been a popular method for donations, but associations need to make sure they’re educated on cryptocurrency so it’s not just an added risk to their organization.
Do you accept any type of cryptocurrency?
Associations and nonprofits are starting to accept cryptocurrency donations, but there is a lot of confusion about how it works. It is important to know these tips for proper tracking and storage of your digital currencies including understanding what cryptocurrencies can be accepted as a donation, how they should be classified on reports and tax returns, and where they should be stored securely.
Once these considerations are made, take the time to set up accounts with any exchanges that support cryptocurrencies so that members can donate without confusion. Are you accepting cryptocurrency as payment for membership dues at your association? If not yet, we encourage looking into all possibilities as cryptocurrency becomes more widely accepted.