Cryptocurrencies have surged in popularity in recent years. The Financial Conduct Authority estimates that 2.3m adults in the UK now hold crypto-assets, and NatWest claims that 20% of its 19 million customers hold cryptocurrency. As a result, crypto philanthropy is also on the rise.

This represents a new fundraising opportunity for charities, with the potential to tap into a different network of donors and possibly a sizeable income stream. In its 2021 annual report, the crypto-giving platform the Giving Block recorded an average cryptocurrency donation of $10,455, and stated that the average value of a cryptocurrency donation was 82x larger than the average online cash donation.

There was also a recent well-publicised case of a Scottish animal charity, which received a cryptocurrency donation of approximately £90,000. Many charities may now be looking at this activity as a potential source of fundraising which they had not previously considered.

However, it’s a fast changing and technical area and there is little explicit guidance for charities. It is therefore difficult for trustees to assess whether accepting cryptocurrency donations is worth the time, resources, and – perhaps most importantly – the risk.

Below, we look at five questions which trustees should consider before their charity decides to take the first step.

1. What method will the charity use to accept donations?

There are two main options here. A charity might sign up to a crypto-giving platform, such as the Giving Block or Engiven. Typically, these platforms process cryptocurrency donations on a charity’s behalf, converting it to fiat currency before transferring it to the charity. Alternatively, a charity might have its own crypto wallet and hold cryptocurrency itself.

There are merits and drawbacks to each approach. Accepting donations directly means a charity has more control and oversight over the process and can liaise with donors without needing to go through an intermediary. However, cryptocurrencies are generally very volatile so charities adopting the approach would need to take steps to mitigate against the risk of large currency fluctuations. Rather than holding onto cryptocurrency for any length of time, they may instead wish to convert donations into fiat currency soon after receipt, particularly as cryptoassets are still largely unregulated in the UK, so there is no recourse to the Financial Ombudsman or the Financial Services Compensation Scheme if things go wrong.

A charity wishing to accept cryptocurrency donations directly would also need to ensure it has personnel with the right skills and technical know-how to manage it, and to understand and mitigate against any associated risks. The person or team tasked with managing the crypto wallet must be alive to the increased risk of cyber-attacks, as well ensuring safe storage of the key to access the currency (which if lost, means the charity cannot access the wallet or the cryptocurrency). Trustees should ensure that they have sufficient oversight of those involved, with regular reports back to the board.

Using a giving platform may be a more accessible way of entering the cryptocurrency world. These platforms act as intermediaries, managing the donor due diligence and conversion processes on a charity’s behalf. There is no need for the charity hold its own cryptocurrency wallet: instead, the giving platform will convert the cryptocurrency into fiat currency and transfer this to the charity at regular intervals.

However, there are costs associated with the service. Trustees would therefore need to weigh up whether the costs incurred by the charity are likely to be worth it in terms of the number of donations they could attract. The lack of control may also be a drawback, as a charity will not have any input over how often donations are converted into fiat currency and at what rate. In some cases, there may be multiple conversion processes: firstly from cryptocurrency to USD and then from USD to GBP, each with their own associated costs.

The trustees will also need to satisfy themselves that the platform is undertaking sufficient due diligence on donors, which can be difficult if the contract structure is opaque. As well as the giving platform itself, there may be a separate exchange, wallet and/or custodian and working out who is responsible for donor relations and due diligence is not always straightforward. As many of these organisations are based outside the UK, they may not be familiar with English charity law requirements so it will be up to the trustees to satisfy themselves that they are complying with English charity law and best practice.

2. What donor due diligence should you do?

Although there is no explicit guidance on carrying out due diligence on crypto donors, the Charity Commission’s guidance on accepting donations is a good starting point. Generally, charities should approach cryptocurrency donations in the same way as they approach traditional donations, following the guidance set out in the Charity Commission’s Compliance Toolkit on protecting charities from harm (particularly Chapter 2: Due diligence, monitoring and verifying the end use of charitable funds).

This guidance states that a charity should ensure it has procedures in place to identify and verify the source of any substantial donations and should agree a policy on whether or not to accept anonymous donations. It states that it is perfectly acceptable for a charity to accept anonymous donations, provided that trustees look out for suspicious circumstances and put appropriate safeguards in place. Suspicious circumstances would include donations which are unusually large, unexpected or from an unusual source.

Although there is increased transparency, an issue with cryptocurrency is that one of the main draws of the technology is the anonymity it affords to users. This means it is not straightforward to identify the donors. If an anonymous donation is received, especially if there are suspicious circumstances, your charity might consider returning it and/or reporting it to the Charity Commission as a serious incident. However, refunding a donation may not always be an easy option given the volatility of cryptocurrencies, as the rate may have shifted dramatically between a donation being received and it being returned.

Where a crypto-giving platform is used, a charity should find out what donor due diligence that platform carries out, and what information the charity itself will receive. It should consider whether this is sufficient for the charity to identify and verify the source of any cryptocurrency donations and decide what information is reported back to the board.

3. What information should you give donors?

The Code of Fundraising Practice does not explicitly mention crypto fundraising (although the next iteration of the Code is expected to cover this). However, section 10 covers digital fundraising, and many of these same principles will apply to crypto fundraising.

The Code recommends that donors are given certain information at the point of donation. For example, where a third-party fundraising platform is used, potential donors should be informed about any charges levied on their donation. You should also let donors know other key information, for example what will happen to their personal data, what their donation will be used for and the circumstances in which a donation may be refused or refunded. A decent donation policy would cover all these points, with a link to it included wherever you accept cryptocurrency donations.

4. Is accepting cryptocurrency donations in the best interest of your charity?

Many trustees may find the idea of accepting cryptocurrencies daunting, but the income potential might be persuasive.

Trustees will need to consider all the risks and potential rewards of this activity in the context of their trustee duties and make a reasonable decision about what is in the best interests of their own particular charity. If necessary, trustees should take external advice or consider appointing new volunteers or staff members to look after this activity.

Reputational risks should be considered as part of this process. Cryptocurrency mining has been heavily criticised because of the huge amounts of electricity consumed during the process. According to the Cambridge Bitcoin Electricity Consumption Index, the amount of electricity consumed by Bitcoin mining in a year could boil enough water for all cups of tea consumed in the UK for 30 years. This has obviously been a particular concern for environmental charities, which haven’t wanted to be associated with something that has a negative environmental impact, and the World Wildlife Fund faced significant backlash when it announced a fundraising venture involving non-fungible tokens, which is a digital asset based on the same technology as cryptocurrency. Although this issue has been mitigated by some of the largest cryptocurrencies switching to alternative methods of mining, it is still a factor which charities should consider when looking at this as a new source of income.

5. Do your existing policies and procedures need updating to cover crypto philanthropy?

Charities should consider adopting a policy covering crypto donations, and review their existing policies and procedures to assess whether they need to be amended. For example, does your privacy notice adequately cover the processing of a crypto donor’s personal information? Is your donations policy sufficient for the purposes of accepting (or refunding) cryptocurrency? Are your financial controls adequate to cope with cryptocurrency?

You will also need to consider which of these policies and procedures need to be included as links on your website, wherever you accept cryptocurrency donations.

Finally, cryptocurrency is a fast-changing area and it seems certain that this sector will become more tightly regulated both in the UK and internationally. We are expecting the Fundraising Regulator to consider cryptocurrency in its latest revision of the Fundraising Code of Practice, and future regulation of the sector seems almost certain. If you decide that your charity will start accepting cryptocurrency, it is important to make sure someone has a watching brief on changes as they develop so that you can adjust your charity’s practices accordingly.

Overall, charities looking at this as a form of fundraising will need to weigh up the risks and benefits of accepting cryptocurrencies before deciding to embark on this new adventure. Ultimately, it could offer a profitable and exciting new form of fundraising, as long as the risks are properly assessed and managed. The recent collapse of FTX, which was widely regarded as one of the most reputable crypto exchanges despite not being authorised by the FCA, demonstrates the turbulence of the sector.

Laura Moss is a partner and Laurel Sleet a solicitor at Wrigleys Solicitors

Charity Finance wishes to thank Wrigleys for its support with this article