Should Charities be Accepting donations in the forms of NFT’s and Cryptocurrency?
Traditionally, if an individual wants to give £100 to a charity, that charity may check to ensure that the individual is a person of good repute and look to trace the history of the money being donated. However, tracing ‘traditional’ money is, ultimately, a very difficult task. The charity may rely on its own due diligence to ensure it knows the identity of the donor and to some extent guard themselves against receiving any illegitimate funds or the proceeds of crime.
Establishing provenance is one of the many difficulties posed by digital currencies, which are often considered to represent ‘dirty’ money, whether that be through obscure trade, criminal enterprise, or money laundering.
If an individual can donate £100 then that person should, following the same logic, be able to donate using digital currencies such as Bitcoin (BTC) or Ethereum (ETH).
The issue is that it is impossible to trace digital currencies back to the time that they were minted or acquired, therefore placing a far greater burden of identification on digital transfers when compared to traditional transfers. This is why the use of NFTs is arguably becoming more appealing.
What is an NFT?
What About Other Cryptocurrencies?
Most cryptocurrencies, however, are fungible. The Cambridge dictionary describes “fungible” as something that is easy to exchange or trade for something else of the same type and value.
Bitcoin and Ethereum, for example, are fungible. A fungible token can be exchanged for any other token of the same kind. These tokens are identical to one another. Therefore, they are interchangeable and not unique. They are easily traded, meaning that their ownership can change constantly, and they are not easily traceable.
Examples of Fungible & Non-Fungible Tokens
Fungible | Non-Fungible
Pound SterlingCryptocurrency, for example Bitcoin or Ethereum | Works of artProperty
Whilst acknowledging the real risks in engaging with crypto assets, as it isn’t yet fully clear what challenges and opportunities digital currencies may provide, the Commission pointed out that it wishes to help promote innovation in the sector by encouraging trustees to consider how they might change and improve how they operate, to better deliver on their charitable purpose.
The Commission noted that several charities already accept cryptocurrencies or assets as donations, and where they do, they generally convert them immediately into regulated assets or traditional currencies.