Is the Future of Money Digital?

Before we dive in, let’s acknowledge the elephant in the room - cryptocurrencies haven’t had the best 2022. There was the stablecoin Ponzi scheme that was Terra collapsing in May, which sent shockwaves through the value of currencies like Bitcoin and Ethereum.

Then Tesla and Elon threw a curveball. In their first quarter earnings this year, Tesla (a long time investor and believer in cryptocurrencies) wrote, “We believe in the long-term potential of digital assets both as an investment and also as a liquid alternative to cash.” On 14th March 2022, Elon Musk tweeted “I still own & won’t sell my Bitcoin, Ethereum, or Doge fwiw.”

Roll on 20th July 2022, and Shock! Horror! Elon Musk went back on his word and dumped 75% of Tesla’s holdings in Bitcoin, taking a loss of $162m, throwing the market into another existential spiral.

However none of this is new. Cryptocurrencies are inherently volatile (and the market has a really short memory). They’re still in their infancy (Bitcoin launched in 2008). Their price fluctuates because it’s influenced by supply and demand, investor and user sentiments, government regulations, and media hype. All of these factors work together to create price volatility.

Keeping this in mind, we’re going to take a dive into the emerging world of digital money and cryptocurrencies to consider the question: Is the future of money digital? And should you be accepting crypto donations?

Some ‘helpful’ jargon

Fiat money is a national currency that is not pegged to the price of a commodity such as gold or silver. The value of fiat money is largely based on the public’s faith in the currency’s issuer, which is normally that country’s government or central bank.

Cryptocurrencies are digital currencies underpinned by blockchain, a technology that creates a public, immutable ledger of financial transactions. There are lots of cryptocurrencies, but the most commonly known are Bitcoin and Ethereum as the two biggest and most widely traded.

Central Bank Digital Currency: These are like the halfway house between traditional fiat money and cryptocurrencies. Why mention them? Because the Bank of England is currently exploring the potential of CBDC for the UK (nicknamed the digital pound or BritCoin). They plan on launching a consultation later this year and we believe the charity sector needs a voice in these conversations.

The Benefits of Crypto

New audiences
The old view of investors is that they are young, male and childless (the crypto bro stereotype). But 2022 data suggest investors are younger, generally 18-44, less likely to own their own home, but they are more likely to have children/dependents. They hold investments across a range of platforms and are early adopters of smart & green tech. Their biggest motivation to hold crypto is the long term potential - they’re investors.

[Source: Gemini Global State of Crypto 2022]

For many, they’ve accrued more wealth simply through holding crypto in their wallets, and they want to share some of this wealth. However, this new audience may prefer to donate anonymously, for many reasons.

Serving the Unbanked
Today, over 1.7 billion adults worldwide are excluded from the formal financial system. This means nearly a third of all adults—including 8% of people within advanced economies —lack access to traditional banking services, including savings accounts, credit, loans, and insurance.

Cryptocurrencies can start to resolve this issue by spreading digital commerce around the globe so that anyone with a mobile phone can start making payments.

For example, in Afghanistan where there have been almost no remittances through international bank payments since August 2021 (when the U.S imposed new restrictions). Afghans, and particularly Afghan women, have turned to crypto to receive and send funds.

Things to consider when accepting crypto donations

When Money isn’t Money
In the UK, cryptocurrency is not recognised as 'currency' or a form of legal tender, however it is now considered 'property'. English Law identifies two forms of property: things in possession (physical items), things in action (a right capable of being enforced). So when accepting a crypto donation, it’s more like accepting the deed to a house than it is cash. Get you legacy teams in your innovation loop to help navigate.

Should you liquidate or hold
Like any ‘property’ donation you need to decide whether to hold onto the asset or liquidate it for the cash value. And with this decision you need to factor in the volatility of the price, and the tax implications.

A Case Study: Ukraine

When Ukraine’s president, Volodymyr Zelensky, declared martial law, the central bank suspended most currency trading and froze the official exchange rate. It also banned digital money transfers.

Ukrainians scrambled to withdraw cash, and the value of the Hryvnia plummeted on informal exchanges. But as the need for fast funds grew, Ukraine looked to crypto assets to help its war effort.

As of July 2022, the government has raised the equivalent of $100m in crypto. Non-government organisations are raising funds too. Come Back Alive, a Ukrainian NGO that has collected money for military equipment and training since 2014, relies on crypto after it was kicked off Patreon, a fund-raising platform that accepts donations in fiat currency but does not allow them to be spent on military apparatus.

UkraineDAO, a crypto collective, auctioned a non-fungible token (NFT) of a Ukrainian flag for $6.5m-worth of Ethereum. It is the tenth most expensive NFT ever sold according to Elliptic, an analytics firm. The proceeds will be spent on humanitarian aid.

Donations solicited in crypto pale next to those raised in fiat currencies. Governments and institutions such as the IMF have between them given billions of dollars in aid to Ukraine. It helps that Ukraine was already crypto-friendly. In 2021 the country ranked fourth in the world for crypto adoption.