At the Oscars in late March, for instance, a Hollywood moment of silence for the people of Ukraine cut to an ad for Crypto.com that sent viewers to a site where they could donate crypto, buy nonfungible tokens, or use a plain old credit card. All proceeds were directed to support relief efforts by the Red Cross Red Crescent Movement.
There was a hitch, however. The Red Cross doesn’t accept crypto donations, so the contributions had to be converted to dollars first.
Charities largely want to tap into the nearly $2 trillion in wealth that crypto investors have amassed on the blockchain. But these types of donations pose a number of legal, technical and logistical challenges. This has many nonprofits treading carefully.
“Charities are sort of in the middle of fear of missing out and fear of doing something that’s going to get them in some level of compliance exposure,” said
James Lawrence,
co-founder of Engiven Inc., one of several startups that have cropped up to serve as intermediaries between charities and digital-asset donors.
Mr. Lawrence, who has launched other companies providing technology products for churches and nonprofits, said that this reluctance is similar to what he saw when charities first considered allowing online donations via credit card.
“‘Charities are sort of in the middle of fear of missing out and fear of doing something that’s going to get them in some level of compliance exposure.’”
The Crypto.com campaign raised $1.6 million in donations, 60% of which came from the sales of NFTs that artists created for the cause—plus an additional $1 million match from the company, said
Steven Kalifowitz,
the Singapore-based company’s chief marketing officer.
They might have raised even more had
Will Smith
stayed in his seat, “but then the slap happened,” he said, referring to the actor hitting Chris Rock in the face on stage at the awards show, and that became all anyone wanted to talk about.
That NFTs would drive more than half of donations wasn’t surprising, Mr. Kalifowitz said. He added that some buyers made the digital artwork their social-media avatars to broadcast their participation in the fundraiser. The practice is akin to a digital version of virtue-signaling tote bags given out during public radio and television pledge drives.
“You’re going to see a lot more fund drives with an NFT component because people want something to show for their gift,” he said. “People who live in a digital world won’t necessarily value a physical item.”
What NFTs and crypto have in common is their significant increase in value in a short period. Since today’s capital gains become tomorrow’s tax-deductible charitable donations, both donors and nonprofits have an interest in making this work. People often donate their most appreciated asset, and for more younger investors, that asset is bitcoin, ethereum or NFTs, said
Una Osili,
associate dean at the Indiana University Lilly Family School of Philanthropy.
“For previous generations of Americans, it was their stock portfolios or land,” she said.
Since the Internal Revenue Service treats crypto or NFTs as property, investors who donate them can avoid paying capital-gains taxes on the donated assets they have held longer than a year, and can also deduct the value of the gift itself.
Another startup, the Giving Block, works with 1,500 nonprofits and has processed more than $100 million in digital-asset donations, mostly in the past year, co-founder
Alex Wilson
said. Among early adopters was Save the Children, which has raised more than $5 million in crypto donations through its HodlHope campaign.
Artist Ulysses Gonzales sold his NFTs in the Crypto.com fundraiser advertised during the Oscars.
Photo:
SHELBY RAE
“The business rationale is that from what we have seen, almost 100% [of those gifts] have been new dollars from new donors,” said
Ettore Rossetti,
Save the Children’s lead adviser for digital innovation.
Most charities that receive crypto gifts immediately sell donated digital assets, but Save the Children might hold some amount of crypto, Mr. Rossetti said. Crypto currently accounts for about 1% of revenue from individual donations, he said. The nonprofit has also embraced NFTs, working with artists who donate works that can be turned into NFTs and sold for charity.
The philanthropic use of NFTs that appeals most to charities and NFT artists is selling the digital works and targeting some percentage of the proceeds for a charity. The smart contracts in the NFT can be encoded such that each subsequent sale of that NFT continues to direct that percentage to the nonprofit, the charitable gift that keeps on giving. Mr. Wilson said he could see NFTs accounting for as much as 20%-30% of digital-asset giving.
But it is also harder to donate an NFT directly to a charity because the value of donated property needs to be independently appraised. It is often hard to determine how much a digital artwork encoded with a seal of authenticity is worth, Mr. Lawrence said.
He added that not all crypto donors are in their 20s or 30s. Possibly the largest crypto donation to date was a $10 million gift “from an anonymous gentleman in his 70s,” Mr. Lawrence said.
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NFT sales reached $25 billion last year, according to DappRadar, a blockchain-analytics firm, with this year’s sales already jumping to $27 billion through March 10. Still, there have been signs that the market has cooled off. An NFT made from
Twitter Inc.
founder
Jack Dorsey’s
first tweet, which sold initially for $2.9 million, now might be worth under $14,000.
“Giving crypto is pretty straightforward,” Mr. Lawrence said. “NFTs are like their own crazy food group.”
Ulysses Gonzales,
34, is an artist who works under the name Ugonzo. He sold more than 3,000 editions of his PsychoKitties and PsychoMollies NFTs, $100 apiece, in the Crypto.com fundraiser advertised during the Oscars.
“This is the single best way to incorporate art into charity, to show that we’re not just in it for the money,” he said. A painter and mural artist, Mr. Gonzales said he was approached a few years ago “by a guy from Estonia.” Making the pitch for NFTs, the guy asked, “How would you like to make $100 million?”
Mr. Gonzales said he didn’t earn $100 million. “But I did make about three.”
Write to jeremy.olshan@wsj.com
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