In October, the Capital Factory hosted the 501 Tech Club of Austin, an affinity group of NTEN, the Nonprofit Technology Network which is a community transforming technology into change. The panel was entitled “Nonprofits, Bitcoin and Digital Currencies.” Presenters included David J Neff, Digital Strategy Manager at PwC and Jacob Parks, Legal Researcher at the Association of Certified Fraud Examiners.
Before our discussion began, participants got a quick primer in bitcoin. You can learn more about Bitcoin in this primer from Princeton:
In the June issue of NTEN: Change, members read about how Bitcoin may be a game-changer for fundraising and nonprofits:
You can also watch this accompanying recorded webinar with David J Neff and Jason Shim of Pathways of Canada:
Some of the key learnings from the panel included:
What is digital currency or Bitcoin?
- Bitcoin is a peer-to-peer digital currency. There are many “altcoin” alternative digital currencies too.
- It’s like digital cash. Once you pass it to someone, there is no real way to track it.
- You store your coins in a vault at an online exchange (eg, Coinbase) which generates a wallet key you use to exchange coins. Be sure to pick a reputable exchange!
- You don’t need a computer to pay with Bitcoin (eg, write your vault number and pass it on a napkin.)
- Bitcoin value fluctuates more than traditional currencies, making it also like an investment. (Around $650/coin once, now closer to $430/coin and still on the move!)
- Mining Bitcoins is very complicated.
- Accepting Bitcoins on an e-commerce website is technically very easy.
Advantages of implementing Bitcoin at your organization include:
- Access to new markets and supporters by being a first leader
- Reduced (or zero!) transaction costs
- Increased opportunity of provide micro-financing internationally, especially where anonymity increases program effectiveness (eg, instances of govt oppression, etc)
Tips for reducing your exposure to fraud:
- Always use 2 factor authentication for bitcoin transactions (eg login with a password, confirm with a text message)
- Segregate duties (for digital currency transactions, same as you would to reduce check fraud at your organization
- Multisignature wallets coming soon — support segregation of duties by requiring at least 2 signatures to spend
- Hot wallet vs Cold Vault — keep a portion of coins in wallet for current use. Unused coins can be put in “cold” storage on a computer that is not connected to the internet
Know before you implement
Before adding bitcoin, know how to account for it! There are no GAAP standards yet, although the IRS has released a statement that bitcoin will be treated as property. Have a strategy in place before you start accepting transactions.
Number 1 source of fraud at organizations is check fraud (#2 is falsified expense reports). Minimize your exposure to risk by segregating duties to spend digital currencies. Implement multisignature wallets as soon as possible.
By implementing now, organizations can become a leader in nonprofit bitcoin use while still being able to learn from the experience of those already transacting. Organizations can gain exposure to new markets for fundraising messages with little additional accounting risk. Be prepared for the day when a major donor walks in and asks to leave their endowment-starting donation as bitcoin!
Additional links mentioned during our discussion:
How to mine bitcoin–one of many examples available via search! (this is not an endorsement of any product):
Newsweek article on the guy who didn’t invent bitcoin:
Do you have a link to share about Bitcoin and Nonprofits? Leave a comment!
Thanks for the great summary. It seems like it may still be another few years before Bitcoin (or any other Digital Currency) hits the mainstream, but I am fascinated by the huge potential it has for changing the way we all process transactions over the next decade (and especially what that may mean for nonprofits).