Cryptocurrency and NFTs
In recent months both the Charity Commission for England and Wales (CCEW) and the Fundraising Regulator have sought to promote the opportunities available to charities from the use of cryptocurrency and non-fungible tokens (NFTs) whilst at the same time highlighting some of the risks involved. Cryptocurrency is a form of unregulated digital currency which uses technology to record the transaction history and for making payments between users. NFTs are digital artworks that are created using similar technology to cryptocurrency.
Some charities have already begun to accept donations in the form of cryptocurrency, or benefited from receiving the proceeds from the sale of NFTs. Doing so may have enabled them to access new donors and funds that may be denied to them previously. Doing so has benefits for the donors too, with the technology involved enabling them to more clearly see how the donation has been spent on charitable activities.
The problems for charities come primarily in three areas:
- A lack of transparency over the source of donations received making it more difficult for charities to ensure that they are not being used to conceal money laundering or other criminal activity.
- Volatility in the value of cryptocurrency when compared to traditional currency, increasing the risk for charities in accepting funds in cryptocurrencies or when holding operational or investment funds in cryptocurrencies.
- The environmental impact of cryptocurrency, which has a significant carbon footprint given the vast amount of electricity utilised by the technology involved.
In its guidance the Fundraising Regulator sets out how the Code of Fundraising Practice addresses issues such as these, and the areas that trustees should consider when considering whether accepting cryptocurrencies and NFTs is in the best interests of the charity. CCEW’s guidance has similar conclusions, and reminds trustees to document their decision-making carefully to be able to demonstrate that they have fulfilled their legal responsibilities and not put their charity at risk.