What Is Bitcoin?
Bitcoin was created in 2009 by an individual or group that uses the pseudonym Satoshi Nakamoto. It is a virtual currency, more properly termed digital crypto-currency to denote that it exists only in digital form and is encrypted for security. It allows people to send money anywhere in the world for free. Totally decentralized, it completely bypasses the banking system. Because it is not controlled by any government or nation, it is considered a disruptive technology.
Bitcoins are easily transferred from users’ virtual wallets using a QR code and a cell phone. This makes it more competitive than credit cards in emerging markets, where one-third of humanity does not have access to banks but does use cell phones. As you might imagine, those who control the current global financial system are not enamored of Bitcoin (to say the least!)
How Does Bitcoin Work?
Nick Cary, the donor mentioned above, owns a company called Blockchain, which provides free digital wallets (accounts) for Bitcoins. He likens Bitcoin exchanges to email. Simple, free and easy to use. The value of a single Bitcoin can fluctuate wildly because it is not tied to an external regulator such as the Federal Reserve. Bitcoin value is determined by supply and demand. A Bitcoin is worth whatever someone will give you for it, usually in goods or services rather than a currency exchange.
There are already quite a few online merchants that trade in Bitcoins, notably Overstock.com. Another e-commerce site I found, BtcTrip.com, takes Bitcoins in exchange for airfares and travel packages. Bitcoins can be purchased, sold, traded or ‘mined,’ which is a process done via special computer attachments. They are legal, although there have been cases where Bitcoins were used to conduct criminal activities, notably sales of illegal drugs.
Should My Nonprofit Accept Bitcoin Donations?
There are a surprising number of nonprofits that accept Bitcoin donations, including the Church of Saint John the Evangelist in Goshen, New York, JURN, a free site where you can search open-access academic journals in the arts and humanities, and Farm Forward, an organization that addresses the problems of factory farming. See the full list of nonprofits here.
If your nonprofit is considering Bitcoin, you may wonder about the proper way to record donations. According to The Nonprofit Watchman, a blog on the site of a public accounting firm called Batts, Morrison, Wales & Lee, “Even though bitcoin is a virtual currency, federal tax guidelines do not currently recognize it as cash for purposes of charitable contributions. Accordingly, until and unless federal tax guidance provides otherwise, nonprofit organizations should treat a contribution of bitcoin as a noncash gift.”
Anything Else I Should Know About Bitcoin?
Forbes magazine contributor Perianne Boring (who wrote one of the most
informative articles on Bitcoin that I could find), says that the biggest threat to the crypto-currency is government regulation. She also points out that the total number of Bitcoins is fixed at 21 million, but only about 12.3 million have been mined so far. Coins are given as a reward to miners who exchange the computational power of their computers to help run the Bitcoin network. In a sense, the coins are free to anyone who can figure out how to mine them. Better get digging, everyone.
Reprinted with the permission of Bonnie McEwan, specializing in nonprofit communication, media and leadership.