South Korea has recently updated its Donation Act: Are We Making Progress or Taking a Step Back for Crypto in Philanthropy?
In Brief
The new ruling in South Korea outright bans the use of cryptocurrencies for donations, a policy that sharply opposes the global movement toward integrating cryptocurrencies into charitable endeavors.
The Republic of South Korea In a surprising turn, South Korea's Ministry of Public Administration decided to exclude cryptocurrencies from its newly revised donation regulations. This updated 'Donations Act' will permit alternative donation methods, such as gift cards from department stores, stocks, and loyalty points from major tech companies, while explicitly prohibiting cryptocurrencies like Bitcoin. Naver While department store gift cards, stocks, and loyalty rewards can now be donated to various charities, cryptocurrencies are still off-limits.
This decision is notably contrary to the global movement towards utilizing crypto in charitable activities.
As of January 2024, the landscape of crypto philanthropy is evolving, with estimates indicating that over $2 billion has been donated via digital currencies. In the United States, approximately 56% of leading charities accept cryptocurrency donations, with many actively using platforms like The Giving Block to raise funds.
This surge in crypto donations can largely be attributed to the impressive growth of the crypto market, which has invigorated philanthropic activities. By January 2024, around 580 million individuals globally were reported as crypto investors.
Crypto Philanthropy in 2024
Following The Giving Block’s 2024 Annual Report Even in the face of market fluctuations, nonprofit organizations have remained committed to embracing cryptocurrency as a viable fundraising strategy. Notably, 56% of the Top 100 US Charities, as ranked by Forbes, have integrated cryptocurrency into their fundraising approaches.
Transforming Bitcoin Contributions into Significant Impacts
When you donate Bitcoin or any digital currency, you stand to gain in a couple of key ways. Firstly, you can deduct the fair market value of your Bitcoin on your tax returns, based on a qualified appraisal. Secondly, donating cryptocurrencies is tax-efficient since you won’t incur capital gains tax on any appreciation in value, allowing the charity to benefit from the full donation amount.
When you contribute Bitcoin to a recognized charity, they typically liquidate the asset and allocate the funds to a special donor fund. This fund allows you, the donor, to determine how the money is allocated, possibly benefitting from tax-free growth before it's utilized by your chosen charity.
As per Fidelity Charitable As outlined by the Australian Charities and Not-for-profits Commission, the acceptance of cryptocurrencies has evolved into a strategy that charities use to engage with donors in innovative ways. In Australia, the Taxation Office designates crypto as an asset, requiring it to be reflected in the financial disclosures of charities.
However, implementing a crypto donation system demands considerable time and expertise. Charities need to grasp the intricacies of crypto trading, define acceptable types of cryptocurrencies, ensure compatibility with donation software, and develop skills for managing crypto wallets and issuing tax documentation.
Why Not Use Crypto in Charity?
Many organizations find themselves lacking the necessary expertise to navigate the crypto landscape. As a result, they often rely on third-party services to convert crypto donations into cash, handle tax-related issues, and distribute funds, while also seeking external assistance for marketing these crypto options to potential donors. They frequently use crypto exchanges for swift conversions to cash and maintain in-house operations for donor relations and compliance with tax regulations, along with setting up digital wallets for receiving, sending, and storing cryptocurrencies—an endeavor that requires a nuanced understanding of the inherent anonymity of the market. ACNC In exploring the realm of cryptocurrencies, charities must establish a comprehensive implementation plan and assessment protocol. This encompasses crafting policies focused on safety and security, particularly when dealing with high-risk assets or non-cash equivalents. Policies should include guidelines on how to accept crypto, what types are permitted, processes for donor identification, and scrutiny of contributions to mitigate risks such as money laundering or illicit financing. Decisions must also be made regarding whether to convert donated cryptocurrencies to cash immediately or to hold them as investments. By adeptly navigating these considerations, charities can tap into the exciting possibilities offered by crypto donations while remaining compliant and secure.
While South Korea is revising its 'Donations Act' to introduce more donation options, the prohibition of cryptocurrencies like Bitcoin and Ethereum could considerably impact the philanthropic landscape and fundraising techniques within the country. Nonetheless, despite this regulatory approach, the rise of crypto philanthropy is unmistakable on the global stage, as highlighted in The Giving Block’s 2024 Annual Report. The trajectory of crypto charities is on the rise, showcasing the potential to transform traditional charitable giving practices.
The allure of tax deductions alongside the opportunity to sidestep capital gains taxes serves as compelling motivators for donors to choose cryptocurrency for charitable giving. However, establishing systems for cryptocurrency donations presents formidable challenges for nonprofits. This requires knowledge of trading protocols, adept handling of digital wallets, and strict adherence to regulatory guidelines. Despite these complexities, successfully managing this environment allows charity organizations to fully unlock the advantages of cryptocurrencies while prioritizing security, compliance, and operational integrity.
As the cryptocurrency ecosystem evolves, the intersection of technology and philanthropy creates both thrilling opportunities and significant obstacles for charitable organizations around the globe. Adapting to this dynamic landscape with foresight and agility will be crucial for nonprofits that aim to maintain relevance and effectiveness in an increasingly digital and interconnected world.
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Zhauhazyn is a skilled copywriter with a passion for sociology. She is deeply intrigued by the complex nuances within Science and Technology Studies and has a keen interest in the Web3 space, particularly when it comes to blockchain technology.
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