Crypto for Good
The word ‘crypto’ itself can mean different things to different people - and the nature of what constitutes good is also contested - but the overall view was that (outside the realm of ‘crypto Twitter’) the cryptocurrency community is at its heart a remarkably open-minded and supportive community. So how do we take a lead when it comes to philanthropic giving and social impact?
‘Crypto for good’ can be a loaded statement and, since the downfall of FTX’s Sam Bankman-Fried, the concept of ‘effective altruism’ has certainly taken a beating. But there are also many unsung heroes in the community – those who have given substantial amounts of their new-found wealth to good causes or broken the mould in developing new ways to use both cryptocurrency and blockchain technology to support charitable goals.
Charities themselves are interested in cryptocurrency as a new revenue stream but may be hesitating, whether due to reputational issues surrounding the industry (especially post-2022), ESG concerns around the environmental impact of Bitcoin mining or more practical worries about the volatility of donations and how to manage tax and reporting.
2022 was certainly a tough year for the industry, as both the tech market and traditional markets corrected simultaneously. Multiple firms collapsed including the implosion of TerraLuna wiping an estimated $60bn in value from the market, the effects of which then rippled out to affect the hedge fund 3 Arrows Capital. Further market contagion then spread further to digital asset lender BlockFi and brokerage Voyager, with the eventual collapse of the crypto exchange FTX causing shockwaves way beyond the crypto industry alone. It is not surprising then that much needs to be done to restore trust in the idea that cryptocurrency and blockchain would usher in a fairer, more transparent financial system. And all this also comes on top of a volatile macro-economic and political environment of inflation, recession and the ongoing war in Ukraine.
Yet beyond the headlines, 2022 was not all bad in the cryptocurrency industry. The Bitcoin network became more secure than ever. Ethereum undertook a process known as The Merge which moved its blockchain consensus mechanism from proof of work to proof of stake, enormously improving its environmental impact. There was also a substantial increase in developers working in the field and in the adoption of cryptocurrencies in emerging markets.
On the crypto for good side specifically, positive developments included the community rapidly driving millions of dollars’ worth of donations to Ukraine; the UN partnership with Ripple, and Vitalik Buterin, founder of Ethereum donating so-called ‘meme coins’ to help the fight against Covid-19.
2022 can be seen as a real catalyst for change and we need to learn the right lessons from FTX. Every time a new financial technology is created, we have seen bad actors. 2023 will be an inflection point for regulation. Global rules are due to be issued by the G7 and G20 by September 2023. All of this regulatory clarity will improve trust and give confidence to donors looking to get involved in cryptocurrency and digital assets. Institutions are also still demonstrating interest in investing in digital assets, so this is cause for optimism.
Parliament is seeing increased interest in cryptocurrency also with the APPG on Crypto and Digital Assets doubling the number of MPs and Peers getting involved. Lisa Cameron MP is now vice-chair of the Metaverse/Web3 APPG and a new APPG on Central Bank Digital Currencies (CBDC) is being set up. Parliament is beginning to upscale in terms of its understanding of the terminology and the UK Chancellor is becoming more engaged and interested in the crypto sector.
While the cryptocurrency markets took a heavy hit in 2022 in terms of prices and market confidence, many positive examples of crypto philanthropy do exist – from ongoing donations to Ukraine to further help for the crisis in Turkey and Syria after the recent series of earthquakes. Companies such as Blockchain.com are waiving fees for Ukrainian users, something that no UK bank has done. There is also now a young generation of donors who are extremely interested in giving in a digitally-native way.
Challenges for Crypto Philanthropy
The group identified a number of challenges to increasing crypto giving:
- Whilst, in the US, cryptocurrency donations are now higher than stocks, the level of giving is still low compared to giving by more traditional means, partly because ownership of digital assets is still a limited group of people.
- Charities have legacy structures which will need to be adapted to accommodate cryptocurrency and digital asset donations. Organisations like The Giving Block are starting to address this by providing website integrations that facilitate fiat on and off ramps, so that charities can relatively easily receive donations in crypto and also then covert them into e.g. GBP, EUR, or USD
- Velocity of allocation is another pressing issue – how long does money get sat on before it is allocated?
- There is a need to identify specific use cases which will help donors and charities, as well as policymakers and regulators, understand the social impact and benefit in non-technical terms.
- Tax rules should not penalise donors for donating in cryptocurrency
- In the broader context, there is a lack of good communication with those outside the industry and a need to avoid off-putting terminology which can seem exclusionary
How can we advance crypto philanthropy?
- Set up DAOs: One way that crypto philanthropy can advance is via setting up Decentralised Autonomous Organisations (DAOs) which build in accountability via smart contracts and voting rights. A number of such organisations already exist to promote social impact such as ESG DAO etc.
- Share use cases: Encourage the APPG Crypto and APPG Philanthropy to combine forces and provide a forum to bring concrete examples in front of parliamentarians
- Define terminology: e.g. via the Greengage Crypto Glossary and work being done by trade associations and industry bodies like UK Forum for Digital Currencies collaborating on definitions
- Build on UK government's desire to see Britain as a crypto hub – we have an ambitious Prime Minister who is keen to revive the UK economy post-Brexit and post-Covid
- Build a larger constituency and community committed to this cause
To build off the momentum from the ‘Crypto for Good’ breakfast, a dedicated LinkedIn group entitled ‘Crypto Philanthropy’ has been set up and interested parties are very welcome to join. The link is available here and highlights of the discussion are planned to be posted on a related Substack channel: Crypto Philanthrophy | Substack