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How Nonprofit Organizations Can Accept NFT Donations

Being equipped to process these digital items creates opportunities for significant donations.
By Adrianna Lakatos
January 26, 2023

Update: In the post below, we walk through the steps nonprofits should follow to accept NFT donations. However, since Givepact is now live, we can handle this process for you! Just tell interested NFT donors to setup a donor-advised fund with us and we can handle the rest.

Accepting NFT donations can be a powerful way for nonprofits to engage with a new audience and increase donations

But first, what exactly is an NFT?

Non-fungible tokens, more commonly known as NFTs, are unique digital assets stored on a blockchain. These digital assets can be fine art pieces, collectibles, digital trading cards, digital real estate, and more. Professional athletes, artists, and celebrities have auctioned off NFTs, and these digital assets have changed the art landscape. Many non-fungible tokens are highly sought-after by collectors—with some sales even reaching sums of millions of dollars. In 2022, according to DappRadar, the NFT trading market reached $24.7B.

NFTs differ from many traditional donations

Since these digital assets are easily transferable, they can be easily used to make donations to nonprofits. They can be bought, sold, gifted, and exchanged for various forms of cryptocurrency.

Nonprofits should be equipped to accept NFT donations

Why accept donations in NFTs?

Since many nonprofit organizations are uninformed or unable to accept digital asset donations, charities that educate themselves on the necessary technological processes are at a huge advantage as early adopters. Being equipped to handle these unique donations opens more opportunities for high-value donations. Accepting NFTs allows organizations to receive 100% of the value of donations. Donors are incentivized by not having to pay capital gains tax.

Another perk is that cryptocurrency investors are often more philanthropic than their traditional investing counterparts. A 2021 study by Fidelity Charitable found that “Nearly half of cryptocurrency owners donated $1,000 or more to charity in 2020, compared to one-third of all investors.”

Digital item donations, such as NFTs, are much easier to transfer and manage when compared to other valuable collectibles. This is a benefit for both donors as well as nonprofits. Also, this new art form means that collector’s will no longer need large physical storage spaces as physical art requires.

CryptoPunks were the first NFT profile pictures and are considered a "grail" piece of any collection. A CryptoPunk that was donated to the Ukrainian government in 2022 was sold for over $100,000.

What’s the next step after accepting an NFT donation?

Once nonprofits accept an NFT donation, it’s their choice to decide what to do with it. For example, they could simply list the asset for sale, or auction off the piece to potentially fetch a much higher sum. Assets can be exchanged for cryptocurrency, like ETH, which can be held or sold for cash.

But, even if a nonprofit would rather hang onto an NFT donation, there’s potential for the digital asset to rise in value. For charities that would rather not hold or accept any NFTs directly, there’s also a possibility for donors to sell an NFT themselves and simply donate the proceeds, in the form of cryptocurrency or fiat money.

Nonprofits need specific infrastructure in place to manage NFT donations

Nonprofit organizations may need to invest in tech/infrastructure to manage NFT donations, including blockchain wallets and software to track and manage the NFTs. Organizations need to learn how to securely store NFTs and other digital assets.

How can nonprofits accept this kind of donation?

1. Your organization will need to either set up a cryptocurrency wallet or have someone else set up a wallet on behalf of your organization

Next, you’ll decide if you want your wallet to be custodial or non-custodial. This article from BitPay breaks down the benefits and drawbacks of each type of wallet.

2. Decide whether to utilize a “hot” or “cold” wallet

This article by Nerd Wallet breaks down the pros and cons of each type of wallet.

3. Share your wallet address with donors

After you have a wallet set up, share your wallet address, generally a string of characters beginning with “0x”. Or, if you’re already a pro, you can share something called an ENS wallet address which is sort of like a “nickname” for your wallet, i.e. “nonprofit.eth”.

4. Make sure your wallet is compatible with the given blockchain network that the donor is sending their NFT from

Always confirm what network or blockchain the asset is on. Many NFTs are on the Ethereum blockchain, but check to make sure you have a compatible wallet for each blockchain that your donor is sending from.

After that, you’re all set to receive NFT donations!

Be sure to fund your wallet with cryptocurrency if you plan on selling or transferring the asset

Before listing, auctioning, or transferring any digital assets or NFTs, you'll often need a certain amount of crypto for what’s known as a “gas fee” or “network fee”. You won’t need to have any funds to accept the asset, but it’s necessary for anything beyond just owning the NFT.

You’ll always need cryptocurrency in order to transfer, sell, or auction the asset out of your wallet. This amount varies, but usually, you won’t need more than a few dollars per interaction.

Prefer to sell your NFT donation?

This article from OpenSea breaks down the process of listing an NFT for sale on their platform.

Once you’ve sold your NFT in exchange for cryptocurrency, you’ll need to take a few steps to get it back to fiat:

  • Convert ETH or another cryptocurrency to USD or other fiat money through an exchange account.
  • Transfer USD out of centralized exchange back to a bank.

That’s it— you’ll be able to do whatever you’d like with your funds once they’ve been transferred to a bank.

There are unique benefits to accepting NFT donations

  • NFT donations can help reach new audiences and increase donations.
  • NFT donations can provide more transparency, as they’re tracked using a digital ledger.
  • Donors may be more inclined to donate privately or take advantage of the anonymity that comes with utilizing blockchain tech if given the option.
  • There are also other options when it comes to receiving donations from cryptocurrency and NFT enthusiasts. Some NFT marketplaces are even adding options to donate directly to charities, for example.

Givepact can help nonprofits accept and manage unique donations

Our team at Givepact is here to give guidance and support when it comes to navigating the NFT space and accepting unique donations. Through education, assistance, and unique tools, we are here to help. Our crypto to cash donation platform will launch in the spring 2023, and in the mean time, you can join our community on Slack and receive weekly news on crypto and social impact.

NFTs are already a force for social impact

There has been an increasing number of sizeable NFT donations from philanthropists and artists across the globe. This spirit of giving can be leveraged even more, keeping the giving rolling, and encouraging even more donations.

You can create a new kind of donation campaign fueled by blockchain and NFTs.

For example, by accepting NFT donations and publicly talking about doing so, you can encourage more NFT donations from within NFT community sales, and potentially even encourage community members to donate proceeds after NFT sales. Inform donors about their cause and the impact of their donations.

Chromie Squiggles are the first generative art collection published by Art Blocks. Tens of millions of dollars have been donated to nonprofits from Art Blocks sales revenue.

There are some considerations when it comes to the risks of handling digital assets

Nonprofit organizations can accept NFT donations, but there are costs and risks associated with it. These include the risk of scams and theft, being unable to accept an asset if the necessary technology is not available, and the risk of losing the asset due to listing errors or accidental transfers.

  • The transfer of ownership is irreversible, and it is often difficult or impossible to retrieve lost or stolen funds or unique digital assets. These factors can be hard on both the donor and the charity.
  • Holding cryptocurrencies as a nonprofit after selling NFTs also means potentially dealing with market volatility.

When it comes to tax reporting, in some cases, all the nonprofit has to do on their side after accepting a donation is issue a tax receipt to the donor listing the asset and quantity, i.e., "1 Crypto Punk NFT" donated. Usually, it's ultimately up to the donor to figure out a realistic monetary value of the asset. However, donors and nonprofits should always consult with a tax professional to get advice.***

Donating NFTs to nonprofit organizations can be a unique and impactful way to support the causes you care about

Many nonprofits and charities aren’t equipped to handle these donations, so you can reap more benefits if you’re prepared. Right now the main challenge is awareness and education. Once we jump over that hurdle, it will unlock access to more generous donors and even more ways to give, and make a difference in the lives of millions.

By taking proactive steps to promote NFT donations, we can encourage more donations from within the NFT community

Blockchain technology opens up new avenues for charitable donations. Together, we can make a difference in the lives of those in need by educating the public about the benefits of NFT donations and the impact that they can have.

***This article is only provided for general information purposes, and is not intended as investment or financial advice. This content does not serve as a replacement for advice from any tax professionals, investors, financial investors, or lawyers. If you need help with taxes, investments, finances or any specific legal matters, you should talk to an expert within the field.