Professional Documents
Culture Documents
US Charities and the Bitcoin
Understanding BTC as a new source to increase donations
Author: Miguel Sánchez de Pedro
2016
BITCOIN - KEY FEATURES
This is how a BTC looks like, a 64 charset algorithm
F1a0a7ccefc9e267f7bcedf884e489cd6a63ed0424c59cfcef189f40720a2edd
Source: http://blogchain.info 08/18/2016 14:00 CET
1. Only as good as the trust in the “Bitcoin system”.
2. Not fiat money, not legal tender, neither issued nor guaranteed by central banks.
3. Have not intrinsic value, like paper money.
4. BTC does not exist in the “material or physical” world, only a code or algorithm.
5. Semi anonymous, users can hold multiple BTC addresses that are very difficult to trace back.
6. Decentralized digital currency, not controlled by any central authority.
7. Transfer peer to peer, without intermediaries.
8. Minimal transaction fees.
9. Strong cryptography.
10.Requires robust wallet protection procedures for safe BTC storage and use.
US Charities and the Bitcoin - page 3
SAMPLE OF BITCOIN UNITS
bit,
µBTC 0.000001 0.00001 0.0001 0.001 1 100
microbitcoin
BITCOIN TECHNOLOGY
Source: https://weusecoins.com
[e.g. 123456789ABCdefghijklm01234nOPqr]
5. All transactions are broadcast between users and usually begin to be
validated and confirmed by the Bitcoin Network within a few minutes
and mostly within an hour.
US Charities and the Bitcoin - page 5
BITCOIN WALLET REVIEW
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Source: http://blogchain.info 08/18/2016 14:00 CET
A Bitcoin wallet is a software program where Bitcoins are
stored. To be technically accurate, Bitcoins are not stored
anywhere; there is a private key (secret number) for every
Bitcoin address that is saved in the Bitcoin wallet of the
person who owns the balance. Bitcoin wallets facilitate
sending and receiving Bitcoins and gives ownership of the Bitcoin balance
to the user. The Bitcoin wallet comes in many forms; desktop, mobile, web
and hardware are the four main types of wallets.
Source: Investopedia http://www.investopedia.com/terms/b/bitcoin-
wallet.asp
Yes
US Charities and the Bitcoin - page 6
TYPES OF BITCOIN WALLETS
Source: https://weusecoins.com
1. Online BTC Wallets
Wallets accessed from the web from any internet-
connected device. Not recommended because they
offer less security features than software and hardware
wallets.
2. Software Wallets
Applications downloaded to a mobile phone, computer $0 cost
or table. See page 12 for a sample of BTC software
wallet solutions tested at bird’s eye for operability, ease gratis
of use and security.
3. BTC Hardware wallets Hardware Wallets.
Purchase price
Physical devices designed to secure bitcoins. Costly about $100
solution from the time being.
4. Paper Wallets
BTC public and private keys generated by web operators
printed on a piece of paper.
US Charities and the Bitcoin - page 7
WHICH TYPE OF WALLET WOULD FIT CHARITY XYZ NEEDS?
In deciding which wallet would fit best the Charity’s needs, the following considerations may help in arriving at a reasonable decision:
1. Charity staff may lack previous experience in operating wallets.
2. Minimising risks: regulatory, market, operational and reputational should be of first priority.
3. Operational security in all the three stages, receiving, storage and spending should be kept as robust as possible within the limits of available
resources.
4. Market risk with regard to price volatility and exchange BTC/USD risk, should be kept at a minimum. Charity should refrain from taking a speculative
stance on the BTC business.
5. Stock of unspent BTC must be secured all the time by insurance policy. Some wallet providers such as Xapo, Circle and Coinbase offer this service
free of charge.
6. Wallet privacy features need to be assessed before deciding which one to adopt.
7. Wallet technology is evolving very rapidly. Be aware of starters, new brands, tiny companies.
8. At present, the volume of BTC donations are difficult to prove -at least with the scarcity of data available- due to the lack of publicly available statistics
or other reliable sources of information. The assumption is that BTC actually does not point to high USD volumes donated this way, but due to
increase on-line donations (the only way of giving BTC nowadays), its wider use as long as BTC is gaining popularity, understanding and trust, might
point to increased usage in the short near future. For instance, on-line giving in the US grew by 13.5% in 2013 while overall charitably giving increased
by 4%.
9. Wallet selection should align to Charity’s donation strategy and ready to grow with it.
10. Ideally the wallet software should work perfectly in any of the most popular desktop operating systems platforms, such as MAC-OS, Windows, Linux
and Ubuntu, and mobile ones like Android and IOS.
11. Learning by using wallets and accumulating experience should be undertaken at least a couple of months before launching the Charity’s Donation
page.
US Charities and the Bitcoin - page 8
BEST PRACTICES: HOW TO ENSURE YOUR SECURITY
AND PRIVACY
Source: https://weusecoins.com
Every BTC transaction is published in the Blockchain Ledger on which the entire
peer-to-peer decentralised distributed network system relies on.
This publicly transactions sharing must however assure that the core wallet tools that
made it operating, are strongly protected all the time up to the level of information-
theoretically secure.
✔ Control your Private Keys
Use wallets where you can control your private keys.
✔ Protect your privacy ✔ Don’t reuse addresses
To protect privacy effectively, the wallet needs to download the whole blockchain. This Create a new address for each transaction.
might take some 80GB of disk storage which prompt for desktop computer usage
rather that mobile phone wallets. Software wallets that work under different operating ✔ Use different wallets for different sums of money
systems, such as Mac OS, Windows, IOS, Android, offer an efficient solution,
combinining the whole chain storage (desktop computer) with the convenient use of a This security and privacy rule should be considered when money
mobile phone. received and saved in the wallet is of a substantial amount, e.g.
above 2 BTC, roughly USD1,100 at today’s rate.
✔ Keep BTC stored in software wallets covered by
✔ Private keys, always recorded on paper and kept in a locked safe insurance policies
box Prime software wallet providers -see page 12-,do protect the
storage of BTC with ad-hoc insurance policies.
✔ TOR compatibility
The Tor anonymity network helps disassociate your online activity
from your IP address (which is often closely associated with your
real name).
US Charities and the Bitcoin - page 9
HOW TO DISPOSE OFF BITCOINS RECEIVED BY CHARITY XYZ?
BTCs must be stored in the Charity’s wallet, prior to their use. Page 4
BTC can be sold or be disposed off by any of the following methods:
1. Spending BTC on the acquisition of goods and services. The
vendor must accept BTCs as payment method. Example Microsoft,
DELL, Wallmart.
2. Sell BTC for a cash deposit at Charity’s bank account. This would
be the preferred method to reduce the associated risks of holding
BTC, such as price volatility, exchange risk, wallet theft or password
loss. Three of the various exchanges that could be used, are
Coinbase, Xapo and Circle. Circle offers also the possibility of
selling BTC to the credit of debit and credit cards.
US Charities and the Bitcoin - page 10
BTC COMPLIANCE WITH US REGULATIONS
Donors might ask a receipt of their bitcoin contributions, as with any charitable gift received by Charities under 501 (C) (3)
regulations
RISKS ASSOCIATED TO THE ACCEPTANCE OF BTCs
Not fiat money. BTC is not guaranteed by the US Government nor the Federal Reserve
REGULATORY Know Your Customer (KYC) procedures
BTC donations must be reported in form 990
IRS treats virtual currencies (including BTC) as property
MARKET Exchange and asset /BTC) price volatility
Operational and technological risks in receiving, storing, using and exchanging BTC
OPERATIONAL Hacking and theft
BTC loss due to inadequate internal storage procedures
Advice: when operating with wallet, use TOR browser for improved security and privacy
Using reputable BTC services (Wallet and payment processors) may increase donors’ trust in donating to
the Charity
REPUTATIONAL
Underlying Reputational risk for the Charity (e.g. illicit origin of donations/donors, fraud)
Know the identity of BTCs donors using a specific Donation web schedule, e.g. Save the Children
RISK MITIGATION
Use wallet from companies that insure funds stocked with insurance policy, e.g. Xapo, Circle
MEASURES
US Charities and the Bitcoin - page 11
SAMPLE OF BITCOINT VECTORS FOR CHARITY XYZ WEB USAGE
https://bitpay.com/615074/donate
In March 2016, the IRS issued guidance that bitcoin is to be treated as a property for Federal tax purposes. See more here:
http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance
Given the IRS guidance that bitcoin is to be treated as property, donating bitcoin offers compelling tax benefits. Donating appreciated property
to charity is an often overlooked tax strategy. It allows taxpayers to deduct donated property that would otherwise be subject to capital gains tax.
Donors should consult with a tax advisor for properly recording this donation on personal tax return.
✔ Getting started: Bitcoin payment is distinct from other forms of payment in that the donor must send funds to a specific order address.
Donors who wish to give to United Way via bitcoin must first obtain the specific order address by visiting this site: www.unitedway.org/bitcoin.
✔ Donating: Once the donor proceeds with the contribution, he or she will be presented with a bitcoin address and a 10-minute payment
window. He or she can then use his or her bitcoin wallet to send funds to the address within the given time window. The donor can alternatively
log in with his or her Coinbase account to complete payment.
✔ Finalizing the transaction: As soon as the recipient is in receipt of the payment (within the allotted time), the transaction is complete and the
donor receives a confirmation email.
—---------------------------------------------------
RECEIPT: Once your Bitcoin invoice is paid, if you would like a receipt, you can click the "email" link to have it emailed to you or print the page.
You must include your name and email address with your transaction using the above form to receive proof of receipt for your tax records.
Charity XYZ, Inc. is a 501(c)(3) organization. Gifts are deductible to the full extent allowable under IRS regulations.
Gifts of Bitcoin are considered property or Gifts-In-Kind. Charity XYZ will not report a value in fiat of these gifts, as is standard practice for gifts-
in-kind. Please consult your tax advisor for information about appropriate record keeping.
In fiscal year yyyy, XX% of all expenditures went to program services. Find out more at: http://www.charityxyz.org
US Charities and the Bitcoin - page 12
WORKING WITH BITCOINS BTC– MAP OF RESOURCES
1. BITCOIN PROVIDERS, PAYMENT SERVICES AND EXCHANGES
Name of Website HQ Location Remarks
Company
BITFINEX https://www.bitfinex.com/ ?? N/A HACKED APPRX. $70 MILLION WORTH BTC ON
AUG 2, 2016
2. BITCOIN SOTWARE WALLETS
Name of Company Website HQ Location Remarks
XAPO https://xapo.com/ US BTC Wallet app, Android, IOS, Web. Highly reputable
team of Advisors. XAPO investors include Private Equity
and Venture Capital firms from Silicon Valey. FULLY
INSURED BITCOIN STORAGE SOLUTION. IOS,
Android,Web. Xapo customer bitcoins are stored in
offline Vault, secure, encrypted servers that are never
connected to the internet.