If you’ve heard a lot about cryptocurrency but have questions, you aren’t alone…Demystifying Cryptocurrency
Today, as part of our blog series on Creative Giving Tools for Churches, I’ve invited my colleague and friend Jeremy Reis to unpack and demystify cryptocurrency. Jeremy is an expert in philanthropic fundraising. He’s worked with ministries large and small to improve how they use technology to build their stewardship and donor relationships. He also serves on the Advisory Council of the Christian Leadership Alliance. I asked Jeremy what pastors need to know about this new currency tool and here is his response.
– Timothy L. Smith
With the recent rise in popularity of blockchain technology, church leaders need to understand cryptocurrency. In this blog post, we will demystify and explore what cryptocurrency is and why you, as a pastor, should care about crypto.
What is cryptocurrency?
A cryptocurrency is a digital currency with no physical form that can be used as money and exchanged online. Because cryptocurrencies are decentralized, they allow individuals to exchange value without the need for an intermediary.
Bitcoin was the first cryptocurrency released in 2009 by pseudonymous developer Satoshi Nakamoto, and it remains one of the most popular today. Other well-known cryptocurrencies include Ethereum, Litecoin, Cardano, Tether, Binance Coin, and Dogecoin. These currencies don’t have any intrinsic worth other than their current market price (the worth people assign).
Most cryptocurrency allows for fast transfer times because there’s no third party or centralized authority required to handle transactions that usually take time, such as bank account transfers or traditional payment methods like checks or credit cards.
How is cryptocurrency transferred?
Every cryptocurrency transaction has a unique address for the sender and receiver. The sender must know the destination address to send the cryptocurrency to. The sender initiates the transaction, and it is added to the blockchain for confirmation by miners or staking pools. Once a transaction is confirmed, the amount is recorded into the blockchain and registered at the destination. A transaction can take from less than one second to several hours, depending on the type of cryptocurrency and congestion on the network.
How is cryptocurrency exchanged?
People buy and sell cryptocurrency on exchanges. Exchanges provide a list of cryptocurrencies they offer for sale, the price and currency it is sold in, as well as any trading fees on these transactions. Many exchanges will sell cryptocurrency in exchange for fiat currencies – such as the U.S. dollar – or in exchange for other cryptocurrencies. A transaction from one type of cryptocurrency to another is expressed in a pair. Most exchanges will pair with Bitcoin, USDT (linked to the the U.S. dollar value), and Ethereum.
Popular exchanges include Coinbase, Binance, and Kraken.
What is a cryptocurrency wallet?
A cryptocurrency wallet is a digital wallet that stores cryptocurrency. Most wallets are a software program but can also be a physical device or paper wallet.
There are two types of wallets: online and offline. An online wallet is connected to the Internet and is available for transacting different types of cryptocurrencies. An offline wallet is disconnected from the Internet to prevent hacking. When you move your cryptocurrency into an offline wallet, it is referred to as being in “cold storage.”
Why should our church accept cryptocurrency?
Cryptocurrency is an asset of value. Just like stocks, land, or an automobile, cryptocurrency has value that can be easily converted to cash. Unlike many of those other donation types, cryptocurrency is much simpler to accept.
Cryptocurrency is also more popular among younger generations. Accepting cryptocurrency may open your church to donations from younger donors. Many churches have expanded their audience through livestreaming and now have people watching services from all over the globe. Cryptocurrency provides a way to accept donations from people who live overseas without worrying about transfer fees or exchange rates.
What are the risks of cryptocurrency?
Risks of using cryptocurrency include volatility in price, fraud (inadvertently transacting with fake bitcoin exchanges), theft if you store your coins online without security precautions, and regulatory risk because new laws could change how cryptocurrency operates.
Other risks include the following:
· A decrease in value if your church decides to keep the cryptocurrency.
· Cryptocurrency from illegal activities is subject to clawback laws, meaning that the church may be required by law enforcement to return the cryptocurrency.
· It’s a nascent area of law. Some countries have banned cryptocurrency. Will there be laws impacting recipients of cryptocurrency? Does receipt of cryptocurrency in a money-laundering scheme put a church at risk?
Due to volatility and money laundering risks, many organizations have clear policies stating that refunds of cryptocurrency donations are impossible.
How do we accept cryptocurrency?
Our experts at ACS Technologies can help you identify the best way to receive your church donations, convert it to cash, and distribute funds to your church. These types of services often perform this for a small percentage of the donation. Having a trusted partner process the transaction helps reduce risk for the church and makes accepting different kinds of cryptocurrencies easy.
For other blogs in the Creative Giving Tools for Churches series please visit our Church Growth blog.