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How should charities interact with digital assets?

Gateley Legal

UK charities invested more than £115bn in 2020 and those involved with charities have duties both in respect of assets they invest in and assets they receive. How then should charities interact with the increasing world of digital currencies and NFTs?

Receiving digital donations

It is often considered that digital currencies represent ‘dirty’ money whether that be through nefarious trade, criminal enterprise, or money laundering. However, the UN estimate that less than 1% of the world’s money laundering takes place through digital currencies and there are similar stats to suggest that digital currencies are not heavily involved in other criminal activity.

If George wants to give £100 to a charity, that charity may check to ensure that George is a person of good repute, but they will not look to trace the history of the five £20 notes George hands over. Even if the charity wanted to check, tracing traditional money is, ultimately, an impossible task, which is one of the many shortcomings that digital currencies seek to overcome. If George can donate £100 then George should, following the same logic, be able to donate 100 Bitcoin (BTC) and Ethereum (ETH). George should not be seen as any less desirable as a donor purely because he is donating a digital currency rather than a traditional one. The suggestion that digital currencies need to be traced back to the time that they were minted places a far greater burden on digital transfers than traditional transfers.

Investing in digital currencies

A recent HMRC data report suggested that over 50% of people surveyed consider digital assets to form a core part of their investment portfolio. The growing use of digital assets in the charity sector was highlighted in Sam Jackson’s report of 12 July 2022. Mr Jackson is the assistant director of policy at the Charity Commission who stated that, “charities have often been at the forefront of innovation”. However, Mr Jackson warned that, “trustees should think very carefully before investing in crypto currency, evaluating the benefits and risks as they would do with any important decision”.

Mr Jackson’s report contains a lot of common-sense suggestions such as carefully recording decisions, speaking to appropriate professionals, and identifying your donor. The crucial point though is where Mr Jackson likens investing in digital assets as requiring the same evaluation of benefits and risks as other important decisions. As already stated, there should not be a higher burden of evidence or presumption of wrongdoing just because the asset class is digital.

Given the rise in digital asset investment, many banks and investment houses are appointing digital asset specialists as fund managers. A digital currency strategy can be as simple as transferring all digital monies received into stablecoins and being either retained as such or transferred to traditional currencies. On the other end of the scale there are increasingly complex scenarios that investment managers can use with digital currencies and the Treasury has just launched a consultation of lending and staking programs with digital assets.

NFTs

In an increasingly digital world, charities may wish to consider how to interact with the digital community. It is estimated that approximately $21bn of NFTs (non-fungible tokens) were traded in 2021. NFTs can be used for a variety of purposes but one interesting use that charities may wish to consider is as a digital receipt. If NFTs can now be used to launch a legal claim (as in the recent case of Fabrizio D’Aloia) they should also be useable for evidencing donations for tax returns. Imagine if there was a digital receipt that would, almost with guaranteed 100% accuracy, record all charitable donations that have been made and allow this to be part of a person’s tax return.

There are other benefits as well, such as anyone donating over, say, £100 to the RSPCA getting an NFT animal or a digital poppy and so on. These NFTs will allow individuals to show their charitable nature in the metaverse. These NFTs could, of course, come with different tiers and functionality. The possibilities are, almost, infinite.

The report by Mr Jackson highlights that charities are already involved with digital assets. As with any asset class, charities should not invest in digital assets without taking appropriate advice and documenting all decisions they have made. Charities should not be afraid to accept donations in digital currencies provided they can satisfy themselves as to the identity of the donor. There may be a number of benefits to charities in exploring how they, themselves, can use digital assets as NFTs to attract a new generation of donors.

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