Why NFTs Matter to Nonprofit Organizations
Change is a constant in the world of nonprofit fundraising. In recent years, organizations have adjusted their donor strategies because of global disruptions such as the COVID-19 pandemic. Many nonprofits have also identified the need to embrace new technologies to connect with younger supporters.
These two considerations have helped fuel the trend of nonprofits embracing NFTs as a fundraising tool.
As NFTs have caught the attention of mainstream culture, the market for NFTs has grown exponentially. NFT creators and collectors have seen a rise in profit margins from the sale of NFTs. In turn, this has empowered the NFT community to use its affluence to make a positive social impact, often in the form of charitable donations to nonprofit organizations.
Not only do NFTs represent a new revenue stream for nonprofits, but NFTs also enable organizations to expand their network and connect with many new supporters for their cause.
And charitable giving from the NFT community is by no means limited to the occasional major gift from the most profitable artists.
Just as there is a whole ecosystem that maintains and grows the NFT market—from artists and marketplaces to traders and collectors—there are a variety of people, projects, and companies that are essential to the growing philanthropic side of the NFT community. Many nonprofits establish long-term relationships within the NFT community and receive continual support for their cause.
How Nonprofits Process Donations from the NFT Community
Any nonprofit organization that wants to engage with NFT projects and collectors should understand one thing: how to process donations they receive.
For nonprofit organizations to enable a direct form of charitable giving from the NFT community, accepting cryptocurrency donations is a must.
That’s because NFTs are listed, bought and sold on marketplaces that are equipped to handle cryptocurrency transactions. (Remember that NFTs are “non-fungible tokens,” which were created to be compatible with the Ethereum blockchain.)
When an NFT is sold, the creator receives a royalty in the form of a cryptocurrency such as Etherum or Solana. If a nonprofit already accepts crypto donations, an NFT creator can directly donate the proceeds from their sale.
An all-in-one solutions provider like The Giving Block makes it easy for nonprofits to fundraise multiple crypto assets, including NFTs, as well as generate tax receipts for donors.
Can’t NFT Creators Just Donate Their Proceeds in Cash?
NFT creators sell their non-fungible tokens and receive cryptocurrency in return, not cash. For an NFT creator to donate a portion (or all) of the proceeds in cash, they would have to exchange the cryptocurrency first.
Under US tax law, doing so would likely be considered a taxable event by the IRS, and the creator would have less to donate to your organization. For example, if they held that cryptocurrency for less than a year, it would in many cases be subject to a short-term capital gains tax, which can be as high as 37%.
On the other hand, by donating to your organization in cryptocurrency directly, they would generally not pay a capital gains tax on the transaction, because it did not have to be exchanged. Now the market value of their gift can be greater than it would have been if they had donated cash from the proceeds of their NFT sale.
