FTX Scandal Gives Cryptophilanthropy a Black Eye, But Nonprofits Raising Digital Money Stay the Course
Charities favored by cryptophilanthropists are weighing the fallout from a scandal that heightens skepticism about the marriage of alt-currency and charitable donations.
FTX â a high-profile cryptocurrency exchange, thanks to marketing and ads with celebrities like model Gisele BÃ¼ndchen â filed for bankruptcy on Friday amid fraud allegations against Sam Bankman-Fried, its philanthropist founder. Bankman-Fried, a champion of the philanthropic strategy known as “effective altruism,” had signed the Giving Pledge months earlier, promising to give away most of what was then his $21 billion fortune. Yet his wealth and the value of the business disappeared virtually overnight, according to Bloomberg and other business news media.
The FTX turmoil undermines the relatively new effective altruism movement, which advocates using data analytics to direct philanthropy to the greatest possible impact. It seems that the foundation of the company will not be able to do millions in grants pledged to nonprofitsand Bankman-Fried’s philanthropic advisers are publicly concerned that the goodwill generated by his donations may have helped launder fraud.
More broadly, the scandal casts a black eye on cryptophilanthropy and presents a public relations challenge for the thousands of nonprofits raising funds from those who own the alternative money. “It’s not positive for anyone in the crypto space,” said Robbie Heeger, CEO of Commitment, a donor-driven nonprofit fund for crypto donors. “It really hurts the broader image of cryptophilanthropy because Sam was such a dedicated philanthropist.”
FTX’s collapse and fraud allegations confirm a disreputable cryptocurrency narrative for skeptics, said Rhodri Davies, a philanthropy expert who wrote on the scandal of Alliance magazine, saying, “Is the writing on the wall for cryptophilanthropy?”
Critics of the cryptocurrency describe it as a Ponzi scheme, with early investors promoting the cash alternative to drive up the prices of their asset. “There’s always been this nagging feeling with crypto that some of these things might be a little sketchy,” Davies, founder of the Why philanthropy matters website, said in an interview. “It’s the kind of story that might make board members or administrators say, ‘I don’t understand this stuff, but I know enough to know that I don’t want to have anything to do with it. with that. “”
Worse perhaps, the fallout from the FTX collapse has rattled cryptocurrency markets and compounded the drop in value for most coins. A bear market known as âcrypto winterâ set in earlier this year and is now expected to last for some time.
âThe future of cryptocurrencies of all kinds looks quite bleak,â declared the Verge, a tech news outlet, describing “existential threats”.
Crypto enthusiasts are denouncing the alleged fraud and the savings investors lost in the collapse. But they argue that FTX is just a capricious part of a big, promising industry that, thanks to blockchain technology, will prove to be more transparent than traditional monetary systems.
“He’s a bad actor,” said Alex Wilson, co-founder of the give a block, a company that helps nonprofits create crypto fundraising programs and convert digital cash donations into standard currency. “This is a failure of an entity and not of the crypto itself.”
Endaoment’s Heeger said the alleged Bankman-Fried fraud could not have happened if FTX had embraced the transparency and decentralization typical of most crypto companies, including its charity. “I want to emphasize that this is exactly the type of consumer manipulation and fraud that crypto was designed to combat,” he added.
Some 2,000 nonprofits accept crypto donations through the Giving Block platform, including the American Heart Association, Institute for Justice, San Diego Institute of Contemporary Art, March of Dimes, and Save the Children. Some organizations do little more than include the digital money option on their donation page. Others woo crypto donors through Twitter â the social media channel where enthusiasts gravitate â and dedicated programs.
Several charities have said that the FTX imbroglio and collateral damage does not affect them directly and will not derail their crypto fundraising programs. Many of these efforts are relatively new and do not produce significant revenue. Groups also generally do not hold crypto to avoid exposure to the sometimes violent swings in value. Giving Block, for example, converts crypto gifts into cash, which it then passes on to the charity.
âWe believe cryptocurrency is here to stay,â said Rebecca Milner, Director of Advancement for International Medical Corps, which has run a small crypto fundraising program for about three years. âWe want to be in the loop if donors want to donate cryptocurrency.â
Kaboomwhich aims to bring fairness to children’s playspaces, began accepting crypto donations about a year ago, in part to connect with young parents most likely to care about its mission. Market research suggests that up to 94% of crypto buyers are millennials or members of Gen Z. A Fidelity charity investigation found that a third of its millennial account holders are investing in digital cash.
Kaboom’s effort is small; the organization garners all but 1% of its support from institutional donors and major philanthropists, and crypto donors make up only a fraction of that share. But the organization sees it as a way to keep abreast of the opportunities and challenges of new technologies. “We’re taking a long-term view,” said James Siegal, former CEO of Kaboom and now Principal Investigator. “Technology has enormous potential to disrupt philanthropy and the way we strive to have an impact.”
The crypto market is still in its infancy – the the first bitcoin was sold a little over a decade ago â and Siegal believes that ârational and reasonable regulationâ should soon make it easier to spot and weed out bad actors.
International Heifer did one of biggest bets on cryptophilanthropy. He recently acquired the assets of the BitGive Foundation, a nonprofit that connected Bitcoin holders with charities, and is in the process of redesigning the foundation. GiveFollow-upa bitcoin crowdfunding platform.
âWe continue to move forward in building the strategy and roadmap for what GiveTrack looks like,â said Harper Grubbs, Senior Director of Digital Marketing at Heifer. “What all of this calls for is greater transparency.”
Grubbs notes that the stock market crashes every few years, but inevitably bounces back and up. âI don’t think this is the end of crypto, by any means. I hope people will learn from this what the industry can do to prevent this from happening again.
The FTX debacle comes almost exactly one year after the surge in cryptocurrencies and cryptophilanthropy reached new heights. The values ââof many digital currencies set records in November 2021, and Fidelity Charitable account holders were closing out a year in which they donated $331 million in digital assets â an almost 12x increase from the $28 million donated in 2020.
The opening of the Ukrainian war in February 2022 also saw a cryptophilanthropy rush to support the defense and relief organizations of this country.
But the values ââof digital coins have fallen in the face of inflation, rising interest rates and the implosion of some key players in the field. The value of a single Bitcoin, which peaked at nearly $68,000 in November 2021, eroded throughout 2022 and fell below $16,000 this week when news of the implosion from FTX broke.
This year has also seen Greenpeace â which once accepted Bitcoin â and other groups launch a campaign against the currency, blaming that the computer mining of the electricity-intensive coin is a threat to the environment.
Even before the FTX scandal, some nonprofit organizations concluded that the cryptocurrency was questionable. “Space has become, to a very large extent, an opportunity for personal enrichment at the expense of others and the environment”, wrote Molly White, software engineer and editor of Wikipedia, whose anti-crypto campaign within the Wikimedia Foundation community led the organization to stop accepting digital assets.
Many people in nonprofits feel the same way, said Davies of Why Philanthropy Matters. “I suspect there are more organizations that have kind of stopped caring about crypto and haven’t really made a big fuss about it.”
Giving Block, however, said it more than doubled its customer base in 2022 to more than 2,000. “What we saw last week at FTX with such massive scale fraud is disappointing,” the co-founder said. Wilson. “But at the end of the day, that doesn’t change our view of where cryptophilanthropy is headed.”
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