On May 11, 2021 Vitalik Buterin shocked the philanthropic world when he donated $1.2 billion (USD) worth of Shiba Inu cryptocurrency to coronavirus relief in India.
This marked the largest single donation given to the COVID-19 effort made by the youngest crypto billionaire in the world.
Yet this gift brought more fear, doubt, and uncertainty to the philanthropic community than it did delight and awe. The volatility of the coin’s value as well as the recipient’s struggle to access the funds became the media story which left many fundraisers confused and asking, is cryptocurrency an opportunity or a scam? Cryptocurrency can (and will) change the face of digital and legacy giving over the next couple of years and charities stand to gain substantially from this global financial shift, but you can’t be ready if you don’t understand it.
The Gentle Intellectual Giant
Vitalik Buterin, a 27-year-old Russian-Canadian, is extraordinarily smart. Like, Good Will Hunting smart. Frustrated with the limitations of Bitcoin to solve real world problems, at 19 years old he created Ethereum, a new open source blockchain that would enable any number of technical tasks to be processed through it. Ether is now the second biggest cryptocurrency on the market (valued at about $2400 each at the time of this writing) making Vitalik one of a growing number of crypto-billionaires.
Context is Everything
Knowing the context around Vitalik’s unprecedented Shiba Inu gift is crucial to understanding just how unique these circumstances were. Vitalik faced a highly complex financial and public relations problem that he desperately wanted to resolve. Yet any action he took would have a massive ripple effect on hundreds of thousands of people. The problem began with new “meme coin” startups sending him their coins for free without his consent. In the case of the dog coin Shiba Inu, half of the coins in circulation were sent to Vitalik’s wallet in April 2021 without his knowledge.
Why would the creators of Shiba Inu do this? First, sending the coins to Vitalik was essentially like taking them out of circulation because they believed Vitalik wouldn’t sell them. Selling coins decreases the overall value of a coin so it was a good way to “lock up” the coin’s value.
Buying the coin, on the other hand, increases its value, so as coins gain popularity and momentum, more investors buy them which drives the price up, adding value for the existing holders. Which is the motivation for the second reason they gave these coins to Vitalik. After gifting them to him, they get to use his name for their own branding and marketing campaigns, giving their coin credibility. They can say that Vitalik Buterin was the largest holder of their coin, using the integrity Vitalik built with the community to promote their coin and inspire more investors to buy.
Imagine holding half of the total dollars in circulation of a small country? That’s the position Vitalik woke up to one day when he saw these coins sitting in his crypto wallet. It’s one thing when the coin is new and almost worthless, but then the coin’s value increased substantially which put him in a very uncomfortable position.
The Moral Imperative
The week that Vitalik made the donation to covid relief in India, the value of his total Shiba Inu holdings was over $14 billion (that’s billion with a B). He didn’t want it. It was too much power and too much money that he never asked for. But there was not enough market liquidity to cash out the entire amount.
In other words, there would not be enough buyers to sell that volume of coin. Not to mention that selling even a percentage of that much Shiba would definitely negatively impact the overall price of the coin, making it ultimately valueless to anyone he gave it to. That brought another problem into focus: all of the people who had invested their savings into this coin in the hopes that it would increase in value and earn them life-changing money who would potentially be financially ruined if he sold his holdings.
But he couldn’t do nothing. Not only was $14 billion too much money to ignore (for the sake of humanity), but this was not the only coin startup to give him their free coins and he wanted to send a clear message to stop using him as a marketing strategy so he shocked the world and unloaded them all.
Vitalik’s Gift to Humanity
Vitalik needed to find a solution that would benefit the most amount of people while harming the least. According to the interview on the June 3 Lex Fridman Podcast, he first determined how much liquidity was available from the coins without seriously tanking the price. He settled on $1.2 billion worth which was approximately 10% of his total Shiba holdings. He “burned” the other 90% of the coins to stabilize the coin value. In layman’s terms, he destroyed $12.5 billion dollars worth of coins (a common deflationary act in crypto) so that the $1.2 billion he gave away would be worth as much as possible.
Next, he gave the coins directly to the India Covid Relief Fund, a crypto fund managed by Indian tech entrepreneur Sandeep Nailwal, co-founder and COO of Polygon, a scalability protocol built on the Ethereum network. Sandeep, a crypto genius in his own right, would know exactly what to do with the coins to get the most value possible while preserving the overall value of the coin for other holders. What’s more, India received this life-saving crypto windfall while in the process of trying to legislate a ban on all personal cryptocurrencies in the country, which is the reason they struggled to get access to the funds.
That’s some 3D level chess going on right there.
The chance of this same situation happening again to another charity is practically zero. But even if your charity is lucky enough to be given $1B in meme coins that immediately lose half their value when you sell them, what’s the problem exactly?
The bottom line
Crypto is a huge opportunity for Canadian charities. That’s because comparatively, Canada is very crypto-friendly. It offers several EFT financial options for investors and is supportive of many cryptocurrency exchanges servicing Canadians. This means more and more Canadian donors will be holding cryptocurrency assets.
Understanding the difference in crypto assets and their growth is key to taping into this revenue stream. Consider that $200,000 worth of Ethereum donated to Covenant House in 2017 would be worth almost $1M today. In May of this year when Ethereum shot up to $4000, that would have been worth almost $2M.
So, what’s a charity to do? Consider Charity : Water announcing its new Bitcoin Water Trust, a fund dedicated to holding Bitcoin donations until 2025 so it can fully benefit from Bitcoin’s appreciation over time. That, my friends, is how you crypto in the charity sector.
It a murky territory that can be highly complex so find a cryptocurrency financial advisor to help your charity determine what might work for you. Consider adding an expert to your board or your finance committee to help you know how to navigate the wild west of these new digital assets.
For more information on understanding and implementing cryptocurrency donations at your not-for-profit, check out the excellent book Bitcoin and the Future of Fundraising by Anne Connelly and Jason Shim.
Are you excited to embrace the new world of digital donations?
This is not financial advice. This post is for informational purposes only. Do your own research and consult a financial expert before accepting or investing in cryptocurrency.