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US Charities and the Bitcoin - page 1

US Charities and the Bitcoin

Understanding BTC as a new source to increase donations

Understanding BTC as a new source to increase donations Author: Miguel Sánchez de Pedro 2016 US
Understanding BTC as a new source to increase donations Author: Miguel Sánchez de Pedro 2016 US
Understanding BTC as a new source to increase donations Author: Miguel Sánchez de Pedro 2016 US

Author: Miguel Sánchez de Pedro

2016

OxValue Advisers is licensed under a Creative Commons Attribution-NonCommercial-NoDerivatives 4.0 International License.
US Charities and the Bitcoin - page 2 BITCOIN - KEY FEATURES This is how

US Charities and the Bitcoin - page 2

BITCOIN - KEY FEATURES

This is how a BTC looks like, a 64 charset algorithm

F1a0a7ccefc9e267f7bcedf884e489cd6a63ed0424c59cfcef189f40720a2edd

Source: http://blogchain.info 08/18/2016 14:00 CET

1. Only as good as the trust in the “Bitcoin system”.

2. Not fiat money, not legal tender, neither issued nor guaranteed by central banks.

3. Have not intrinsic value, like paper money.

4. BTC does not exist in the “material or physical” world, only a code or algorithm.

5. Semi anonymous, users can hold multiple BTC addresses that are very difficult to trace back.

6. Decentralized digital currency, not controlled by any central authority.

7. Transfer peer to peer, without intermediaries.

8. Minimal transaction fees.

9. Strong cryptography.

10.Requires robust wallet protection procedures for safe BTC storage and use.

US Charities and the Bitcoin - page 3

   

BTC

dBTC

cBTC

mBTC

µBTC

sat.

BTC

Bitcoin

1

10

100

1,000

1,000,000

100,000,000

dBTC

deci-bitcoin

0.1

1

0.001

0.0001

0.0000001

10,000,000

cBTC

bitcent

0.01

0.1

1

10

10,000

1,000,000

mBTC

millibit, millie

0.001

0.01

0.1

1

1,000

100,000

µBTC

bit,

0.000001

0.00001

0.0001

0.001

1

100

microbitcoin

sat.

satoshi

0.00000001

0.000001

0.000001

0.00001

0.01

1

0.001 1 100 microbitcoin sat. satoshi 0.00000001 0.000001 0.000001 0.00001 0.01 1

US Charities and the Bitcoin - page 4

BITCOIN TECHNOLOGY

1. Blockchain is the shared Public Ledger on which the entire decentralized distributed peer-to-peer Bitcoin network relies.

2. A Transaction is a transfer of value between Bitcoin Addresses that get included used to digitally sign transactions to provide a mathematical proof that they are valid. A transaction needs three pieces of info the Address Paying, the Amount and the Address Receiving it. To send a transaction you need to get into your Wallet which can be done by using your Private Key, or a password if you’re using a more friendly user interface wallet. Public Addresses and Private Keys are just strings of numbers and letters – a string being a long list of numbers – this is our Bitcoin Address if you want to donate us some Bitcoins

[e.g. 123456789ABCdefghijklm01234nOPqr]

3. Bitcoin Wallets keep a secret piece of data called the Private Key or Seed which is used to sign transactions to provide a mathematical proof that they came from the owner of the wallet.

4. A Digital Signature prevents the transaction from being altered by anyone once it has been signed.

5. All transactions are broadcast between users and usually begin to be validated and confirmed by the Bitcoin Network within a few minutes and mostly within an hour.

and usually begin to be validated and confirmed by the Bitcoin Network within a few minutes

US Charities and the Bitcoin - page 5

BITCOIN WALLET REVIEW

US Charities and the Bitcoin - page 5 BITCOIN WALLET REVIEW How a Bitcoin looks like:
US Charities and the Bitcoin - page 5 BITCOIN WALLET REVIEW How a Bitcoin looks like:

How a Bitcoin looks like:

F1a0a7ccefc9e267f7bcedf884e489cd6a63ed0424c59cfcef189f40720a2edd

Source: http://blogchain.info 08/18/2016 14:00 CET A

Source: http://blogchain.info 08/18/2016 14:00 CET

A Bitcoin wallet is a software program where Bitcoins are stored. To be technically accurate, Bitcoins are not stored anywhere; there is a private key (secret number) for every Bitcoin address that is saved in the Bitcoin wallet of the person who owns the balance. Bitcoin wallets facilitate sending and receiving Bitcoins and gives ownership of the Bitcoin balance to the user. The Bitcoin wallet comes in many forms; desktop, mobile, web and hardware are the four main types of wallets.

Is a wallet absolutely necessary to receive and exchange Bitcoins?

Yes

wallet.asp Is a wallet absolutely necessary to receive and exchange Bitcoins? Yes

US Charities and the Bitcoin - page 6

TYPES OF BITCOIN WALLETS

1. Online BTC Wallets

Wallets accessed from the web from any internet- connected device. Not recommended because they offer less security features than software and hardware wallets.

2. Software Wallets

Applications downloaded to a mobile phone, computer or table. See page 12 for a sample of BTC software wallet solutions tested at bird’s eye for operability, ease of use and security.

at bird’s eye for operability, ease of use and security. $0 cost gratis 3. BTC Hardware
$0 cost gratis
$0 cost
gratis

3. BTC Hardware wallets

Physical devices designed to secure bitcoins. Costly solution from the time being.

BTC public and private keys generated by web operators printed on a piece of paper.

and private keys generated by web operators printed on a piece of paper. Hardware Wallets. Purchase

Hardware Wallets. Purchase price about $100

and private keys generated by web operators printed on a piece of paper. Hardware Wallets. Purchase

US Charities and the Bitcoin - page 7

WHICH TYPE OF WALLET WOULD FIT CHARITY XYZ NEEDS?

In deciding which wallet would fit best the Charity’s needs, the following considerations may help in arriving at a reasonable decision:

1. Charity staff may lack previous experience in operating wallets.

2. Minimising risks: regulatory, market, operational and reputational should be of first priority.

3. Operational security in all the three stages, receiving, storage and spending should be kept as robust as possible within the limits of available resources.

4. Market risk with regard to price volatility and exchange BTC/USD risk, should be kept at a minimum. Charity should refrain from taking a speculative stance on the BTC business.

5. Stock of unspent BTC must be secured all the time by insurance policy. Some wallet providers such as Xapo, Circle and Coinbase offer this service free of charge.

6. Wallet privacy features need to be assessed before deciding which one to adopt.

7. Wallet technology is evolving very rapidly. Be aware of starters, new brands, tiny companies.

8. At present, the volume of BTC donations are difficult to prove -at least with the scarcity of data available- due to the lack of publicly available statistics or other reliable sources of information. The assumption is that BTC actually does not point to high USD volumes donated this way, but due to increase on-line donations (the only way of giving BTC nowadays), its wider use as long as BTC is gaining popularity, understanding and trust, might point to increased usage in the short near future. For instance, on-line giving in the US grew by 13.5% in 2013 while overall charitably giving increased by 4%.

9. Wallet selection should align to Charity’s donation strategy and ready to grow with it.

10.Ideally the wallet software should work perfectly in any of the most popular desktop operating systems platforms, such as MAC-OS, Windows, Linux and Ubuntu, and mobile ones like Android and IOS.

11.Learning by using wallets and accumulating experience should be undertaken at least a couple of months before launching the Charity’s Donation page.

US Charities and the Bitcoin - page 8

BEST PRACTICES: HOW TO ENSURE YOUR SECURITY AND PRIVACY

Every BTC transaction is published in the Blockchain Ledger on which the entire peer-to-peer decentralised distributed network system relies on.

This publicly transactions sharing must however assure that the core wallet tools that made it operating, are strongly protected all the time up to the level of information- theoretically secure.

Control your Private Keys

Use wallets where you can control your private keys.

Protect your privacy

To protect privacy effectively, the wallet needs to download the whole blockchain. This might take some 80GB of disk storage which prompt for desktop computer usage rather that mobile phone wallets. Software wallets that work under different operating systems, such as Mac OS, Windows, IOS, Android, offer an efficient solution, combinining the whole chain storage (desktop computer) with the convenient use of a mobile phone.

Private keys, always recorded on paper and kept in a locked safe

box

keys, always recorded on paper and kept in a locked safe box ✔ Don’t reuse addresses
keys, always recorded on paper and kept in a locked safe box ✔ Don’t reuse addresses

Don’t reuse addresses

Create a new address for each transaction.

Use different wallets for different sums of money

This security and privacy rule should be considered when money received and saved in the wallet is of a substantial amount, e.g. above 2 BTC, roughly USD1,100 at today’s rate.

Keep BTC stored in software wallets covered by

insurance policies

Prime software wallet providers -see page 12-,do protect the storage of BTC with ad-hoc insurance policies.

TOR compatibility

The Tor anonymity network helps disassociate your online activity from your IP address (which is often closely associated with your real name).

US Charities and the Bitcoin - page 9

HOW TO DISPOSE OFF BITCOINS RECEIVED BY CHARITY XYZ?

BTCs must be stored in the Charity’s wallet, prior to their use.

BTC can be sold or be disposed off by any of the following methods:

1. Spending BTC on the acquisition of goods and services. The vendor must accept BTCs as payment method. Example Microsoft, DELL, Wallmart.

2. Sell BTC for a cash deposit at Charity’s bank account. This would be the preferred method to reduce the associated risks of holding BTC, such as price volatility, exchange risk, wallet theft or password loss. Three of the various exchanges that could be used, are Coinbase, Xapo and Circle. Circle offers also the possibility of selling BTC to the credit of debit and credit cards.

Page 4
Page 4

US Charities and the Bitcoin - page 10

BTC COMPLIANCE WITH US REGULATIONS

Donors might ask a receipt of their bitcoin contributions, as with any charitable gift received by Charities under 501 (C) (3) regulations

Your Tax-Free DONATION helps us [intended purpose of use of funds, eg Education, Employment, Health, Sanitation] in [country]. Charity XYZ is a 501 (C) (3) charitable organization

RISKS ASSOCIATED TO THE ACCEPTANCE OF BTCs

REGULATORY

Not fiat money. BTC is not guaranteed by the US Government nor the Federal Reserve

Know Your Customer (KYC) procedures

BTC donations must be reported in form 990

IRS treats virtual currencies (including BTC) as property

Hacking and theft

BTC loss due to inadequate internal storage procedures

Advice: when operating with wallet, use TOR browser for improved security and privacy

Underlying Reputational risk for the Charity (e.g. illicit origin of donations/donors, fraud)

Use wallet from companies that insure funds stocked with insurance policy, e.g. Xapo, Circle

MARKET

Exchange and asset /BTC) price volatility

Operational and technological risks in receiving, storing, using and exchanging BTC

OPERATIONAL

Using reputable BTC services (Wallet and payment processors) may increase donors’ trust in donating to the Charity

REPUTATIONAL

Know the identity of BTCs donors using a specific Donation web schedule, e.g. Save the Children

RISK MITIGATION MEASURES

US Charities and the Bitcoin - page 11

In March 2016, the IRS issued guidance that bitcoin is to be treated as a property for Federal tax purposes. See more here:

http://www.irs.gov/uac/Newsroom/IRS-Virtual-Currency-Guidance

Given the IRS guidance that bitcoin is to be treated as property, donating bitcoin offers compelling tax benefits. Donating appreciated property to charity is an often overlooked tax strategy. It allows taxpayers to deduct donated property that would otherwise be subject to capital gains tax.

Donors should consult with a tax advisor for properly recording this donation on personal tax return.

Getting started: Bitcoin payment is distinct from other forms of payment in that the donor must send funds to a specific order address.

Donors who wish to give to United Way via bitcoin must first obtain the specific order address by visiting this site: www.unitedway.org/bitcoin.

Donating: Once the donor proceeds with the contribution, he or she will be presented with a bitcoin address and a 10-minute payment

window. He or she can then use his or her bitcoin wallet to send funds to the address within the given time window. The donor can alternatively log in with his or her Coinbase account to complete payment.

Finalizing the transaction: As soon as the recipient is in receipt of the payment (within the allotted time), the transaction is complete and the

donor receives a confirmation email.

—---------------------------------------------------

RECEIPT: Once your Bitcoin invoice is paid, if you would like a receipt, you can click the "email" link to have it emailed to you or print the page. You must include your name and email address with your transaction using the above form to receive proof of receipt for your tax records. Charity XYZ, Inc. is a 501(c)(3) organization. Gifts are deductible to the full extent allowable under IRS regulations.

Gifts of Bitcoin are considered property or Gifts-In-Kind. Charity XYZ will not report a value in fiat of these gifts, as is standard practice for gifts- in-kind. Please consult your tax advisor for information about appropriate record keeping.

In fiscal year yyyy, XX% of all expenditures went to program services. Find out more at: http://www.charityxyz.org

In fiscal year yyyy , XX% of all expenditures went to program services. Find out more

US Charities and the Bitcoin - page 12

 

WORKING WITH BITCOINS BTC– MAP OF RESOURCES 1. BITCOIN PROVIDERS, PAYMENT SERVICES AND EXCHANGES

Name of

Website

HQ Location

Remarks

Company

BITFINEX

https://www.bitfinex.com/

?? N/A

HACKED APPRX. $70 MILLION WORTH BTC ON AUG 2, 2016

BITPAY

https://bitpay.com/

Atlanta

#1 BTC processing services. Service providers to companies and ONGs. Not suitable for individuals

XAPO

https://xapo.com/

US

Highly reputable team of Advisors. XAPO investors include Private Equity and Venture Capital firms from Silicon Valey. FULLY INSURED BITCOIN STORAGE SOLUTION. IOS, Android,Web. Xapo customer bitcoins are stored in offline, secure, encrypted servers that are never connected to the internet. Cheap processing fees

COINBASE

https://www.coinbase.com/

San Francisco US

BTC+Ether operates with 33 countries. BTC payments processor. Agreement with Paypal to process Bitcoin payments. Big banks investing into this platform. 4.3 MILLION CLIENTS SERVED. Higher processing fees than Xapo ad Circle

CATAPULTIAN

https://www.catapultian.org/donation-

USA

BTC payment services to Charities and corporations. Free service to Charities’ payments processing

services

BITPAY -VISA

https://bitpay.com/visa/

Bitpay’s Group

BTC payments through VISA card. AVAILABLE ONLY IN THE USA

US Charities and the Bitcoin - page 13

 

2. BITCOIN SOTWARE WALLETS

Name of Company

Website

HQ Location

Remarks

XAPO

https://xapo.com/

US

BTC Wallet app, Android, IOS, Web. Highly reputable team of Advisors. XAPO investors include Private Equity and Venture Capital firms from Silicon Valey. FULLY INSURED BITCOIN STORAGE SOLUTION. IOS, Android,Web. Xapo customer bitcoins are stored in offline Vault, secure, encrypted servers that are never connected to the internet.

CIRCLE

https://www.circle.com/en

London

BTC Wallet - app IOS, Android, Web. Insurance. WALLETS PROTECTED WITH INSURANCE POLICY- ONLY AVAILABLE IN THE US. UK REGULATED FINANCIAL INSTITUTION

COINBASE

https://www.coinbase.com/

San Francisco

BTC payments processor. Fiat wallets have a bitcoin address that lets you automatically convert all received bitcoin to your local currency. Big banks investing into this platform. 4.3 MILLION CLIENTS SERVED. WALLETS PROTECTED WITH INSURANCE POLICY

US

COPAY

https://copay.io/

Bitpay’s Group

BTC Wallet. IOS, Android, Windows. 150 currencies. TOR NOT SUPPORTED. BTC Buy and Sell through COINBASE and GLIDERA (US bank account)

Company name

US Charities and the Bitcoin - page 14

Website

HQ Location

Remarks

BITGIVE FOUNDATION

US

VERY GOOD EXAMPLE, Business Model, Web design, Ease of Use

UNITED WAY WORLWIDE http://www.unitedway.org/

US

VERY GOOD EXAMPLE, Business Model, Web design, Ease of Use – BTC payment processor COINBASE

SAVE THE CHILDREN

VERY GOOD WEBPAGE to handle

BTC donations. – BTC payment processor BITPAY

BITCHARITIES

Platform for BTC donations to Charities. Could add good exposure to Charity XYZ, similar to FirstGiving ??

CATAPULTIAN

US

BTC payment services to Charities and corporations. Free service to Charities’ payments processing

GLOBAL GIVING FOUNDATION

US

Largest global crowdfunding community. Joining is free of charge

FIDELITY CHARITABLE

US

#1 US Philanthropic organization

AMAZON SMILE

Donates to Charities 0.5% of the price

of eligible AmazonSmile purchases. Charities must register, free of charge