Welcome to the session: Crypto Philanthropy. On the right hand side of your screen you will see a window with a chat, Q and A feedback and notes tab. You can use the chat box to chat with other attendees. The Please use the Q&A box as in questions and for the presenters you can also upvote questions in the Q&A panel. If you would like to see the question answered at the end of the session, we will answer as many questions as we can. The Notes tab is there for you to keep your own notes during the session, if you would like to. We also ask that you complete the brief evaluation found in the feedback tab at the end of this session. We use session feedback to continue improving what we offer, so we truly appreciate you taking the time. And without further ado, please join me in welcoming our presenters: Rich Horne, Sierra Rosen and Kyle Blanchette. Hi there. We're so pleased that you are attending today. I want to just give a quick overview of today's presentation. We are going to start out by talking about blockchain and Crypto 101. This is sort of a bite size overview of cryptocurrencies and blockchain. It's meant to give you a enough context for this presentation and if you know enough about it, not so much that would be you get bored. Then we're going to talk about the case for crypto and really that's really about why are we even talking about this as fundraisers in the first place and then the world landscape. What there are considerations. We want to deal with those head on and then finally, if you buy into the idea that crypto is here, it's not going away and there's a value to it. How your institution might consider practically for practical purposes taking it. So I'm delighted to turn it over to Rich Horne, who is the director of Prospect Development and Research at Vassar College. Go for it, Rich. Okay. Thank you so much, Sierra. Yeah, we can get going with the next slide and the next one. Okay, so now this is a graphic. So I think this is going to be shared with everybody. I'm going to speak generally to what this represents and I hope in intuitive fashion so that we can understand kind of how blockchain technology works in general. So blockchain technology came about like around in 2008. I'll reference this a little bit later as well. And the concept, though, dates back quite a bit before that. The point of blockchain technology is generally it is a decentralized and immutable. We'll talk about that term just in a bit, a way of connecting digitally stored information typically around transactions where there's some change, you know, sort of from one thing to another. Like, you know, like if there's a movement of something or if there is a bank or a creation of something that didn't exist before. And that's what we'll get into crypto in a bit about that, such that there is a very unique way to connect everything that happens to something that happened before. I think that's the best way that I can describe the concept of blockchain technology, digitally stored information where there is a way to connect what has happened before and what has happened after with a way of also monitoring that information in a fashion that allows contributors and participants to be sure that the information that is collected and stored and created is displayed, I suppose, in a way that can be observed. And so I think what I'd like everybody to understand about what you're looking at right now, but what I'm speaking to generally is that this graphic suggests there is a decentralized system. Again, you know, we can maybe maybe during the Q&A, we can go over that a little bit more clear. There's no central authority, so there's no. Bank. For instance, that is being involved centrally in this, that itself is responsible for keeping the records because the record is kept publicly and it is available to anyone who participates. And so it's also true that there to make that to make that possible of a bunch of participants instead of like a central authority are the arbiters or the people who are participants who actually confirm that the validity of the information. And so you have, instead of having one authority like a bank that is verifying transactions, you actually have everyone who participates verifying the transactions. And so I'll just quickly speak to what the definition of block and chain are in that regard. So a block is so Yeah, sorry. Thank you so much. Very quickly. So a block is a record of a collection of transactions that is has a unique identifying element to it. And the unique identifying element is what's called a hash. So a hash is a cryptographic meaning. It's an alphanumeric character set of characters that sort of goes along with what makes this set of data unique. And then it's created in a chain where the block of each subsequent chain includes the information, all of the information of the previous block or record. Okay. So I think we can we can proceed. Thank you so much. So I think I've learned from my colleagues here that this sort of a large retail chain wanted to make sure that it could ensure a quick response to when, you know, for instance, there's a contamination element that has been introduced to its supply chain. And so if you do that traditionally, as this large chain had done, and most have done previously, then you have a chain of custody kind of examination that's responsible for figuring out over the course of, you know, days perhaps what what happened. Like, where did this originate with blockchain technology when you digitize things like so, in other words, you're kind of like putting SKUs on everything at every step. And they get they get zapped by the little zapper and it adds to a chain of custody and an electronic chain of custody element. Then you can understand much, much quicker how things are contributing to, say, problems within your supply chain. So in other words, you know, if there's salmonella and if there's a salmonella problem in a particular supply chain problem, blockchain allows you to since I just spoke about one hash, it concludes the information from all the previous hashes. So in other words, all the previous transactions, you can quickly figure out much more quickly, figure out how it is that where where the problem originated, you know, so this is sort of a traditional supply chain management concept for solutions. And obviously it doesn't have anything to do yet with cryptocurrency, which we're going to be talking about in just that in just a bit. Okay. So first I'm going to start with digital currency. Thank you. So so digital currencies, you know, actually the concept has been around since 1983. It failed a couple of times since then, but obviously it's here. I think digital currency should be understood just to be, you know, anything that's we will we will call it virtual virtual money, but it's not actually, you know, so there's actually there's there's real money backing digital currency. The so that's important. You know, so this is like an actual connection between when you can like install dollars you've earned and which by the way, I think everybody's probably paid, you know, digitally. I don't think everybody gets cash like actual physical cash for the our wages. So it's an interesting concept around money theory and cryptocurrencies sort of is backed upon that. And so one of the I think it's kind of a neat idea sometimes is like, you know, store value cards you can pay for those with with a like a $20 bill. You can go to the, you know, your local supermarket, you know, you can actually pay physically $20. And then that gets put into like, say, a store card and those store cards, you know, might be Amazon, for instance. And then you have to obviously spend that at Amazon. It's like not good everywhere. But, you know, you're actually converting real dollars to something that can be used instantly online and so that's kind of an important. And then the other thing I'm going to say about this slide is the instantaneous ability to transmit the value of currency. I think I think the hype philosophically is actually probably good because it allows us to transmit the money that's needed, where it's needed, like worldwide. And we'll talk about that a little bit later as well. Thank you. Okay. So Bitcoin is the largest, but Bitcoin is sort of the what people tend to think is cryptocurrency. But there are a lot more. We'll get into that in just a minute. So Bitcoin is itself the cryptocurrency and then there are a whole bunch more and we'll get to that in a minute as well. So Bitcoin is the most widely used. Everything else that's not technically called Bitcoin is called an altcoin. Everything else. So if there's one Bitcoin and then everything after that is called an altcoin and we'll have some statistics around that coming up here just in a minute. So the important thing about cryptocurrency is it's a little it's sort of impossible to govern centrally. And so I think that's why what we'll hear from Kyle and Sarah later has to do with the regulatory market. Okay, so they're about 15,000 at this point. I'm actually about 16,000 altcoins. You know, November 2021, there were the high of Bitcoin was about almost 65,000 recently. It's about 1.45% in the last five days, 26,000, around $26,000. And so anybody can invest in this. You don't have to be a an accredited investor. There are some brokerages you just need to set up an account with. And actually you can use Bitcoin to invest in things like real estate or pizza. Okay. All right. So the current value of the crypto market is about 1.06 trillion. That approaches the value of the silver market, which means the value of all silver on the planet kind of thing. And then also it's within the GDP's of Turkey and the Netherlands, and it's basically a triple value of all of the venture capital raised in 2021, which is was the record year largest sort of coins, market cap Bitcoin and 511 billion Ethereum was Ethereum at 207 billion T t there and B and B, so Bitcoin didn't exist before 2009 and it's worth $511 billion. Visa and visa is worth less than that. And Ethereum is basically worth what show it's worth. Just some quick visuals. Again, you'll get these slides. It's just a show. These are bit, you know dated chart to update this kind of information visually. So just to show scale by comparison. So I know that there's a lot of discussion around volatility, which is just a I've heard it said it's not a bug, it's a feature of cryptocurrency. And so if you just look at Bitcoin, since it's been a little bit since after its inauguration and through quite close to today, you can see that even though there are wild down spikes, this basically beat the S&P over this time when Bitcoin does well, it's the best. When it doesn't do well, it's the worst. So just quickly the black boxes with white label or BTC. So that's bitcoin. You can see that 2014 and 2018 Bitcoin didn't do well, but it's like it didn't do well. It did the worst, but it did the best every other year from 2010 to 2020. And then I think finally for me, this is a this is an important graphic that displays that there's more smart money that's going into from venture capital, which is, you know, they're highly risk averse into crypto and blockchain related investments. And so the sense that's true. I mean, imagine what that means. You know, investors who are highly risk averse and highly sophisticated have come increasingly, generally speaking, invested in, you know, the various stages and increasingly, you know, sort of early stage Bitcoin related investments. We think that's important. That's what we wanted to convey. Thank you. Okay. So Yale, Harvard and Brown are my colleagues here. They invest in cryptocurrencies and they have I think we may have direct exposure. There were 64 crypto focused investment unicorns, so that's $1,000,000,000 plus privately held companies as of November 2021. And that's that's accelerated very quickly. Opensea, which is been an NFT platform, fungible token platform. They raised 300 million in January of last year for a $13.3 billion valuation and fidelity, which is kind of the gatekeeper, has added BTC to four allocation options and for one case, thank you. So some idea about where skate, where the puck is going. That's so that's what we're generally trying to suggest with this. So Fidelity reported general digital asset donations of 274 million through November of 2021. So entrepreneurial charities that Vasseur does arm's length except cryptocurrency donations. Maybe during Q&A we can talk about that Brown American Red Cross, Save Save the Children and others UPenn, Wharton, they in October 2021, got a plug, a big $5 million Bitcoin donation. And then it's also true that we want you to believe that older donors also get it. So Jack Dorsey and Jay-Z donated 500 BTC Bitcoin to support Bitcoin development, which is an interesting idea in Africa. In India, that was worth 23.6 million in February of 21. Vitalik Buterin, who was the creator of Ethereum, donated a billion and Sina Weibo coin for COVID relief in India. It roiled the market. What we want you to know is it behaved the markets, the market for Bitcoin and altcoins behaved very similarly to securities markets. So that's kind of important. Some anonymous Reddit person, which is a good way to always start the discussion, created the Pineapple Fund. The website is still available and you, that person donated $55 million by the end of 2017. And then finally, at least at this point, I think $100 million has gone to the Ukrainian government for their support worldwide. Hello, everyone. Thank you, Rich, for setting up the kind of foundational knowledge in the context. So we're talking about the low moral landscape right on some of the larger concerns around it. So when we talk about concerns, we're talking about perception. The most common concerns expressed around cryptocurrency are environmental impact, which in this case means energy consumption and inefficiency and trust more, you know, more specifically fraud, predatory behavior and instability. This is a quote from Janet Yellen, who we all know is the secretary of the Treasury, which kind of sums up the general attitude around energy efficiency and energy efficiency in America. Currency. So a couple of things, distinctions and definitions. So transactions in the case of Bitcoin refers to validate blocks containing up to as rich explain 2500 individual transactions in a block versus the current system where transactions are processed individually and then the term mining is the process through which pending transactions are confirmed that result in the creation of new Bitcoin. So if we look at energy consumption by the numbers, there was a recent study that went through and took a very holistic approach to estimating energy consumption of the current system in Bitcoin. And you'll see those numbers at the top and you'll see that, you know, the current system uses an incredible amount of power, but also trend processes over 3 trillion transactions a year. The thing to note is that there's a two day average settlement with traditional finance systems, whereas even with the lower overall output of Bitcoin, it's absolute settlement funds and under 10 minutes. And what you see at the bottom is that the future of the system is going to look like. So the future of the current financial system is what's called instant payment, and that's going to have the same overall energy consumption because it has the same institutional footprint for all types of purposes, and that will be able to store and be able to handle 31 billion transactions a year with settlement under 7 seconds. Conversely, if there's what is called a layer two solution called the Lightning Network that works on Bitcoin and what that allows is the same energy consumption as the current Bitcoin footprint with up to 31 trillion transactions a year and settlement in under half a second. And that is, of course, if enough investment is made in the infrastructure of the Lightning Network to be able to reach that kind of capacity. But it certainly helps recontextualize the argument around energy efficiency when it comes to cryptocurrency. This slide shows what is the entire cash rate, which is the full computing power of the Bitcoin network, to confirm transactions from September 19th through January 2022. And if you look at the Senate, you'll see this dark band that represents China's total processing power on the Bitcoin network, and you'll see that shrinks and disappears entirely for a couple of months in 2021. And that is when China outright banned cryptocurrency mining. And since then it's crept back. But what you'll notice most is that bottom bluebird, which is the United States, came in and took up a lot more of that computing power, been market share and has since maintained a larger overall footprint. And the reason I pointed this out is because a lot of that money and time and thought went from China and we're doing Bitcoin mining there and started businesses in the US and many of them are in places like Texas where there's a large amount of renewable energy resource through solar. So Texas has taken an interesting approach by incentivizing businesses that are high energy output using renewables. So you'll see that there are actually a number of renewable mining operations opening in Texas. And one of the more interesting things that Texas has done in a proactive measure is think about how energy consumption affects the grid when renewable energy is not necessarily abundant. Cloudy day, bad weather. We all know how that works. And a great example of this is during the big freeze that they had in Houston not too long ago. And what Texas has done is they actually paid businesses that have a high energy footprint to shut down or minimize their operations, and they pay them to do that so that the energy from the group can go where it needs to go, which in this case goes toward heating homes. So there's also a ways to manage high energy use businesses, including Bitcoin mining and take care of people at the same time. Now we're going to talk about a theorem, which is the second largest cryptocurrency by market cap after Bitcoin and what is ugly and colloquially colloquially known as the merge. The merge took place in November of 2022 and what happened is that before Etherium was a proof of work protocol, much like Bitcoin was high energy consumption use roughly the same as Finland or 9 million U.S. households. When you went through the merge, it became a proof of stake protocol and now that means that it uses quite zero one terawatt hours a year, which is less than a thousand U.S. households representing a 99.9 88% reduction. It is estimated the merge lowered the world's total energy consumption by 0.2%, which is perhaps the single largest decarbonization event in history. And what this shows is that while cryptocurrency is still very young and may and instances anyway be high energy, it is also able to pivot. And it's the second largest by market cap can do it, and I think many other products can as well. So since then we've seen kind of an unprecedented domino effect of failures in 2022, and that's continue to some extent in regional banks over the course of this past spring to go over very quickly, it turned on it was a two token system referred to as an algorithmic stablecoin. Whether it was a flaw in the algorithm or a direct attack on that system, it imploded and erased tens of billions of dollars of value in a matter of hours. Traders Capital is a venture capital firm that was invested not only in Terra Loan as a project, but also to exchanges and crypto banks, Celsius and Voyager. All of these were overexposed, terrible. There was an incredible liquidity crunch Celsius and Voyager couldn't pay 3 hours capital what they were owed 3 hours capital goes out there as well. This liquidity crunch continues to expand effects. After seeing RTX, rather, we also saw implode. And of course, now since then, we've also learned that it was terribly managed. I will add one additional caveat, which is Silicon Valley Bank. There was a lot of talk about that being a failure due to cryptocurrency. And I want to be very clear that the failure of Silicon Valley Bank was due to bad asset management. They overinvested a large percentage of their assets and 30 year bonds. When the rates were low and rates came up, those bonds became junk and that's why they went under. It had nothing to do with overexposure or holding too many crypto assets. They are, however, they were, of course, invested in the crypto based businesses. Now, since the 2021, the crypto market has lost more than $2 trillion in value. I think we're seeing a little bit of a rebound there. That's still accurate. It's important to remember that investors also lost an estimated $5 trillion income crash. So we've seen larger market cycles and businesses go high and low and it hasn't stopped things like the Internet from being incredibly successful and establishing businesses like Amazon and Microsoft. I think we'll see similar things happen in the crypto market. Now there are ways in which the crypto industry is already adapting to help minimize some of the risks there. They're working on organizing a self-regulatory organization like Cintra or the New York Stock Exchange. Coinmarketcap is kind of the leading plain listing website and began listing a confidence indicator and liquidity score so that retail investors have a better understanding of whether or not the information they're seeing reported is accurate. And then companies like Chain Analysis are taking a hack and provide trust services by auditing smart contracts and make sure that someone's not just trying to steal as much money as possible or, you know, start a bank account offshore. And then there's interesting thing. Some of you may be familiar with the term doxing, which is when you take someone's personal identifying information and post it privately, publicly on the Internet to try and basically out them and kind of target them. There's a movement inside crypto projects where a team who is running a project will intentionally dox themselves so that there's complete transparency on who is running a project so that there is a more trust built between project owners and the people who are investing. Moving on to the regulatory landscape, the FCC has had a well, has been aggressive and an enforcement action rather than setting out what I would determine a clearer regulatory framework for cryptocurrency. Besides the Howey Test and securities laws, these are some of the examples. FCC versus Library. And after a federal judge ruled that library did in fact engage in selling unregistered securities, current FCC versus ripple lawsuit will be very telling and is winding down. Hopefully we'll have a verdict on that in the next month or two, which could in fact set some very strong precedent for what does in fact, qualify as a security inside the crypto landscape. The FCC chairman, Gary Gensler, has very famously said that all cryptocurrencies, aside from Bitcoin, are unregistered securities. Now, more recently, the FCC has issued begun litigation against Binance and Coinbase 2 to 1. Binance is the largest exchange in the world. Coinbase is the second largest exchange especially, and is the largest exchange use in the United States. What's interesting is that their charges are very similar and as a result they have also named a slew of cryptocurrencies in these legislation, some of which most of whom are here. And in general, this is a fairly comprehensive list of all digital assets that have been named as unregistered securities by the SEC since they started enforcement action several years ago. This is really just for reference. The most important thing to remember is that while this is the Wild West, as far as crypto regulation goes, none of that uncertainty affects your ability to accept cryptocurrency as a gift. And with that, I will hand it over to Sierra. All right. unmute myself. Well, thank. Thank you, Rich and Kyle. So if you buy that there's a case for taking, sorry cryptocurrency at your institution and if you can get you can stomach the moral and sort of ethical considerations. I'm here to talk about ways that you can consider accepting it. So let's talk about three main ways: Outright Gifts, a Split interest Gift, and if you just simply can't take it at your institution for lots of different reasons. So how you can work with your donors to still accept the kind of assets they have. And so I just want to point out, this is Chris Brown. He is a Brown University alumnus, and he was our first donor to give us a Bitcoin. He bought it in the early days when a coin was about $100 each, and he really pushed Brown to take it. And because of him, we've got to do a couple of workouts. So we did a little profile on him and the value of it so Outright gifts. So I think when you're thinking about outright gifts at your institution and think about your gift acceptance considerations, you know how you might expand your gift acceptance policy to include gifts of cryptocurrency, your charity will need to open a specific wallet, and each wallet accepts a certain kind of or certain amount of different kinds of cryptocurrency. So if you have a donor that has a pretty exotic kind of cryptocurrency that they want to transfer to you, you may need to open up a new board or you may want to work with another organization, like a community foundation that can take it. There are some tax implications for the donor, a big one is that this is considered a gift, a property for tax purposes. And so in order to substantiate their charitable deduction, they need to obtain a qualified appraisal from a qualified appraiser. And so that is not very expensive, not very hard to do, but just another step. And they think I include a list here of some of the appraisers that we know about. The donor must also file in a form 80 to 83 on their tax return and then finally, there are some considerations for the donor acknowledgment. We at Brown, for example, we say we don't get into anything about the the actual tax deduction. We we punt that to their advisors, but we do we will tell them what the proceeds amount was. Just going back into the gift acceptance considerations back to that top bullet. One of the things I want to add is that because it's volatile and because of the rules around the deduction, we talk to donors about simply giving them gift recognition. That's the net proceeds value. So minus any fees that we have to pay for the wallet, and as long as we talk about that upfront, the donors have been fine with that. So here we go. Here's the list of qualified appraisers. And again, this is not for the charity to have to do. This is the donors responsibility, but it can be helpful to simply provide a list of people that do it. The Yeah, Charitable Solutions is is someone that we've used. So donor acknowledgment, the components. So these are the things that we include. You'd also want to work with your general counsel and maybe outside counsel to we talk, we make sure that we say the date the crypto is received into the charity's wallet, the amount that was transferred, the net proceeds of the value we indicate, as we indicate, that it's treated as property and that they need to obtain a qualified appraisal and we also provide the donor with a copy of the Form 8283. So we try to make it as user friendly as possible and give them as good information as we can, but also make sure that we aren't running afoul of any rules or regulations by the IRS. So split interest gifts, also known as life income gifts can be a really great way for donors to take highly cryptocurrency. So we know that's out there, right? Like cryptocurrency is down right now. Psychologically, I think donors feel it's down. But, you know, I know that there are people out there that purchased it for very low amounts. It can be hard to get rid of without some tax implications. And this can be a great way to unload the cryptocurrency, avoid the tax implications and create an income stream for life so or for a term of years. So donor gives a money or property to the charity. That's one easy way to do it. But the donor can also transfer it into a charitable major trust. The trust then sells the cryptocurrency and invests the proceeds in a diversified portfolio. So this is just a quick overview about how how you how the donor can think about. They're also entitled to a charitable income tax deduction for the charitable portion of the guest. So again, there's just you may have a donor who comes to you and says, I have got cryptocurrency, I'd like to make the gift now. And your charity just may not be set up to take it or may not have an appetite to take it. There's lots of different reasons why you might not be able to accommodate them, but you don't have to say no. There are lots of other ways that you can get the proceeds from the from the cryptocurrency. So one is community foundations, the Silicon Valley Community Foundation is a great organization. They're really good. They were among the first to take it. They're very good at taking it, and you can direct your donor to work with them and then have the proceeds flow to your institution. Corporate Desk Fidelity I know also takes cryptocurrency. They can set up a donor advised fund transfer their cryptocurrency to the donor advise fund, and then direct the proceeds to your institution. So just a great solution. If you simply if your organization isn't in a position to take yet. That is our presentation. We would love to have a conversation with some questions. I too found myself on mute trying to to talk. We don't have any questions at this time and we are getting close to the end. So I think we're going to wrap and have anyone submit any questions. You can continue to do it through the Q&A box and then we'll submit them to the speakers at a later date. So thank you, Sierra, Richard, and Kyle for a great presentation and thank you to all our attendees for joining. Before you go, if you haven't yet completed the session evaluation, please do so. You can return to the agenda to find your next session. Thank you.

Crypto Philanthropy

blockchain technology

fundraising

Bitcoin

Ethereum

regulatory landscape

donor acknowledgments