Cryptocurrency, also known as Virtual Currency or “Crypto,” is digital asset designed to function as an alternative to sovereign fiat currency (US Dollars, for example) whereby transactions between two parties are verified through a public, distributed ledger, also known as a blockchain. Most people think of Bitcoin and/or Ether when they heard the word “Crypto”, and while Bitcoin is the original cryptocurrency and most widely followed, there are a number of cryptocurrencies currently available.
For U.S. tax purposes, transactions using virtual currency must be reported in U.S. dollars. Therefore, taxpayers will be required to determine the fair market value of virtual currency in U.S. dollars as of the date of donation. If a virtual currency is listed on an exchange and the exchange rate is established by market supply and demand, the fair market value of the virtual currency is determined by converting the virtual currency into U.S. dollars (or into another real currency which in turn can be converted into U.S. dollars) at the exchange rate, in a reasonable manner that is consistently applied. Donors who give cryptocurrency donations to the Rock Academy will receive an electronic donation receipt (through the Coinbase donation platform) in US dollars with comprehensive details about each transaction.
As with any form of electronic payment or transaction, certain safeguards are needed to ensure that the transaction is secure. With the transfer of cryptocurrency from donor to nonprofit, the transaction can actually be more secure than many other forms of payment, provided certain protocols are followed: 1) By using the Coinbase platform, both the nonprofit and the donor are required to undergo a simple but effective Know Your Customer (KYC) and Anti-money Laundering (AML) screening which provides a high level of background security to ensure both parties are properly screened. 2) As with any cryptocurrency transaction, transferring your tokens to the Rock Academy’s wallet to make a donation, does not expose or share your wallet’s private keys at any time.