Virtual Currency - Digital Wallets, Real Philanthropy

From Bitcoin, Litecoin, Ethereum, Zcash, Dash, Ripple, and Monero to hundreds more you have probably never heard of, virtual currencies (also nicknamed cryptocurrencies) are making an impact on the world. Virtual currencies, digital currencies that use encryption techniques to regulate currency and verify the transfer of funds, operate primarily outside of banks and government institutions. They are slowly becoming more well known and creating a larger influence on society.

Dr. Angela Pool-Funai, Director of the Master of Public Administration program at Southern Utah University, and expert on virtual currencies, explains the value of using digital currencies for real philanthropy:

Imagine going to an arcade to play some old-school games. You exchange a few bucks into tokens, and you end up earning a handful of tickets from the Skee-Ball game. You can trade in your tickets for a toy at the front counter, but neither the tokens nor the tickets have any purchasing power once you leave the arcade. You cannot buy groceries or make a car payment with Skee-Ball tickets.

Now, let’s take our arcade scenario and turn it into an online platform. The tokens no longer exist in coin form; instead, they are in your digital wallet as a virtual currency. Some virtual currencies are like our arcade example: they are confined to a particular game or digital platform and have no monetary value in the real world. Granted, some clever individuals have managed to trade even these closed-system currencies on the black market – such as the infamous gold mining fiasco within the World of Warcraft game in the mid-2000s.

However, more and more digital currencies (also nicknamed cryptocurrency), like Bitcoin and Linden Dollars (L$, the currency used in a virtual world called Second Life) actually have an exchange rate with standard currencies, like the US Dollar. These currencies can be used to purchase real-world goods and services. Cryptocurrencies are, in essence, another form of money.

The primary concern about cryptocurrencies is that they have no single authority or point of oversight, such as traditional banking institutions and regulatory agencies for currencies around the world. Bitcoin and other open-system types of virtual currencies exist neither in virtual worlds (like L$) nor in a safe deposit box at the local bank. Rather, the money is comprised of computer programming language, as its namesake suggests.

Such virtual currencies mirror their financial counterparts in the real-world economy, so much so that scandals involving questionable Bitcoin transactions have caught the attention of policy makers in recent years, bringing virtual economies under increasing scrutiny. Despite negative attention following criminal activity like the 2013 Silk Road drug bust and the 2014 Shavers fraud trial, virtual currencies continue to thrive in commercial markets.

What may come as a surprise, however, is that cryptocurrencies have also been used to support the nonprofit sector, even before the Bitcoin controversies took center stage. For example, the American Cancer Society has conducted a virtual Relay for Life fundraiser within Second Life for over a decade, raising close to $3 million in real USD in the process. Even during the season of scandals in 2014, the University of Puget Sound received a gift estimated at $10,000 via Bitcoin, and that same year, King’s College in New York City began accepting Bitcoin as a tuition payment option. The Red Cross, United Way, Greanpeace and Save the Children, and Wikimedia all accept bitcoin donations.

From the perspective of the public administration field, it is vital that we include the nonprofit sector in discussions of this nature, because policies concerning virtual currencies do not only impact private business practices. Tax policy and other regulations involving digital currencies will have a real and direct impact on the nonprofit community.

Virtual currencies are a novel way to engage philanthropically with a nonprofit organization. Although scandals tend to make the headlines, more stories highlighting the good work happening with cryptocurrencies in the nonprofit sector may draw more positive attention to the endless charitable applications of virtual currencies.

Dr. Pool-Funai’s research focuses on virtual currency, tax policy, and philanthropy. She is familiar with the media and available for an interview. Simply visit her profile.