What is Cryptocurrency and How Can Charities Benefit?

Posted by Duncan Cook on June 1, 2018

A bitcoin circuit board


Charities rely on fundraising to meet their goals and keep helping those in need.

By staying ahead of the curve of financial innovation, charitable causes can engage supporters who exist outside of traditional fundraising methods. Blockchain and cryptocurrency promise to fill this niche.

The concept of money is constantly evolving.

In 1848 a man by the name of James W Marshall discovered gold at Sutter’s Mill in Coloma California, prompting 300,000 prospectors to descend on the small town.

 In a few short years the influx of settlers, gold and money into the American economy transformed the nation and earned California statehood as part of the Compromise of 1850.

170 years later and there is a new gold rush that is changing the way we do business and has the potential to change a lot more besides.

Cryptocurrency isn’t digital money. Digital money is what moves between banks in the traditional system.

With traditional banking our money exists as digital monthly ledgers held with our bank. There is no room inside a giant vault anywhere with our name on with piles of cash (or gold) equal to our savings.

It is entirely digital.

However – theoretically – a bank is required to have liquid assets available that they can repay all of their customers should they choose to bank elsewhere. The reality is entirely different and – as countries like Greece have discovered – the banks don’t have to give you your money.

Especially if the banks are overexposed and on the verge of collapse as we saw with the 2008/9 financial crisis.

Cryptocurrency is something entirely different.

What is Cryptocurrency?

Cryptocurrency is a decentralised consensus-based currency network that exists entirely independent of the banking system or any particular government. It is designed to be entirely autonomous and provide a secure alternative using a sophisticated peer-to-peer verification process called blockchain.

Crypto also doesn’t behave like a normal currency because it’s limited, creating scarcity and value. Whereas a government can order the devaluation of its currency, withdraw notes with hours’ notice or create more currency as needed to change market conditions (think Germany in 1923), there will only ever be 21 million Bitcoins, for example.

This scarcity creates an environment where – in theory – the cryptocurrency increases in value as coins are mined turning it into a tradable commodity much like gold or precious stones. Providing the demand remains high, the coin retains a high value. It becomes an investment rather than merely another way to pay for goods and services, although you can do that too.

Cryptocurrency is a relatively new market so it’s important to know that not all cryptocurrencies will be as highly valued as Bitcoin. However, we also need to move away from thinking of cryptocurrency as a traditional expression of value.

It was never designed to be worth thousands of pounds or dollars, it was designed to be an entirely independent expression of value that can be used to transact transnationally, without restriction or falling foul of politics or economic crisis.

How Cryptocurrency Works

There are two main ways of acquiring cryptocurrency at present: mining it and buying it.

How To Mine Cryptocurrency

Mining has been described by some as an arms race – the person who can commit the most CPU muscle and the most runtime wins. This isn’t entirely true.

It’s more accurate to describe it as trying to solve the ultimate maths test, so the better your processor the more likely you are to finish first.

In practical terms what your computer or mining set-up is doing is verifying transactions on the currency network and being rewarded for doing so.

As Bitcoin’s popularity and scarcity has increased so too has the complexity of those equations. As a result, an individual stands very little chance of successfully mining Bitcoin, and the space is now very much dominated by professional miners and corporations.

The alternative is to join a mining pool. These work a lot like a lottery syndicate – the pool works together to mine currency and any successes are shared evenly among the collective. This can mean smaller earnings but a significantly greater chance of success. A percentage of something is always better than all of nothing.

If you do choose to join a mining pool some due diligence is required as some pools have a poor reputation or were deliberately established to disrupt the peer-to-peer verification process. A quick search on Google and Twitter will quickly reveal the ones to avoid.

Collaborating with others in the form of mining pools allows miners to maximise earning potential through shared endeavour – quite at odds with the traditional method of accumulating wealth.

Creators of newer cryptocurrencies have deliberately programmed their currencies in such a way to prevent mining farms from being able to win their coins. This allows individuals or small organisations the opportunity to mine for currency on a relatively level playing field.

Buying Cryptocurrency

Buying and selling cryptocurrency is a risk much like any investment as markets can be unpredictable. It’s also important to understand how the currency you own is designed to express value. Some currencies – like LiteCoin - are transactional in nature and therefore likely to be worth less on an exchange.

Bitcoin is designed to be both transactional and tradeable, so its value is considerably higher. As such the markets that trade them behave differently to the stock market.

The stock market is about making as much money as you can as quickly as you can; crypto is broadly viewed as an investment.

Crypto, like any commodity investment, doesn’t go anywhere once it’s in your possession – unless you throw your hard drive away – and its value will rise and fall much like the gold and gem markets.

Indeed, buying and selling crypto bears far greater resemblance to the gold exchange than the stock exchange. This is a good thing as it makes it a far more stable commodity to deal in.

However, there are well over 1,600 different currencies and some will inevitably be more stable than others so make sure you do your research before hitting the buy button.

Although seemingly harder to get to grips with compared to more traditional currencies, cryptocurrencies represent both a long-term investment and a source of major revenue.

It’s also far more practical than trading the stock markets or in fiat currencies. Both require major investment, significant knowledge in volatile markets and bring with it high risk of failure.

For charities even just accepting Bitcoin – let alone other cryptocurrencies – as a means of donation can represent a major cash injection because you have made your organisation more accessible to those who prefer to transact in cryptocurrency.

Cryptocurrency provides charities with an entirely new way to raise funds. Charities can choose to mine currency for themselves using software like Cudo Miner or they can enlist the support of their supporter base by signing up to Cudo Donate.

Cudo Donate gives charities the power to harness the collective processing power of their supporters to raise significant sums of money in the form of cryptocurrency.

This can be stockpiled to use later or sold to give the organisation useful cash injections.

 

If your organisation is interested in becoming a Cudo Donate charity partner apply today.

Find Out More About Cudo Donate.

Cudo-Donate-Guides-Link

Topics: Cudo Donate, "Charity Mining"