The Pineapple Fund

One of the earliest examples of crypto philanthropy is The Pineapple Fund, a 2017 project driven by an anonymous crypto whale (an individual who holds so much cryptocurrency that they have the potential to disrupt its valuation) known as “Pine.” At the end of 2017 and as the value of bitcoin skyrocketed to nearly $20,000/coin, this anonymous donor held an application process for nonprofits to make their case to receive significant cryptocurrency donations. Ultimately, The Pineapple Fund transformed 5,104 Bitcoin into approximately $55 million in support of 60 charitable organizations, most of which were U.S.-based nonprofits. These organizational recipients represented a wide spectrum of crypto fluency. Some organizations worried that Bitcoin was “blackmail money” and were apprehensive about taking the necessary steps to receive their gifts. Other organizations called upon people in their networks who were well-versed in crypto and were able to set up their wallets with ease. The organizations also varied in their ability to translate this one gift into greater crypto-philanthropic momentum. Some invested in learning the crypto infrastructure and capitalized on the PR opportunity to leverage further donations, while others floundered to provide a clear pathway for future donors. 

This is a notable case study because it is an example of a big player in the crypto world tipping nonprofit organizations toward progress. Without Pine’s intervention and generosity, these organizations would have continued in their traditional fundraising activities and may not have ventured into the uncharted crypto waters for many years yet to come. It is also worth noting that, of the 60 charities that received funds from The Pineapple Fund, none appear to be oriented toward arts and culture missions. While the ways that blockchain technology (especially NFTs) is disrupting the art world are well documented, it appears that arts nonprofits may be behind the curve in this philanthropic area.

Crypto Philanthropy: Why Pay Attention?

Crypto philanthropy is not just a fad based on the whims of the mega-wealthy like Pine, but is actually an innovative fundraising pathway that organizations should be working to capitalize on. Julie Couturier for the Dorothy A. Johnson Center for Philanthropy has identified crypto philanthropy as one of the most salient trends or topics for nonprofit organizations to keep an eye on in 2022. According to her research, crypto philanthropy is a growing avenue, citing that “cryptocurrency contributions to donor-advised funds (DAFs) at Fidelity Charitable Trust (2021) more than doubled from $13 million in 2019 to $28 million in 2020,” and that “the value of total cryptocurrency donations is now over $300 million annually — and is only expected to grow.”
This movement toward crypto philanthropy can be significantly attributed to wider adoption of cryptocurrency investments amongst the philanthropically-inclined Millennial generation. 13% of all investors currently participate in the crypto market, but Millennials are disproportionately invested in crypto (35%) or express interest in entering the market, compared to investors overall. Furthermore, Millennials tend to be more generous than the general population; almost 90% identify “charitable giving [as] an important part of their lives.” As nonprofits express desires to diversify their donor pools and attract younger donors, it follows that these organizations should want to explore this opportunity.

How to Accept Crypto Donations

In order to move into the crypto philanthropy space, organizations and their leaders need to make informed decisions about the kind of pathway they want to create for their crypto-donors, how much involvement staff can/should have, and what related, internal policies need to be created. Tina Roh, co-founder and COO of Every.org, identified four methods for accepting cryptocurrency:

1. Use an intermediary 501(c)3 to minimize legal, accounting, and administrative burdens
2. Use a crypto donation processor to receive crypto directly
3. Use an embeddable checkout experience through a crypto exchange
4. Use your own crypto wallets and receive donations without any intermediary

Each of these options is perfectly valid depending on the capacity of the organization and the degree of familiarity and fluency that staff has in this Web3 space. For instance, option #1 looks a lot like (and in many cases, is) donating to a donor-advised fund (DAF). The DAF is, itself, a nonprofit that acts as a middleman. DAFs accept the cryptocurrency donation, immediately cash out to reinvest the money into the overall fund, and then disburse gifts to one or many nonprofit organizations. This process is appealing to nonprofits because it occurs without involving the ultimate beneficiary organizations in any of the technical mechanisms of receiving or converting the crypto gift. Crypto-investors may prefer this method as well because it is tax-efficient and gives donors current and ongoing input on what impact their money has.

Endaoment is one such DAF seeking to be a “new kind of community foundation.” Based on the Ethereum blockchain, Endaoment utilizes digital smart contracts to award grants to various nonprofit organizations. From there, beneficiary organizations may choose to either have their gifts transferred to a bank account as U.S. dollars for a standard $15 fee or to a cryptocurrency wallet for essentially no cost. However, if organizations choose to hold their awards in their crypto wallets, they become subject to the volatility of the markets.

As for option #2, there are now a variety of crypto donation processors on the market that nonprofit organizations may choose from. Platforms like Engiven, The Giving Block, and BitPay are for-profit companies that can act as third-party facilitators of crypto donations. These services cost a nominal fee (usually a percentage of the donation) but save fundraising professionals from having to develop highly specialized, technical skills in addition to everything else that they do. Engiven, for example, recently launched two new services: the automatic creation of necessary tax forms and a free, automatic appraisal for donors giving gifts valued at more than $5,000. These automatic functions save development staff the time and effort of assembling forms and eliminates the appraisal expense which previously would have fallen to donors.

Every.org is a particularly interesting processor option because it is also a 501(c)3 private foundation with a mission “to build accessible giving infrastructure to help every person and organization use technology for good.” Every.org funnels donors through Coinbase, which charges its own 1% fee, but offers its services to nonprofit organizations for no additional cost. Every.org also generates the necessary tax receipts automatically and “handles compliance,” making it a low-touch option for fundraising professionals.

Whereas Every.org facilitates donations by creating a more complete donor experience around an embeddable service like Coinbase, some nonprofits may elect to use products like Coinbase or BitPay directly. In these scenarios, organizations would take on a higher burden around donor processing, data collection, tax acknowledgments, and technological upkeep. The upside, however, is that these institutions would reap the benefit of lower fees compared to other more comprehensive services, making it a particularly viable option for tech-savvy staffs.

Lastly, organizations could opt to simply set up their own crypto wallet and handle donations directly. This is the most burdensome on the development or organizational staff at large because it requires much more technological infrastructure to be developed in-house surrounding the actual transaction. Staff will have to research and choose a cryptocurrency wallet that best suits the needs of the organization and institute careful policies around keeping the wallet and its passphrase secure and how much cryptocurrency they actually want to hold at any point in time. Because “the ability to operate anonymously is a central tenet of crypto technology,” organizations that choose this route will also have to build in processes to collect the necessary data to maintain detailed and useful databases and provide donors with tax documentation. Collecting and organizing crypto-donors information in one’s database will be particularly useful as these donors have specific interests or priorities that development staffs should want to cater to directly.

Conclusion

Crypto-philanthropy is a promising, largely untapped opportunity for nonprofit organizations, especially those in the arts and culture sector. Some institutions are slowly beginning to enter the Web3 space. The Great Lakes Science Center began accepting Bitcoin admission payments in 2018. The Institute of Contemporary Art, San Diego works with The Giving Block to facilitate crypto-philanthropy gifts and even advertises their CryptoClub, a special tier of donor recognition with premium benefits specifically for crypto-philanthropists. 

However, money is being left on the proverbial table. A majority of cryptocurrency investors are not aware that their investments can be donated to charity, leaving a significant portion of these philanthropically-inclined individuals in the dark about the tax benefits of such philanthropy, both in terms of avoiding capital gains tax as well as the tax deductions associated with traditional charitable giving. Then, of investors that want to pursue such donations, 46% report difficulty in finding charities that will accept the donations.

Alongside the need for greater organizational knowledge about how to engage crypto-philanthropists, organizations will also need to develop or deepen internal policies around cryptocurrency and investments. Some of these platforms allow organizations to receive in U.S. dollars donations that began as cryptocurrency. In other cases, the organization is directly trafficking in crypto and needs to write and abide by clear policies regarding how much of a donation can be held in its crypto form and for how long, especially given the extreme volatility of these markets.

Though the crypto-philanthropy field is still maturing, early players like the United Way have been accepting cryptocurrency donations for nearly a decade and the Kennedy Center has identified the founders of The Giving Block among the 50 leaders leading arts and culture into the future. The market has a wide array of platforms available to help facilitate donations from the many interested and motivated donors who represent a younger, dynamic, and innovative segment that development professionals would be excited to reach. It is now up to organizations to step up and seize the opportunities at hand.

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An NFT is a non-fungible token or a non-replicable digital item that proves authenticity. They are sold exclusively using cryptocurrency and are considered to be inherently secure because of the decentralized nature of blockchain networks. Any digital file can be minted as an NFT, meaning that videos, music, documents, AI bots, tweets, and more can be uniquely registered on the digital blockchain ledger and put up for sale. So far, visual art is gaining traction as the most common NFT use case. It is important to note, however, that the arrival of NFT technology is not synonymous with new emergent techniques for creating art. Rather it is an instrument for the sale and dissemination of art that can be created through any number of traditional or digital methods. While NFTs could, in theory, offer a more democratic entree into the art world for artists and collectors, they bring issues both novel and familiar to the legacy art world. 

Primary amongst the objections to NFTs is the concern about their environmental impact. When Bitcoin and other cryptocurrencies were first created, scarcity was a crucial part of the design. In other words, it is only possible to mine or create a limited number of Bitcoins. As the number of possible new Bitcoins dwindles, it takes more and more electricity and computing power to solve the equations that produce them. Current estimates suggest that “Bitcoin mining uses more power globally per year than some countries, including the Netherlands and Pakistan.” This consumption would be concerning on its own but should elicit particular scrutiny in countries still largely dependent on fossil fuels. 

More tangibly, the processes surrounding cryptocurrency mining and transactions begets computer waste. Miners need continuously expanding computer processing power to compete for the diminishing quantity of these coins. As more advanced technologies are developed, miners have a persuasive incentive to toss aside their current devices in favor of new, more powerful ones. This kind of waste alone adds up to over 30,000 tons each year, in addition to other sorts of consumer or industrial tech waste.

The crypto world also perpetuates the same sort of anonymized bad behavior that is already well known on the internet. Behind the anonymity of a username, one creator or group of creators has created an NFT project titled “Floydies,” a series of NFTs roughly depicting a pixelated George Floyd in a variety of racist scenarios and stereotypes. While OpenSea, one of the primary NFT marketplaces, removed the images from the platform, others are more hospitable to such offensive content. Other NFT projects lean on racist or ableist themes, and such projects are platformed directly to consumers without the kind of guardrails (legitimate, flawed, or otherwise) that traditional arts institutions provide.

Both the legacy/traditional art world and the NFT space foster extreme gender disparity. The National Museum of Women in the Arts amalgamates data on these discrepancies. These figures are particularly disturbing given that a strong majority of students in university fine art programs (at both the undergraduate and graduate levels) are women. This indicates that the inequities are reinforced by industry, professional, and purchaser prejudices.

Some optimistic women see the NFT space as a solution, full of open opportunities sans glass ceilings, but the full realization of this hope is yet to come to fruition. While the anonymity of these digital transactions could, in theory, support greater gender parity, “female artists accounted for just 5% of all NFT art sales” over a recent 21-month period. The anonymity has also created opportunities for more pernicious deception. In summer 2020, a group of NFT creators posed as “the first ever female-led crypto art collective,” and raised $1.5 million before it was revealed that men were actually behind the enterprise. And the few women invited to speak at in-person NFT panels or conventions find themselves the targets of the same sorts of patriarchal and sexist assumptions and behaviors that continue to govern too many areas of society. 

Furthermore, the individuals actively interacting and, therefore, legitimizing this market are largely male. Recent data shows that “one in five online male adults in the U.S. indicated they already own at least one NFT versus just 7% of online female adults.” Given that STEM fields are historically male-dominated, the “crypto bro” reputation of NFT aficionados follows logically.

The make-up of the NFT artist and consumer communities also affects the kinds of images and themes being explored in NFT artwork. As certain NFTs sell for astronomical sums of money, some far eclipsing what revered classic pieces have fetched at auction, some people bristle at “how little [the] aesthetics and modalities [of those NFT pieces] align with traditional fine art values.” Many NFT artists are choosing to reference and riff on a wide spectrum of pop culture icons and imagery, rather than the annals of art history that more formally trained, traditional artists would. 

Quantity over quality seems to be a leading philosophy as NFT creators (some of whom are more computer savvy opportunists than artists) race to cash in on the fad. In his video “Why are NFTs so Ugly?,” YouTube creator Solar Sands breaks down how NFT creators create templates for NFT collections and then use algorithms to randomly swap out certain characteristics or accessories in order to generate large numbers of unique images. The result is something obviously computer-generated, that often feels a stone’s throw away from clip art, and jarring in its juxtaposition of characteristics that were collaged together without greater attention to the coherence or integrity of the final piece. In other words, there are a lot of ugly NFTs out there.

While one could say that the crypto fad is just a countercultural bubble, establishment art firms are getting into the game too. Christie’s, the famed auction house, reported its highest sales year in five years after reaping $150 million in NFT sales in 2021. Among these pieces included a digital collage by famous NFT artist Beeple, which sold for $69 million and is the second most expensive piece of digital art sold to date. Christie’s CEO, Guillaume Cerutti, reflected on these sales as an incredible opportunity for the auction house to connect lesser-known artists to new audiences; “75% of buyers in the [NFT] category were new to Christie’s and were an average age of 42 years old.” Conversely, as of 2018, over half of art collectors were Baby Boomers or older.

Museums have found opportunities to participate in and leverage the crypto boom as well. Last year, several digital images created by Andy Warhol in the 1980s were unearthed, translated from an obsolete file format on floppy disks, minted as NFTs, and sold for nearly $3.4 million to benefit the Andy Warhol Foundation. The funds are intended to support the Andy Warhol Museum and other foundation activities. The British Museum has also entered the NFT market by minting pieces originally created by Hokusai and JMW Turner. NFTs, while potentially a creative tool for raising money for these institutions, can, in some cases, blur the lines of ownership and copyrights. Museums, many of which are entangled in a fraught history of art appropriation and theft, ought to tread carefully in the NFT space where distinctions between ownership of the physical versus digital objects and the rights to display either can be less than intuitive. 

There is also a new category of museums springing up to satisfy the NFT-curious. The Seattle NFT Museum (SNFTM) just opened in January 2022 as a physical space to “ground the NFT experience, unlocking our imaginations for what is to come.” SNFTM intends not only to offer a platform to display NFTs but also hopes to ignite community around the pieces and the culture.

So, what does this all portend for artists? Are NFTs really the get-rich-quick scheme that so many hope for? The short answer is “it depends who and how lucky you are,” which is not too far off from the qualities that predict success in the traditional art world as well.

“A lot of supertalented digital artists don’t fit the model for the contemporary art world. They don’t go to Art Basel. They’re active on GIF communities. They weren’t monetizing the work as fine art. They might have sold T-shirts on a Linktree.”

–John Crain, co-founder of the NFT marketplace SuperRare

In the case of Beeple, whose art set that $69 million record, he stumbled upon exciting opportunities as a digital artist (freelancing on graphics for the SuperBowl and working with Louis Vuitton) but had no clear path to monetizing the art that he created on his own time. NFTs changed everything for him. Beeple, more commonly known by his friends and family as Mike Winkelmann, the congenial Midwesterner, was a complete stranger to the art world with no representation and no formal training. But such signals mean little in the NFT world, and his grotesque, distorted visions of pop culture, politics, and technological perversion have made him many, many fortunes and given him entree to the formal art world via Christie’s. He now has his sights set on landing a piece in the MoMA (though he also dreams of getting booted from there as well). Beeple is an interesting case study because his success has pushed institutional art toward technological progress (what institution would turn down progress that comes with eight-figure sales?). But other NFT creators may not find the same openmindedness availed to them nor may they share the same interest in interacting with these legacy institutions. 

Other creators are extremely unlikely to encounter the kind of financial boons that Beeple has. In April 2021, after Beeple lit up the NFT stage, over 50% of primary NFT sales on OpenSea were for $200 or less. Now consider that OpenSea had nearly 475,000 users in the last 30 days. While this data doesn’t distinguish between buyers and sellers, it’s still clear that becoming a big fish in that pond is pretty improbable, even with the ability to garner additional income through secondary sales. 

Some people may think that NFTs sound the death knell for legacy arts organizations and institutions, that NFTs are a line in the sand for artists to similarly get with the times or become irrelevant. For all of the American love of extremism and absolutes, reality is rarely that clear cut. Some galleries will discover that they are no longer viable in this new landscape, though whether that’s to do with technological advancements or their long history of “racism, sexism,…abuse,” and gatekept wealth remains to be seen. Other galleries and museums will pivot, weaving NFTs into their exhibitions or even switching entirely to in-person exhibitions of digital art. And there are ever more opportunities for gallerists to innovate in online-only spaces, like the ability to design metaverse NFT galleries through Spatial. 

Artists are confronted with a similar array of choices. NFT marketplaces are still fairly new, NFT theft is proliferating, and the environmental concerns of the process are surely salient to some. While some artists may look to the crypto world as a way to escape the traps and trappings of the mainstream contemporary art scene, no system is perfect. Relying on these new marketplaces to connect with their audiences and collectors is just a Web3 kind of middleman that takes a cut like all the middlemen before. Some artists, like Amanda Oleander who found early success live-streaming on Periscope, have continued to keep pace with technological advances and are now competing in the NFT space too. Others like Beeple have circumvented the art world to rake in the Ethers. Like nearly all aspects of art and its business, the decisions, ethics, sensibilities, and priorities remain personal, complex, and up for rigorous debate.

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