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Publication date: 09.05.2024
Since the beginning of the full-scale aggression of russia on the territory of Ukraine, the request for donations to charitable organizations has increased several times compared to the last decade. People send donations for a variety of purposes: from helping children affected by war to supporting soldiers on the front lines. These donations are often sent in the form of cryptocurrencies for several reasons:
Cryptocurrencies are not prohibited by Ukrainian law, although their status has not yet been determined.
In 2022, Ukraine will rank third in the world in terms of adoption of cryptocurrencies. The reasons for this are a complex topic for a separate study.
The process of transferring cryptocurrencies is faster and usually cheaper than transferring traditional currencies.
So, we are witnessing a situation where quick receipt of financial support for urgent needs becomes possible without significant delays. However, people who do not use cryptocurrencies on a daily basis may have several questions, such as: how exactly does this happen? How is the delivery of cryptocurrency to the addressee ensured? How do funds accepting cryptocurrency use it to purchase goods or services?
Part 1. What is the legal status of cryptocurrencies in Ukraine and is it legal to accept donations in it?
The position of cryptocurrencies in Ukraine is not yet fully regulated by legislation, but this does not prevent their use for donations. The Virtual Assets Act has not yet entered into force, but definitions from another law are used until then.So, according to them, cryptocurrency is considered a digital asset that has value and can be used for trade and payments. While there are many terms to describe these assets, we use "cryptocurrency" to generalize.
In accounting, cryptocurrencies are considered an intangible asset, so transactions with them are considered the purchase of such an asset, and not the exchange of currencies. This means that donations in the form of cryptocurrencies are correctly accounted for as the purchase of this intangible object with a certain value.
Part 2. How does the movement of cryptocurrencies take place from the donor to the product/service for which the funds were raised?
The process of receiving cryptocurrency donations to charitable funds has several stages:
1. The individual sends cryptocurrency from their wallet to the fund wallet listed on their website. (there is a separate wallet for each cryptocurrency).
2. When the required amount is collected, the fund transfers the cryptocurrency to its corporate account on a cryptocurrency exchange (such as Binance, Whitebit, Kuna, OKX, Kraken, etc.).
3. On this exchange, the fund can use funds to pay for goods or services directly through online stores that accept cryptocurrency, or sell it for fiat funds and receive them in its bank account.
Option #1. Both in Ukraine and in other countries of the world, there are online stores that accept payment directly in cryptocurrencies. Therefore, in order to buy a necessary item or order a service, the fund can send funds directly from its corporate account to the stock exchange.
Option #2.If option #1 is not available, funds can sell cryptocurrency on this exchange for fiat funds, which will be deposited into the specified bank account. The fund specifies this account when registering its corporate account on the stock exchange. Also, funds can use the services of third-party exchangers for the purpose of converting cryptocurrency into fiat money.
4. With the funds received, the fund buys the necessary goods or services and sends them to the place of need.
Part 3. Is it possible to monitor donations in cryptocurrency?
According to Ukrainian legislation, charitable organizations have the right to freely dispose of donations received in traditional currency, provided that this corresponds to the stated purpose and does not contradict the law. The Law on Charitable Activities gives benefactors the right to control the intended use of donations and to demand reporting from charitable organizations.
To track transactions in cryptocurrencies, specialized resources are used, such as https://etherscan.io/ for Ethereum and other similar resources. These resources allow you to track the movement of cryptocurrencies from a specific wallet, check incoming and outgoing transactions, and track their fate in different addresses.
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Part 4. Necessary documents
In order to legally accept cryptocurrency donations, charities must have appropriate policies and procedures in place. These documents should carefully regulate the receipt and management of cryptocurrency donations, including the process of conversion to fiat money and the management of possible risks.
Additionally, charities must have a cryptocurrency wallet to receive donations. It is important that this wallet is secure and has a robust access control system. Multi-signature wallets are recommended to provide an additional layer of security and control over transactions.
It is also important to comply with the requirements of the law on prevention of legalization of income obtained illegally. Charities must comply with identity verification (KYC) and anti-money laundering (AML) requirements.
Conclusion
The use of cryptocurrencies as a form of donation to charitable organizations became a significant source of support for Ukraine during the war. This opens up new opportunities, but also brings its own challenges that must be addressed. It is important that charities have appropriate procedures and documentation for accepting cryptocurrency donations. Maintaining the trust and confidence of donors is of the utmost importance, so proper preparation and legal compliance are crucial. With proper preparation, charities can successfully use cryptocurrency fundraising opportunities.
