The lifeboat charity the RNLI raised eyebrows in August when it announced that it would be the first major UK charity to accept donations through bitcoin, the software-based online payment system that has been embraced in venture capital circles, mainly in the US. Why was one of the UK's oldest charities – one that relies on older people for the bulk of its income – entering an area that few of its donors knew anything about?
Part of the charity's intention was to attract new audiences. Bitcoin, which has no ties to government or central banking systems, is used mostly by younger, tech-savvy people – not the demographic of typical RNLI supporters. "It was felt that at some point in the future we were likely to receive a donation in a digital currency – not necessarily bitcoin – as part of a legacy or an individual gift, so we wanted to prepare for that," says Luke Williams, the charity's social media innovation officer.
The idea first came up at a meeting of the charity's future trends group, which studies what will affect the RNLI in five, 10 or 20 years' time. A project group was formed, led by Williams, to examine the financial implications of accepting donations by means of bitcoin. "Having worked on it, we realised that it wouldn't take much more work to actually accept it," says Williams. "We knew we'd probably be the first if we did it, and we thought that might generate some interest."
In fact, the RNLI was not the first UK charity to accept bitcoin donations, although it was the one with the biggest profile. In December 2013, the educational charity Woodcraft Folk began accepting the currency, although so far it has not reaped the rewards it anticipated.
"When we were one of the first charities to take bitcoin, at a time when it was getting a lot of attention, we hoped there might be more interest," says Jon Nott, general secretary of the charity. "We tried to get publicity at the time, but it didn't seem to come. So it's not been a success in terms of bringing new people to the charity."
Nott says bitcoin is unlikely to be a viable option for many UK charities until it achieves real critical mass, and he thinks that interest in the currency is waning, not growing. He says charities should not spend money on something that is still so experimental, but if they have volunteers with the skills to enable bitcoin donations on their websites, they could try it and help to bring about the critical mass. He acknowledges, however, that multinational charities are more likely to benefit from taking bitcoin – as Greenpeace USA and Save the Children recently decided to do – because there are no money transfer or currency exchange fees involved in transferring the currency between countries.
As a money-maker, bitcoin has performed poorly. The RNLI has received 250 bitcoin donations worth little more than £2,000; Woodcraft Folk raised only a few hundred pounds. RNLI's Williams says the charity will decide in January whether to continue with its pilot programme, but it is unlikely to allow people to pay for membership or buy gifts in its online shop using bitcoin because of the low volume. Comic Relief, which in June was reported to be examining the potential for bitcoin donations for Red Nose Day 2015, has since told Third Sector it has shelved the plan in favour of exploring payment technologies that would enable "more seamless user interactions in the mobile and social spheres".
However, AJ Leon, who runs the digital agency Misfit, thinks that focusing on the nature of the currency and the amount of money it raises might miss the point. "Bitcoin is simply a canvas that has emerged," he says. "Nascent technologies supported by counter-cultural communities are the most powerful opportunities for us to leverage as fundraisers. Simply by accepting bitcoin, you're signalling to an entire demographic of well-connected, affluent technophiles that you are one of them."
From an ideological perspective, Leon says, the currency aligns perfectly with the charity sector, and its lack of ties to government and central banks make it a more democratic way of doing things. Woodcraft Folk adopted bitcoin for similar reasons.
But Leon accepts that there are problems with bitcoin in practice. Its value is wont to fluctuate because of speculation; it is worth less when converted to sterling than to US dollars; and only 5 per cent of its users are women.
There is another issue even more at odds with Leon's free-spirited perspective: the stance of the Charity Commission. A spokeswoman for the regulator says that transferring money through the traditional banking system offers safeguards and provides an audit trail, and should be the preferred method for charities unless exceptional circumstances apply. She says: "Bitcoin is an intangible financial asset, so we would expect charities to value their bitcoin assets at each financial year-end based on their fair value - that is, the value for which the charity could dispose of the asset.
"Trustees need to ensure that they are fulfilling their duties of care and prudence towards their charity when considering using bitcoin. The currency is, by its nature, a high-risk asset because it is created and traded outside the formal banking sector, so its value might be subject to significant fluctuation."