In today’s day and age, it is important to understand what cryptocurrency is. Cryptocurrency or virtual currency, is a digital medium of exchange that can be used for purchasing, selling, and storing value, but it is not backed by a sovereign government. The U.S. Treasury currently classifies cryptocurrency as intangible property. Despite the name, it is not a currency and does not have legal tender status in any jurisdiction.
You should consider the following tips when dealing with cryptocurrency:
- Solidify Your Policy Regarding Anonymous Gifts.
This class of asset is an anonymous asset. Your organization may have a policy of not accepting anonymous gifts. However, if the donor is known to the organization, the gift is not anonymous. If both the donor and the asset are anonymous, your organization may want to have a policy strictly for public relations purposes.
An anonymous gift may be an acceptable gift; however, it could be from a donor with an “image problem” who may not remain anonymous. What are your organization’s terms for accepting an anonymous gift? Must the donor commit to staying anonymous? What if the money came from ill-gotten gains? Your policy does not need to address every possible hypothetical situation if it is currently considered unlikely or remote. It is acceptable to wait until a specific circumstance arises or is likely to arise. However, addressing the issue of anonymous gifts may be general enough to cover cryptocurrencies.
- Set Up Your Digital Wallet.
A “digital wallet” is a software or an application downloaded to either a phone or a desktop computer that stores the public and private keys used to send and receive digital currency. The wallet is like a bank for cryptocurrency and you must have one before accepting this asset. If someone sends you cryptocurrency before you have a wallet, it may not be recoverable.
As a form of digital currency, cryptocurrencies exist only electronically. The crypto donation will arrive in the form of an email or Quick Response (QR) code that the organization will need a “digital wallet” to decipher. Banks have been known to freeze accounts with cryptocurrency activity, so you might consider setting up a separate bank account or related credit card account for the sole purpose of receiving and processing the crypto donations into cash.
- Keep Your Private Keys Private!
Never share your organization’s private keys for your cryptocurrency with anyone. Doing so gives them full access to your organization’s funds. To prevent theft of cryptocurrencies, the use of cold storage (an offline archive of private keys) is recommended. Top cold storage methods include an offline hardware wallet, a USB drive, or a paper wallet.
When your organization sets up your wallet, you must share sensitive data elements such as email addresses; cellphone numbers; identifying information for U.S. bank accounts, credit cards, or another similar payment service such as PayPal; tax identification number; and other forms of identification. A data classification policy which provides the level of security and controls required to share data outside of your organization is a necessity. Some risks that you should consider include the vulnerability of wallets when keys aren’t adequately protected or are stolen from a cyberbank.
For more information, always consult a Certified Public Accountant. Submitted by: Mike Rosciam, Director, IT Assurance Services, Thomas Howell Ferguson P.A. CPAs. To ask Mike a question, contact him here.