How (and Why) to Donate Cryptocurrency This Year
Given that this is one of the few things that is not impacted by supply chain issues, you might want to consider gifting friends and family with cryptocurrency for the holidays this year. Of course, cryptocurrencies are risky investments due to their volatility, so you have to get used to cryptocurrencies as a “fun” gift that may end up useless, much like lottery tickets are used as filler. Also, it can be a good gift for someone who loves cryptocurrency but doesn’t want to spend their money.
Buy cryptocurrency first
If you are not proficient in cryptocurrency trading, it is best to stick with major currencies like Bitcoin or Ethereum and use well established exchanges like Coinbase or Binance . Some of them, like Binance , offer gift cards that can be sent directly to the recipient. Upon receipt, the recipient will need to create an account to access the currency.
From there, the recipient transfers these funds to a special crypto wallet that securely stores the cryptocurrency and allows the recipient to trade the currency. Another option is to first buy the currency and then place those funds in a wallet created on behalf of the recipient (if the recipient already has a wallet, you simply send money to their wallet address).
How to set up a crypto wallet
Crypto wallets store digital tokens that allow you to make transactions, and they will update the blockchain ledger when transactions are made. A wallet available on the Internet is considered a “hot wallet” as it is more vulnerable to online attacks, although they are easier and faster to use (CNET has some guidelines here ).
Another option is a cold wallet, which provides more security because it is accessed offline. The simplest form of this is a paper wallet using a wallet generator site that will randomly generate keys and matching QR codes (this blog post will walk you through the steps ). As Investopedia recommends , one of the places to buy holiday-themed paper wallets is at bitcoinpaperwallet.com .
However, since the paper itself can be lost, stolen, or easily damaged, another option is to provide the recipient with a durable, waterproof, and password protected hardware wallet. College Investor has a good roundup of hardware wallets here , and the Trezor Model T and Ledger Nano S are popular choices.
Some tax considerations when donating cryptocurrency
When you can donate cryptocurrency, there will be no income tax. However, when the recipient transfers or sells it, then taxes will apply. And if you’re not insanely rich, you probably don’t need to worry about the gift tax, as only gifts totaling more than $ 15,000 require you to file a gift tax return (which means you need to file IRS Form 709 in open the gift).