Published: March 11th, 2020
Minnesota lawmakers are trying to stop cryptocurrency from being used to make political campaign contributions.
Members of Minnesota's state House of Representatives submitted a bill last May that would ban political donations from any source which had a ‘digital unit of exchange’. The bill mentioned bitcoin explicitly but widened its definition to any digital format that isn’t government-issued legal tender. B
While the House bill stalled initially, a group of five Minnesota state senators filed a nearly identical piece of legislation in February, which is now progressing through the process required to make it law. The Minnesota Senate State Government Finance and Policy and Elections Committee is currently considering the bill – an essential step in seeing it formally enacted.
If either bill passes, anyone who knowingly uses digital currencies to make a political donation will face fines of up to USD 3,000. Any politician or election agent who knowingly accepted a digital currency donation would be guilty of a felony – potentially leading to jail time.
Concerns from lawmakers about the use of crypto to hide dodgy or illegal financial dealings have been brewing for years. But as digital currencies slowly gain mainstream acceptance, worries that crypto could be used by criminals or state actors to secretly influence domestic politics are on the rise.
Different countries are dealing with the issue in different ways. In Japan, legislators have allowed a loophole in financial regulations to stay in place that enable political donations via cryptocurrency.
While donating cash or securities directly to a politician or a campaign is illegal in the country, crypto assets have been able to fly under the compliance radar thanks to technicalities in its classification. The country’s Political Funds Control Law doesn’t include crypto assets. As a result, politicians in Japan can receive individual crypto campaign funding without having to report them to elections oversight bodies.
America’s Federal Election Commission developed guidance to help politicians accept Bitcoin for donations. Unlike in Japan, any digital currency donation must be disclosed as such.
A few politicians have begun to make a case for crypto's legitimate use in politics. The first high-profile US politician to embrace digital currency donations was Republican gubernatorial candidate Andrew Hemingway, who argued for them back in 2014 and accepted donations via Bitcoin – a first in the US. Missouri House of Representatives candidate Dan Elder became the first congressional candidate to fund his campaign solely with Bitcoin that same year.
The first candidate for president to accept crypto donations was Kentucky Senator Rand Paul. While had had publicly expressed doubts about crypto in the past, in 2016 his growing Libertarian support base was highly receptive to crypto and blockchain. In the current election cycle, California congressman Eric Swalwell and businessman Andrew Yang have been notable as the only two candidates happy to take cryptocurrency donations.
In other contests, Agatha Bacelar, who is running against prominent Democrat and House Speaker Nancy Pelosi, has made acceptance of crypto a central messaging point of her campaign. Supporters can donate through Coinbase using Bitcoin, Bitcoin Cash, Litecoin, Ether and others.
Politicians in smaller state, county and mayoral campaigns have also made efforts to raise donations using digital currencies.
A 2018 survey by Clovr found that more than 60 per cent of US voters believed cryptocurrencies could be used illegally to make secret campaign donations. The same poll found that that 60 per cent thought crypto political contributions should be legal.
Some blockchain pundits believe that the ability to track donations on blockchain could actually strengthen trust in the electoral system. The transparency afforded by blockchain could potentially make crypto donations beneficial to politicians, reducing concerns about being ‘bought’ and hiding the true identities of their donors.
Taking political donations via crypto would arguably make it easier for donors and donations to become transparent and enter the public record. Instead of using cash or credit card to donate, a supporter could transfer Bitcoin or their digital currency of choice into an approved, legally-compliant campaign wallet.
The advantage of this in terms of politics would be to leverage blockchain's ability to provide transparency of auditability to transactions. Voters would arguably find that reassuring versus the murky system of political action committees and ‘astroturf’ campaign groups the current system allows. Crypto donations could also help reduce campaign costs by reducing funding costs.
Despite concerns about blockchain providing cover for illicit activity, the truth is that public blockchains are fully auditable and all transactions could be made visible to the public. If a rogue campaign team decided to take donations from a mysterious, someone would raise the alarm.
While politicians get to grips with crypto and its potential for improving election processes, they could perhaps look to the charitable sector for advice and examples. The decentralised nature of crypto works well with crowdfunding in particular, and charitable donations through crypto are gaining favour, even in multinational third sector organisations.
UNICEF launched a dedicated crypto fund in 2018 which accepts Bitcoin and Ether. The fund promotes the development and distribution of open-source technology that can benefit programmes to help disadvantaged children—for example, a project to connect schools around the world to the internet.
Swiss non-profit the Ethereum Foundation was the fund’s first contributor. While major aid agencies like the American Red Cross and the UN World Food Program now accept donations in digital assets as well.
Crucially for cash-strapped charities, cryptocurrencies offer the ability to bypass expensive fees and payments middlemen needed to move large amounts of cash across national borders. Tracking donations becomes easier, while the donors themselves may be better able to see how their money is being used.
The involvement of charities could help dispel some of the public myths about digital currency – once the software infrastructure around crypto has improved and stories of crypto security breaches leave the weekly news cycle.