In the age of cryptocurrency, the leading player is Bitcoin, a financial transactional tool that’s just beginning to move from the fringe to early adaptors. Think of Bitcoin as an open-source digital currency that’s not backed by any particular entity. Bitcoin may be relatively new but it’s already a $1-billion industry and could soon be another fundraising avenue for campaigns.
Users of Bitcoin benefit from its high level of privacy as transactions aren’t monitored by any government or financial institution and no personal information is exchanged. Also, Bitcoin transactional rates are much lower than major credit cards and making payments can be as easy as sending an email. Because Bitcoin is not based on or in any particular country, international transactions are quick and don’t incur any additional costs.
With that in mind, the Conservative Action Fund PAC in September requested a Federal Election Commission ruling on if or how Bitcoin could be used for political donations. The issue the FEC must figure out is how does one value a currency whose dollar-to-Bitcoin exchange rate could be in constant flux?
One idea is for political committees to report the value of the donation based on the Bitcoin-to-dollar exchange rate at the time of the donation. The problem with this idea is that there’s no official regulatory organization setting a universally accepted Bitcoin exchange rate.
Another option being discussed is considering a Bitcoin donation as an in-kind donation. The problem again is how to report the value of the donation. The FEC has strict limits on the values of federal committee gifts, both monetary and in-kind.
Then there’s the question of timing in terms of when a committee might be forced to exchange their Bitcoins for U.S. dollars. Would the committee be obligated to exchange the Bitcoins at the time of donation or can they “let it ride” and hope for an up-tick in the Bitcoin-to-dollar valuations?
I suppose that this leads to another big question, who would verify that the Bitcoin exchange rate was completed at market value? As the Bitcoin exchange rate is unregulated, it would be quite easy for an individual to nefariously skim funds from a campaign’s coffers by exchanging a committee’s Bitcoins at unfavorable rates and pocketing the difference.
A huge benefit to consumers who use Bitcoin is the privacy Bitcoin insures when consumers make payments. This high level of privacy is a big reason why many of the early Bitcoin adopters include online porn or drug consumers. Should the FEC allow political donations with Bitcoins, federal political organizations would need to be vigilant in their collection of name, addresses, employer and occupation for these Bitcoin donations over $200 per the current FEC reporting requirements.
The FEC has a great track record of looking seriously at new technologies in order to facilitate citizen involvement with politics. In the case of Bitcoins, until there is a standard accepted exchange rate, I believe it will be next to impossible for FEC to allow Bitcoin political donations.
That being said, the Bitcoin world is changing fast, and I wouldn’t be surprised if cyber currency makes a significant impact in the 2016 election cycle. The FEC will probably respond to the request for ruling in late October or very early November, although an extension is possible.
Erik currently runs sales and marketing for CMDI, the largest Republican fundraising technology platform. Prior to joining CMDI, Erik founded numerous fundraising technology companies whose products have raised over $300 million for hundreds of political and cause-based organizations.