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California prohibits cryptocurrency campaign donations

Posted: 21 September 2018 2:22 pm

US politics is loaded to the gills with dark money anyway. Maybe crypto could democratise the bribery.

California's campaign finance watchdog voted 3-1 to prohibit the use of cryptocurrency in political contributions in the state of California, The Los Angeles Times reports.

Most states haven't formally weighed in one way or another, but some have and California is the largest state to have explicitly landed on either side of the fence. The scorecard to date is:

  • Colorado, Montana, Oregon and Tennessee have explicitly allowed cryptocurrency contributions. It's probably no coincidence that these states reputedly have stronger libertarian leanings than the national average, in line with cryptocurrency as a whole.
  • Kansas, South Carolina, North Carolina and now California have prohibited the use of cryptocurrency in campaign contributions.

It wasn't a unanimous vote though, and the question has raised varying opinions across the board. Should cryptocurrencies be allowed as campaign contributions?

The main argument against is that it enables anonymous campaign donations. The main argument for is that politics is loaded with perfectly semi-legal anonymous campaign contributions anyway, but only for the rich. Crypto just democratises and streamlines utilisation of an existing legal dark-grey area, as nature intended.

Yea or nay

The arguments against cryptocurrency contributions stemmed primarily from the potential anonymity offered by the stuff.

Cryptocurrency, said California Fair Political Practices Commission (FPPC) commissioner Frank Cardenas, "is completely untraceable with respect to the identity of the individual."

As a blanket statement, this is factually inaccurate. Cryptocurrency can be untraceable, but it can also be much more cleanly tied to individuals than a suitcase full of cash, or all those checks for exactly $2,000.

But in this case, it might be mostly about keeping up appearances and catering to gut feelings. That is, after all, what democracy is all about.

Voter confidence in elections is already "waning", Cardenas noted, so banning cryptocurrency contributions might help settle voters' nerves. This might be especially relevant in light of the ussian-ray lection-ay nterference-ay, and findings that Russia's operatives were paid in bitcoin. Of course, the traceability of those bitcoin payments ended up being the hacker's undoing. They made the mistake of presuming cryptocurrency to be anonymous.

Commissioner Brian Hatch alluded to this.

"How do we know that they are not just a straw man for some oligarch or some foreign government?" Hatch asked. "This is a system that is designed to hide the source of the money, so why would we get into this?"

Several other participants also spouted interchangeable statements about cryptocurrency being anonymous.

The voice of dissent, in favour of crypto campaign donations, was commissioner Allison Hayward, who supported treating cryptocurrency donations the same as cash, except with additional protection in the form of a requirement that candidates disclose donor identities. FPPC staff attorneys issued warnings about this though, noting that unlike cash, there are no central bank records of transactions to act as a proxy for trustworthiness.

The fact that attorneys noted this suggests that it might be a legal side-effect, where blockchain records can only be regarded as reliable when it's convenient to do so. Blockchain records are apparently perfectly admissible evidence when prosecuting drug dealers, but can't be used to track campaign donations. How about that.

juicy crypto words

But to be fair, it might still be too early to formally allow cryptocurrency contributions on such a large field. The FPPC already has its hands full with the billions of dollars of perfectly legalish dark money political contributions flowing around the USA. It also does undeniably good work picking apart certain contributions on technicalities, uncovering the donors behind these massive illegal campaign contributions and then not being able to do anything because those donors are rich enough to be above the law.

Nicolas Heidorn, policy and legal director at Common Cause, suggested that cryptocurrency shouldn't be allowed "at least until the risks of this emerging technology are better studied and understood, and appropriate regulatory guardrails can be put in place."

Cryptocurrency donations, he said, might "hamper the commission's ability to trace donor funds and ensure state campaign finance laws are respected."

Sources don't say whether or not Heidorn managed to say "campaign finance laws are respected" with a straight face.

One of the voices in support of allowing cryptocurrency campaign donations was the Blockchain Advocacy Coalition, which represents various businesses in the blockchain and cryptocurrency industry.

"The transfer of cryptocurrency creates an immutable record, and this technology offers the public benefits in terms of transparency of political contributions," said group executive director Ally Medina in a letter to the panel.

The upshot of the decision is that anyone who sends or receives cryptocurrency campaign contributions in the state of California won't be reporting it, and that there are no formal systems in place for tracking cryptocurrency campaign contributions. California residents can pretend democracy is safe for another day.

Elsewhere, the Canadian government is trialing a blockchain-based system for publicly and transparently tracking research grants. This nifty project is already yielding great results and letting everyone see exactly where taxpayer dollars are going.

Transparency is an acquired taste.

Disclosure: At the time of writing the author holds ETH, IOTA, ICX, VET, XLM, BTC, ADA

Disclaimer: This information should not be interpreted as an endorsement of cryptocurrency or any specific provider, service or offering. It is not a recommendation to trade. Cryptocurrencies are speculative, complex and involve significant risks – they are highly volatile and sensitive to secondary activity. Performance is unpredictable and past performance is no guarantee of future performance. Consider your own circumstances, and obtain your own advice, before relying on this information. You should also verify the nature of any product or service (including its legal status and relevant regulatory requirements) and consult the relevant Regulators' websites before making any decision. Finder, or the author, may have holdings in the cryptocurrencies discussed.

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