Come 2014, voters may be able to make Congressional campaign donations using the cyber currency bitcoin.
Last week, the Conservative Action Fund PAC asked the Federal Election Commission to rule how the virtual currency could be used in political fundraising campaigns. The regulatory agency is in charge of setting the legal parameters of campaign finance legislation. Bitcoin was introduced in 2009 as an open-source software code and has since boomed into a $1 billion industry, but it remains unregulated.
The technology is being “rapidly adopted” by many of the libertarian-minded donors within the PAC’s audience, according to attorney Dan Backer of DB Capitol Strategies, who filed the request on behalf of the Conservative Action Fund. Backer is hoping to have a response within the next 60 days.
“There is no clear guidance on how to treat these donations, and if we want to do business this way, we want to be sure we do it right,” he says. “It’s highly technical, but not particularly controversial. We listened to our donors, who say, ‘OK we want to donate this way,’ and we say, ‘OK here is how we can do this legally.’”
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The Consumer Risk of Bitcoins
Part of the request is to determine whether bitcoin will be viewed as a monetary donation or as an in-kind donation, explains Backer.
Critics of the virtual currency say part of the reason it is not ready for primetime usage is because it is not legally-backed by any particular entity, which can lead to wild price fluctuations.
But Backer says he would like to see a situation where donors give bitcoin for a set amount, which is how the currency is logged by the PAC, and they either cash it in or sit on it and hope value rises. “If we can hold onto them as the value goes up, there is the issue of how do I report that? Right now the trend is northward, but if bitcoin is tanking they lose out,” he says.
Trace Mayer, bitcoin and digital privacy expert, says he would like to see the cryptocurrency treated as “an in-kind donation by political campaigns.”
“Like any in-kind donation, there needs to be a firm market value so the politician will know the fair market value when they receive it,” he says. “But what affect that has on campaigns depends, bitcoin is very volatile. Fair market value, at the time of donation for tax purposes, won’t make the donation illegal.”
There are strict campaign finance laws at play here, says Marco Santori, chairman of the Bitcoin Foundation’s regulatory affairs committee, and because bitcoin is a new asset class, it’s unclear what rules should apply.
“How do we apply current rules to a brand-new game-changing development?” he says. “Five years ago, it was not convenient to pay someone in cash, it was more convenient to send PayPal donations. Now it is more convenient to send bitcoin.”
The Concerns of Anonymous Donations
Some critics of approving bitcoin campaign donations claim anonymous donations could allow some donors to skirt current regulations with the virtual currency, but Backer says this is unlikely. Anonymous donations are capped at $50 per person, and PACs like the Conservative Action Fund, are not actively submitting anonymous donations, he says.
“We are wanting to raise money from people [with known identities] because we want their names, we want them to volunteer and we want them to donate more money,” he says. “Anonymity does nothing for us. It requires more work than a check.”
That being said, Santori is confident this will soon be a reality.
“Bitcoin is a great vehicle for [campaign finance], and being able to accept donations over the internet,” he says. “It can be transmitted easily and quickly over the internet, just like cash can be done in person. I think the chances of this happening are really good.”