Somewhere among the hundreds of supporters who have contributed a stunning $1.1 million to the congressional campaign of self-proclaimed Islamophobe Laura Loomer are the donors backing the 27-year-old newcomer not with dollars but with a cryptocurrency called Bitcoin.
Until recently, digital assets like Bitcoins were the preferred currency of far-right conservatives and die-hard libertarians. The attraction? Cryptocurrencies provide anonymity and the opportunity to snub banks and governments, which have no power over cryptocurrencies because they do not recognize them as legal tender.
The option to contribute to campaigns using Bitcoin has been primarily offered by candidates, like Loomer, who appealed to the Libertarian and far-right demographic.
“Bitcoin promotes financial freedom,” said Loomer, who said she owns cryptocurrency. “We are telling the old power structure that we don’t need them anymore. We pave our own destiny financially, intellectually and with speech freedoms.”
But with more fringe candidates stepping into the political arena this election cycle and mainstream, tech-savvy candidates wanting to appear hip to the crypto crowd, donations via the controversial currency are now being accepted by candidates on both sides of the aisle.
Democratic presidential hopefuls Andrew Yang and California U.S. Rep. Eric Swalwell both accepted Bitcoin contributions before they each dropped out of the race. The campaign of Minnesota U.S. Rep. Tom Emmer, chairman of the National Republican Congressional Committee and member of the Congressional Blockchain Caucus, is also accepting cryptocurrency contributions.
“Embracing cryptocurrency signals to those who hold it that your campaign is open-minded, forward-thinking, and up to speed on how consumers are transacting in their daily lives,” said Perianne Boring, founder and chairman of the Chamber of Digital Commerce. “It also demonstrates a strong commitment to innovation and its impact on the economy, national security and American leadership.”
Others see cryptocurrency donations as a political stunt and a tool that makes it easier for bad actors to do an end run around campaign finance laws.
“I see Bitcoin often as more of a gimmick,” said Daniel Weiner, the deputy director of election reform at the Brennan Center for Justice. “The danger with Bitcoin in this realm is that it is essentially designed for anonymity and when we talk about campaign contributions the most important thing is they be disclosed.”
The U.S. Department of the Treasury this month sanctioned three employees of the Russian troll factory known as the Internet Research Agency, or IRA, for their support of the IRA’s cryptocurrency accounts. The IRA uses cryptocurrency to sow discord between political parties as part of Moscow’s broader efforts to undermine democratic countries and institutions, according to the department.
What is Bitcoin?
Bitcoin was invented in 2009 by an unknown person or group of people using the name Satoshi Nakamoto. The currency is strictly digital and has no physical form — no coins or bills. It also is not regulated by any financial institution or government — meaning transactions are made peer-to-peer, also known as P2P, without going through a third party, like a bank or payment processor such as Paypal.
Users of Bitcoin don’t identify themselves with their real names. Instead, they use Bitcoin addresses, seemingly random strings of numbers and letters, and pseudonyms. Bitcoin transactions are recorded in a public, digital ledger called a blockchain.
Despite there being a verified record of the transaction in the blockchain, the parties can remain anonymous because they are identified only by their Bitcoin address or pseudonym in the blockchain. No bank, payment processors or government agency has a record of the transaction.
That has made Bitcoin donations popular not only with libertarians who oppose any government interference in their lives but also money launderers, fraudsters and foreign political operatives seeking to covertly dump illegal amounts of cash into campaign coffers.
Recognizing Bitcoin’s potential for fraud in campaigns, and that cryptocurrency donations cannot be easily inspected by the public, the Federal Elections Commission issued an advisory opinion in 2014 with instructions on reporting cryptocurrency donations.
Under the opinion, cryptocurrency donations must be reported as in-kind contributions, like reporting the value of pizzas that a donor purchases for a campaign event. But while the value of the donated pizza will not change, Bitcoin valuations can be wildly volatile.
The value of a single bitcoin in March dropped to $5,800. By Sept. 15, a Bitcoin had a market value of $10,785. So, the fraction of a bitcoin donated today may be below the $2,800 individual contribution limit but above the limit on the day the campaign report is filed.
The FEC addressed that problem by requiring bitcoin contributions be valued on the day they are given. Loomer said she avoids that dilemma by immediately converting all bitcoin donations to cash.
“I think there is a lot of fake news about Bitcoin,” said Loomer. “It’s disingenuous to say it’s any different than accepting cash.”
Bitcoin donations can only be accepted after donors provide their names, addresses, employers and affirm that they own the bitcoins and that they are U.S. citizens. As with all donations, the campaign treasurer is responsible for ensuring transactions are legal and that when the contributions are added to others by the same donor, do not exceed contribution limits.
“There is little difference in the fraud risk of accepting cryptocurrency versus the risk of accepting credit card donations online,” said Boring. As for fraud concerns, 15 percent of adults in the U.S. own some form of cryptocurrency and at least one-third of U.S. small and medium-sized businesses accept cryptocurrency as payment, Boring said.
Just because a donor uses Bitcoin rather than cash does not mean the donor is trying to hide something, Boring added.
“Many donors prefer to donate cryptocurrency because they want to support the growth of cryptocurrencies as a medium of exchange and transfer,” Boring said. “Cryptocurrency holders are passionate about this emerging technology and they are eager to support and encourage candidates who accept cryptocurrencies.”
Loomer said she got interested in cryptocurrency several years ago. That was about the time she was kicked off Twitter, Facebook, Instagram, Uber, Lyft, Medium and other sites and services for her use of hate speech. Loomer also lost the ability to transfer money when third party money processsors, like PayPal, GoFundMe and Venmo also banned her.
“I’m proud I am one of the only candidates in the nation that accepts bitcoin donations,” said Loomer, the Republican candidate challenging the longtime Democratic incumbent, Lois Frankel.
Loomer said she had not received many bitcoin contributions but she did not respond to a request for information about the number and amount of Bitcoin donations that her campaign has collected.
Campaign finance rules require donors be identified only if their cumulative donations to a candidate exceed $200. Most of Loomer’s donations fall into that category. While some candidates identify all donors regardless how small the donation, Loomer has chosen not to do so.
How widespread cryptocurrency donations are in federal and state races across the country is hard to calculate. An investigation by the Center for Public Integrity published in 2018 found 20 candidates running for all levels of office who solicited or had received cryptocurrency donations.
The Center for Public Integrity found federal election records revealed eight candidates who had raised cryptocurrency contributions worth at least $550,000 since 2014.
The cryptocurrency rules that apply to candidates for federal offices do not necessarily apply to candidates in state races. According to the Center for Public Integrity, in 2018, at least eight states and the District of Columbia have created their own limitations or added instructions about cryptocurrency donations in their election manuals. At least seven others state have banned cryptocurrency contributions altogether.
As for Florida, there is no mention of cryptocurrency transactions in campaign manuals or the statute governing campaigns. The state Division of Elections did not respond to repeated requests about whether Florida regulates cryptocurrency use in campaigns.
Whether cryptocurrency transactions in campaigns is a fad or the future of fundraising has yet to be determined. Among the biggest hurdles is the hassle of converting crytocurrency donations to dollars — a process that requires documentation and a payment processing fee or transfer fee, said Jordan Libowitz, communications director for Citizens for Responsibility and Ethics in Washington, DC.
“TV stations are not going to take bitcoin for ad buys,” said Libowitz, adding that he has not seen major donors switching to Bitcoin. “Campaigns like being simple and this is complicated.”
This article originally appeared on Palm Beach Post: Are Bitcoin campaign contributions a fad or the future of fundraising?