Is Bitcoin Secretly Messing with the Midterms?

Democrat Brian Forde raised nearly half a million dollars of Bitcoin for his unsuccessful bid for a California congressional seat this year, but then had to field questions from election watchdogs about a contribution from Hong Kong.

Republican Austin Petersen, a U.S. Senate candidate from Missouri, received the largest single Bitcoin donation in federal election history, but was forced to return the virtual currency in June because it exceeded federal contribution limits.

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Libertarian Phil Anderson, who’s running for governor in Wisconsin, decided to continue accepting crypto contributions even though Wisconsin, like most states, has not decided how to regulate or track crypto contributions.

In an era of Russian hackers, super PACs and shell corporations being used by foreign entities to influence voting, officials tasked with maintaining the integrity of state and local elections have one more thing to worry about: crypto-candidates. The Center for Public Integrity found 20 crypto-candidates of various political stripes, seeking all levels of office, who have been requesting or have received cryptocurrency to fund their efforts. At least three were candidates in a state that has since banned such donations. Another was accepting cryptocurrencies marketed as untraceable. The confusion over campaign cryptocurrency is widespread, and the implications are far from isolated. But the effort to establish uniform rules is lagging behind.

“Cryptocurrency is like the wild west in terms of regulation,” said Joseph Argiro, a cryptocurrency analyst with ICO Alert, which maintains a comprehensive list of cryptocurrencies. “This is the new way of raising money. It’s no surprise that politicians are jumping on board.”

Since Bitcoin was first traded in 2010, it has been linked to illicit activities including money laundering, fraud and, most recently, foreign state actors trying to affect U.S. elections. Studies show cryptocurrency users can employ pseudonyms and transfer virtual money across international borders with just a few clicks — without intermediaries or banks. Unlike cash or checks that campaigns have historically depended on, the source of some cryptocurrencies cannot be inspected easily by the public, negating the goal of election transparency.

During a June Senate Crime and Terrorism Subcommittee hearing titled “Protecting Our Elections: Examining Shell Companies and Virtual Currencies as Avenues for Foreign Interference,” election experts illuminated the scope and threat of virtual currencies that are now used by more than 3 billion people.

“The greatest emerging threat of foreign funds reaching the coffers of political candidates, or to be used to fund other influence operations, are the increasing number and liquidity of privacy coins,” testified Scott Duekeke, director of threat analysis company DarkTower.

Even so, the Federal Election Commission, the U.S. agency tasked with enforcing campaign finance laws, decided to allow Bitcoin contributions in 2014.

But on the state level, those donations are subject to a patchwork of policies. At least eight states plus the District of Columbia allow crypto contributions and have created limitations or added language to their election manuals addressing the issue. At least seven others, though, have banned cryptocurrency contributions altogether, fearing foreign meddling or insufficient resources and knowledge to regulate Bitcoin contributions.

California, so often a state breaking new legal ground, was the latest to act, last month banning those types of contributions to candidates running for state office.

“Hardly a day passes that there isn’t some other indication that there is someone out there who wishes us ill, foreign and or domestic,” said California Commissioner Frank Cardenas during the Sept. 20 Fair Political Practices Commission hearing that resulted in the ban.

“The acceptability of cryptocurrency in California elections? That day may come,” Cardenas added. “For now, it’s not worth the risk.”

So is cryptocurrency a hazard to democracy as geographic boundaries dissolve in this digital world? Or is it the dawn of a crypto-future? Depends on who you ask.

A study published in January by the Center on Sanctions and Illicit Finance, a program at the Foundation for Defense of Democracies, and Elliptic, a cryptocurrency analyst, found less than 1 percent of all transactions entering conversion services worldwide were linked to illicit activities, including money laundering and online extortion.

And experts at the forefront of this financial technology argue that Bitcoin could actually bring more transparency to the democratic process by offering new, unhackable tools to track money in politics.

But cryptocurrency analyst Argiro said unless regulators decide which coins politicians can and can’t accept — more than 2,000 different…

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