According to a new proposed federal rule, political campaigns will be able to accept the digital currency bitcoin. The catch, though, is that those same campaigns will not be able to spend bitcoins, since the electronic currency fluctuates in value dramatically at the drop of a hat. The Federal Election Commission, in its attempts to balance fairness with complicated tech, drafted the rule to require campaigns to convert any bitcoins collected as donations-to-dollars before they are spent. While this is a solid attempt to regulate the increasingly complicated movement of finances in politic, this rule will not likely comfort the concerns of the people or parties involved.
Of course campaigns have a reason to be thrilled about the new development, since they are looking for all the support they can get, from donations solicited on the streets or online (additionally, the near zero credit card transaction fee is also an attractive offer). The public, on the other hand, has a conflicting interest: They want to avoid any political favoritism that elite individuals and corporate entities might gain by offering more money to campaigns, a battle that has become the basis of vicious Supreme Court battles, including Citizens United v. FEC in 2010 and the pending McCutcheon v. FEC.
The public here holds the right to be skeptical of bitcoins. While bitcoins may function as online money, their fame comes from the fact that they are "democratized," meaning that they aren't backed by a bank or government, so their value is extremely volatile. In a political context, this means the amount of bitcoins given to a campaign on Tuesday could be radically more — or less — come Sunday brunch. This remains a prominent concern where in recent news, the October FBI shutdown of the illegal-drug market Silk Road caused bitcoin values to drop by 20% in three hours. The inevitable difficulties with tracing donors only raises more anxiety over the upcoming ruling.
Campaigns face similar concerns on the opposite end, where a contribution one day may dramatically lose value before they have the opportunity to convert it to a stable currency.
Consequently, the FEC is attempting to combat the issue by not considering bitcoin as "money" under federal campaign finance laws. Instead, it’s placed in a sort of money limbo where, as long as each donation is below the federal contribution limits, each bitcoin is counted as an "in kind" contribution to a campaign — similar to a stock or bond — where the campaign committees can't use the bitcoins to buy goods, services or pay for their own contributions. Additional rules should help to smooth out expected issues; for example, if the value of a bitcoin donation (at the time of writing this hovering around $374) should exceed the $5,000 individual limit, the campaigns are mandated to return the balance to the donors.
Nonetheless, Erik Nilsson, vice president of the Republican-leaning campaign finance management firm CMD,I still firmly believes that one-click donations will inevitably become the standard and this is only the beginning of technical experimentation with donations. Ultimately, the decision will be voted on later this month, at the very least providing the public with a new perspective on the legitimacy of bitcoin.