Opinion The Impact of the California Ban on Political Crypto Donations

The Impact of the California Ban on Political Crypto Donations

September 22, 2018

When crypto and politics are mentioned, most individuals immediately think of the idea of regulatory oversight and possible clampdowns. In recent years, the news from places like China and South Korea showed that the regulatory bodies are not by any means hesitant to put the hammer down on the crypto ventures. This process shook the markets and left many individuals without their investments in crypto.

However, while there is no denying the ongoing clash between the crypto community and potential new regulation that could stifle the speed of its development, the latest news on the US government and crypto has a completely different spin upon it. This particular news is related to the way actual cryptocurrency is used in the political process, in this case in the election campaign at one US state.

Here is an explanation of what this news actually is and how this decision and implementation of a single US state could reverberate in the crypto community. In spite of the limited initial impact and a chance that it will stay only a side note of the wider digital currency legislation process, the news really does have the potential of being transformed into a much bigger problem for the crypto community.

California Bans Crypto Donations

Any political candidate who is running for office in the US state of California will not be able to receive legally any donations in the cryptocurrency form. This was the result of the latest ruling from California’s political watchdog agency. This agency is the Fair Political Practices Commission or the FPPC and it voted 3 to 1 in favor of prohibiting any political donations that are provided in the form of cryptocurrencies.

The reason given for this decision was the difficulties that come from tracking the origins of these donations and because of the concerns about the general transparency of the financial procedures in politics. The decision comes after a hearing that took place in August. During this hearing, the FPPC success several issues related to the election process. These included the problem whether or not should cryptocurrency be involved in this process.

The committee did not come to any conclusions back then and instead opted to take a bit more time to figure out additional relevant facts to the issue. Some in the commission argued that an outright band would not be helpful over a protracted period, making the move short-sighted. Others on the commission believe that there is no means of checking or validating the source of a particular donation. Because of this, the concept of the digital currency donations that are untraceable would bring down the entire rulebook about funding of political ventures.

Further Discussion of the FPPC

The decision was made, but the issue has not been closed. The FPPC representative stated to CoinDesk that there will be additional analysis and debate in the upcoming period. According to the same statemet, there is extensive research happening in the same body and other factors are entering consideration as they appear. Because of this, the representative believes that this issue will not go away in the coming months and years.

Right now, the US Federal Election Commission provides the candidates to accept cryptocurrency donations in the form of in-kind donations. This ruling was defined in 2014 and is still valid. However, on the state level, many changed this approach and moved to stop the influx of cryptocurrency into politics.

South Carolina prohibits donation of bitcoins or any other cryptocurrencies. Other US states, like Colorado, for example, have regulations that permit funding in crypto but put on caps on the amount of BTC or other tokens that can be provided to a candidate or a party.

Legitimate Concerns

The most populous state in the US has legitimate concerns about the cryptocurrency donation. If someone decided to send a political candidate bitcoins worth $10 million, they could do it in a fashion that would be nearly untraceable. But, at the same time, there are plenty of other ways how someone could do the same with nothing more than a pack or a super pack.

These organizations are the legal precedent in which the interests of the companies are comparable to the interest of the individuals. Through them, anyone can buy as much influence as they want and do it completely in the dark from any financial regulators. These problems are something that plagueg the US democratic process for decades if not centuries and signaling out bitcoin or some other digital currency is a pointless show of force.

Like comparing esports to regular sports, the first might be growing in popularity, but it is still light years away from any traditional sporting competitions. Additionally, the amount of money provided through these cryptocurrency donations is still comically small to be seen as a means of overriding the established donation process.

Federal vs Local

The problem of differentiating state and federal laws is typically American but still very problematic. In a sense, California is in the same boat as with legal medical marijuana dispensaries, which the state was running for years, even though they appeared to be illegal on the federal level.

Here, the tables have turned and now California forbids an activity that is otherwise legal in a federal legal standpoint. This will likely result in only heated debates and not protracted and costly legal battles where the two entities slug it out in a court of law.

The real issue is whether or not the federal jurisdiction on campaign donations and the broader federal judiciary desire to do the same across the US? Currently, there does not seem a big chance of that happening, being that the administration of the president Donald Trump has its crypto supporters.

However, while the adoption rates of cryptocurrencies continue to rise and more and more people hold these assets, their impact on the finance of political parties will keep expanding. In other words, more and more people from all walks of life will be able to use crypto to help their candidates, in spite of the regulatory challenges like the one coming from California.