Ask Dr. Bitcoin: Can I donate Bitcoin to politicians?

DrBitcoinHeader800x465As someone who has a keen interest in cryptocurrency and has a history in political campaigning, I am one of those peculiar animals who knows Federal campaign finance laws and enjoys learning new things about them.

[Disclaimer: I am not a campaign finance lawyer. I’ve been a journalist for far longer than I was involved in campaign finance. My interpretation should not be taken as anything other than informed opinion. For best advice, seek an actual lawyer who specializes in campaign finance.]

As such, I’m happy to convey the news this week concerning US FEC guidelines around crypto-donations to federal campaigns. In short, the government says “OK.”

The US Federal Election Commission (which exclusively governs national election campaigns) has released a proposed draft that addresses Make Your Laws’ inquiry regarding Bitcoins.

Make Your Laws, an organization that facilitates political contributions, previously submitted a petition asking for Bitcoin contributions of up to $100 for campaign to be permitted. The decision regarding the matter was delayed as Bitcoin has raised many questions, specifically anonymous donors.

The proposed draft states that Bitcoin can now be accepted as campaign donations and the digital currency will be considered as in-kind contributions like stocks and art. This is great news for election candidates as it gives them more avenues for accepting donations, and could potentially allow them to tap into a new community of contributors. And this is even better news for politicos who are already accepting Bitcoin donations, even without the FEC’s consent, as everything becomes above board and less questionable.

But whether you’re an election candidate who’s elated by this news, or someone who wants to donate using Bitcoin, there are some things you need to know first.

Like all political donations, they won’t be anonymous


fecWhen donations are made in cash, political action committees are required to deposit that amount in a campaign depository within 10 days upon receipt. Since Bitcoin will be treated as an in-kind contribution like art or stocks, it can be held in a Bitcoin wallet indefinitely, but once it is liquidated, the amount should be put in a campaign depository.

MYL will handle Bitcoin donations and will require details like the name, physical address, occupation and employer of the Bitcoin donator. This is so it can verify that the amount being donated is legal, comes from an American citizen, and that the contributor is the owner of the digital currency being donated. MYL will then provide a one-time Bitcoin address for the candidate to accept the digital currency.

You can’t spend it, directly.


The FEC proposed draft stated that PACs can purchase Bitcoins using campaign funds for investment purposes, but the digital currency cannot be used to pay for anything campaign-related. It cannot be used to pay for services rendered by a campaign team or pay for campaign materials or ads. What they need to do is turn Bitcoins into dollars by selling them, put in the campaign depository, which can subsequently be used for disbursement.

Bitcoin price fluctuation is one of the areas where many entrepreneurs have stepped in to make cryptocurrency more user friendly.

Bitcoin price fluctuation is one of the areas where many entrepreneurs have stepped in to make cryptocurrency more user friendly.

Sai, the president of MYL, told us: “The reason for this has nothing to do with Bitcoin’s volatility, but
rather with a nuance of election law — whether it’s in-kind or
currency. The final draft (unlike drafts A & B) very carefully does
not actually say either way (though it says it should be reported like
in-kind and can be held like in-kind). If it were fully treated like
in-kind, then previous AOs create precedent that would allow it to be
used for barter, and they couldn’t come to an agreement on that, so
the opinion walks a fine line to avoid opining on it.”

For now, MYL advises contributors to keep Bitcoin donations small, about $100 worth as it is an amount of money that is not going to raise some of the bigger issues that might accompany a Bitcoin transaction.” It should be noted that MYL is only providing their interpretation on the guidance; the $100 of crypto shouldn’t be seen as a legally binding limit, only the limit they sought approval for.

Because Bitcoin exchange markets are open 24/7, its value is constantly fluctuating. Therefore, the  the FEC’s final AO suggests that PACs should value Bitcoin contributions based on the market value of the digital currency when the contribution was received.

Reporting and monitoring


Receiving Bitcoin contributions should be reported like any other in-kind contributions, and if the Bitcoins are sold, it is the PAC’s duty to report how much the Bitcoins were sold for.  The same rule applies for Bitcoins purchased using campaign funds. The amount of Bitcoin purchased, how much money was used to acquire it, and how much money was received when the digital currency is once again sold, should all be reported.

It should also be noted that any transaction fees which arise from the use of Bitcoin should not be deducted from the original value of the contribution.

“The Committee must treat the full amount of the donor’s contribution as the contributed amount for purposes of the limits and reporting provisions of the Act, even though the Committee will receive a lesser amount because of [the] fees,” the proposed draft stated.

tl;dr: Accepting Bitcoin in campaigns is more complex than sending it.

It should be noted that the Federal regulations may be used as guidelines in state affairs, they do not directly apply as the Federal regulations only govern national elections (Presidential, Congressional and otherwise). I should also not that there have been several instances of politicians taking Bitcoin for political donations prior to the guidance from the FEC, and at least one who has since.

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Ask Dr. Bitcoin: How big of a terrorist threat is Bitcoin?

Dr Bitcoin at EMC WorldI’m traveling out West this week, in Las Vegas for EMCworld (catch the coverage I’m producing with the team on our live channel through Wednesday!), so for folks on the East coast, I’m sleeping in a bit later than them. You can imagine why I was a little bit alarmed this morning to get a call at 6AM Pacific time from Wells Fargo asking what Bitcoin was, how I used it, and if I sold it to other people.

I was caught in a net that Wells Fargo appears to be doing of their customers who interact with popular Bitcoin transaction facilitator, Coinbase. They seemed keenly interested in my expertise around Bitcoin and exactly what I was doing with this mysterious internet stuff (“So Bitcoin is like Paypal, basically?”).

Since the September 11 terrorist attacks, the US government has put in place numerous security measures to try and prevent such a horrific event from happening again. One of these measures is the USA Patriot Act, which gives different government agencies extensive powers to counter terrorist acts, which among many other things includes “Know your customer” regulations aimed at preventing regular folks from acting as money service providers, as a way of preventing terrorists and drug dealers from proliferating.

Another outgrowth of the Patriot Act and it’s regulations around money, a division of the Department of Defense is looking into Bitcoin and other digital currencies and their potential to help finance terrorist acts.

The Combating Terrorism Technical Support Office, which identifies and develops counterterrorism abilities as well as investigating irregular warfare and evolving threats, is now looking into how virtual currency may help fund acts of terrorism.

An unclassified memo by the CTTSO was obtained by Bitcoin Magazine, which revealed concern about how virtual currencies can be used to finance threats. The memo suggested what areas should be looked at to determine the level of threat virtual currencies actually pose.

“The introduction of virtual currency will likely shape threat finance by increasing the opaqueness, transactional velocity, and overall efficiencies [sic] of terrorist attacks,” the memo read.

The memo proposes solutions to be considered, such as identifying relevant case studies from the last 20 years and exploring funding instruments that supports terrorism; determining types of “red flags” that can emerge with the introduction of virtual currencies; investigating how virtual currencies can be used to predict future attacks; and developing and deploying strategies to prevent them, among others.

The memo depicts Bitcoins and other virtual currencies as something that can be used for both funding and counteracting terrorism.

DrBitcoinHeader800x465Many people believe Bitcoin is an anonymous currency. This is not entirely true, but there are measures users can put in place if they don’t want to obfuscate the path money takes.

This is obviously what concerns the authorities. Bitcoin and virtual currencies could easily be used to fund threats. Even so, that doesn’t mean Bitcoin transactions go completely under the radar – as Ross Ulbricht, founder of the notorious Silk Road website, found to his cost.

Smear campaign?

The problem is that instead of trying to understand Bitcoin before labeling it as good or bad, some people have jumped to conclusions due to the bad press its received in the past.

Pelle Braendgaard, the CEO of Bitcoin wallet Kipochi, explained in an interview that the cryptocurrency can actually help governments better understand what’s happening with their economies since every transaction is recorded on the block chain, unlike when using real money when no one has a clue where the money ends up.

Money laundering  1-13-14Yes, cryptocurrency can be used to fund terrorism (and and Nascar…), but it is quite unfair to single it out for that purpose. After all, US dollars can and are used to fund terrorism all the time. All of the so-called ‘worries’ about Bitcoin could be perceived as propaganda to dissuade people from using it.

The safest bet for would be terrorist sponsors will always be cash, something that can’t easily be traced back to them. Quite unlike Bitcoin, where every transaction is recorded publicly on the Blockchain.

During the U.S. Senate hearings on Bitcoin, FinCEN director Jennifer Shasky Calvery told Congress that “…cash is probably still the best medium for laundering money.”

It should also be noted that charitable foundations have been used to accumulate funds for terrorist activities too. A case in point is the Holy Land Foundation for Relief and Development, which was convicted in 2004 by the US federal court of funding Hamas, a Palestenian Sunni Islamic organization with a military wing that doesn’t care if civilians get hurt during operations (a story I covered very closely in my online coverage at the time as well as my post 9-11 radio briefings for WABC).

At the end of the day, at this juncture, Bitcoin poses an almost inconsequential security risk to what those who seek to curb money laundering for the purposes of national security and drug prevention mostly because of the market cap for the cryptocurrency. Bitcoin is still in the early days of its life; the market cap of Bitcoin is shy of $6 billion (and the market cap of all other alt-currencies is certainly shy of $2 billion). Globally, it is estimated that there is around $5.5 billion laundered each day. While the potential disruption of Bitcoin is great, it’s barely a blip on the radar when it comes to current criminal enterprises.

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Ask Dr. Bitcoin: Does Bitcoin Need Banks?

DrBitcoinHeader800x465Whether or not there’s a place for banking as we know it in the world of cryptocurency is a hotly debated question among Bitcoin enthusiasts and stakeholders. “Unbank yourself,” and “Time for plan ฿,” are many of the slogans thrown about the Bitcoin world, symptoms of the sub-cultures ingrained abrasiveness to traditional banking. There is another group within Bitcoin, however, that argues loudly for the idea that for there be massive and mainstream adoption, there needs to be better tools from organizations with a vested interest in maintaining them to make the sometimes impenetrable world of cryptocurrency more accessible to the general public.

One of these essential services needed to make Bitcoin and other cryptos more widely accessible and useful is the free exchange of value between traditional fiats and cryptocurrencies. There are currently three companies that make Bitcoin ATMs: Genesis1, Lamassu, and Robocoin, which incidentally was the first one to bring these machines to the public.

Robocoin’s first Bitcoin ATM debuted in Canada last October and was soon followed by more machines in other countries. But that wasn’t enough for Robocoin, which last week  launched its first Bitcoin ATM in Seattle, at the Spitfire Grill in Belltown, where users can buy Bitcoins or exchange it for real money.

The machine operates seven days a week from 11 a.m. to 10 p.m and customers can make $3,000 worth of Bitcoin exchanges per day.

Robocoin is at the forefront of making Bitcoin a household name with its ATMs, but the company is not stopping there. It wants Bitcoin to be available for everyone and to accomplish this, Robocoin aims to launch the first Bitcoin bank this summer.

Robocoin Bank


Robocoin aims to disrupt the remittance industry by launching the Robocoin Bank this summer, as part of a greater plan to solidify its lead in the Bitcoin remittance space (a multi-billion dollar market worldwide).The company will transform its existing Bitcoin ATMs to ‘Robocoin Bank local branches’, which will be integrated with the company’s online banking services.

The kiosks will allow Bitcoin users to manage their digital currency. People will be able to view their account, send Bitcoins to wherever there is a Robocoin ATM, send Bitcoins to phone numbers instead of Bitcoin addresses, while receivers will have the option to store the Bitcoin or trade it for cash, directly from the ATM.

Robocoin promises that these kiosks will be safe and secure as it employs three levels of authentication to prevent fraud or theft.

“The Robocoin Bank has been a vision since day [one],” said a company spokesperson in an interview. “We hope to alleviate Bitcoin’s major pain points and barriers to adoption.

“The goal has always been to bring Bitcoin to everyone and the Robocoin Bank is a leap in that direction.”

But do we need a Bitcoin bank?


It’s going to be difficult to convince a lot of the early adopters in the Bitcoin community that centralization of banking services are a necessary step towards mainstream adoption, but it’s hard to argue that services like Coinbase and Robocoin haven’t moved the needle towards making Bitcoin easier to understand for the general public.

“The Bitcoin community is going to see mass adoption because of this,” Jordan Kelley, Robocoin’s CEO said. “We’re just solving problems for everyone in the game—for Bitcoin newbies, it makes it easier, and for bitcoin veterans, it makes it more useful.”

Why not? Centralizing cryptocurrency services doesn’t break the decentralization of the rest of the Bitcoin network, and may lead more individuals into becoming advanced users as their knowledge progresses.

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