Bitcoin is making waves in campaign finance. More and more candidates are turning to the cryptocurrency to help fund their campaigns — and with good reason.
Despite its dramatic rise and fall, bitcoin has surged in popularity this year, and many politicians are now looking to get a piece of the digital currency.
Republican Andrew Hemingway started the trend in 2014. Hemingway was introduced to bitcoin as a tech entrepreneur. At 32, he became the youngest gubernatorial candidate in New Hampshire history — and the first to accept bitcoin contributions.
Hemingway, who also ran Newt Gingrich's New Hampshire presidential campaign in 2012, says he started accepting bitcoin because there was a demand. Many of his own supporters were requesting to make contributions in bitcoin. About 20 percent of Hemingway's total political contributions came from bitcoins.
"I believe at the time that I ran, [New Hampshire] had more of what they call 'bitcoin billionaires' than any other state in the country," Hemingway said.
New Hampshire has long embraced bitcoin — even before it became mainstream. The state is home to the oldest bitcoin meetup and a number of cryptofriendly businesses. This is largely due to the active and growing libertarian migration to New Hampshire. The "Free State Project," founded in 2001, aims to draw 20,000 libertarians to the state. Many of these members tend to favor nongovernmental forms of currency like digital currencies and tend to be early bitcoin adopters.
Though Hemingway ended up losing his bid for governor, a long line of politicians have followed in his footsteps. Take for instance, Austin Petersen from Missouri. His Senate campaign has received 24 bitcoin contributions this year. This included a bitcoin contribution worth $4,500. According to the Federal Election Commission's records, this marks the largest cryptocontribution in federal election history.
New York Democrat Patrick Nelson, who is running for Congress, is also accepting contributions through bitcoin payment service provider Bitpay.
Other candidates accepting bitcoin include Democratic congressional hopeful Brian Forde of California and Republican Kelli Ward, who is vying for one of Arizona's Senate seats.
The first presidential candidate to accept bitcoin contributions was Kentucky Republican Sen. Rand Paul. The libertarian previously expressed excitement about the future of digital currency as a potential replacement for credit cards. But Paul has also voiced some skepticism, arguing bitcoin needs to have real value, and calculating this value is extremely difficult because cryptocurrencies are in an "exponential bubble."
The FEC approved bitcoin contributions in 2014, ruling they should be treated as "in-kind donations." These noncash items fall under the same category as goods and services like office equipment and special event auctions. But unlike individual contributions, which max out at $2,700, bitcoin contributions are capped at $100.
Even with these laws, many question its transparency. There's still a perception among lawmakers that unregulated currencies like bitcoin are exploited for illegal activities — the most common one being money laundering. While there has certainly been reported cases of this type of criminal activity, just because bitcoin bypasses the traditional banking system doesn't mean it isn't legitimate and safe means of online payment.
It all comes to how bitcoin anonymizes transactions. While bitcoin transaction addresses can be traced, the transactors themselves are not identified.
"If the interest is in transparency, we really want to make sure we know exactly who is donating these funds," said Joe Birkenstock, former chief counsel of the Democratic National Committee. But he says the "distinction around anonymity and pseudonymity" can make that difficult.
That's why Kansas decided to ban bitcoin contributions in October. The Kansas ethics panel claimed the cryptocurrency was "too secretive" and worse than "the Russians." So far, no other state ethics commissions has issued a ruling against the use of bitcoin contributions in state and local elections.
Bitcoin's inherent volatility and limited cap doesn't always make it ideal for political fundraising. Still, candidates are always looking for ways to raise more money — and its limited cap could ultimately works in its favor.
An increasing number of candidates, such as Rep. Beto O'Rourke, D-Texas, are rejecting political action committee money, corporate cash and special-interest donations in favor of smaller contributions from grassroots supporters.
For other candidates, it's about what cryptocurrency stands for. It's particularly enticing to libertarians who aren't fans of central banking. They believe money belongs in the hands of individuals — not the the Federal Reserve.
"I am a big fan of the digital currency community because of what it represents, which is ultimately decentralization," Petersen told St. Louis Post-Dispatch.