Several political candidates have begun accepting bitcoins for campaign contribution—but the future of this practice hinges on a Federal Election Commission decision coming by October 28.

Jeremy Hansen, a member of the selectboard of the town of Berlin, Vt., ran for the State Senate as an independent last year and received 68% of his donations in bitcoins. He didn't win, but he considers his experience with the virtual currency to have been positive. However, he predicts the FEC will not consider bitcoin a legal form of donation for future political campaigns.

Bitcoin, a decentralized virtual currency, "is kind of threatening to the way currency works nowadays…where it's heavily controlled," Hansen says. The FEC won't rule for Bitcoin "because of the possibility of people using it for money laundering and accepting contributions that are barely traceable from foreign nationals," he says.

Hansen, who is also an assistant professor of computer science at Norwich University, attracted some national publicity when he started accepting bitcoin contributions in early October 2012. Hansen reported the contributions as in-kind donations, meaning he reported the value of the bitcoins as goods or services instead of as cash.

Mark Warden accepted some bitcoin donations during his reelection campaign for state representative for New Hampshire in 2012, but he reluctantly had to send several back to the donors.

Some of the bitcoin donations he refused were offered by anonymous donors, and New Hampshire law states that a name and address must be obtained from all contributors. Warden posted a note on Bitcoin-related forums asking for the donor's identity, but he did not get a response and had to send the donation back to the address it came from, he says.

"I really wanted to do it and for other candidates in New Hampshire to help educate people about alternative currencies," says Warden. "It's a political statement we're making by accepting bitcoin in the first place…to break the ice and bring up the discussion."

Other bitcoin donations came from overseas, he says, which federal law does not allow. Warden received a couple of donations from Europe and about 20 contributions from people he didn't know, he says. Over the course of three months, the campaign received about 150 bitcoins for donation, he says. Back then the exchange rate was about $9 to $10 per bitcoin.

Of the bitcoin donations Warden was comfortable accepting, he converted most into U.S. dollars, although he kept some funds in bitcoins to pay campaign vendors.

Warden has been elected to the state House of Representatives twice. He has not decided whether he'll run again next year or try for a higher position, he says.

While the FEC's deadline for response is October 28, there is also a possibility of an extension, says Christian Hilland, a spokesperson for the FEC. "Until that time, the commission does not comment on pending matters," Hilland says.

The FEC is considering its stance on bitcoin following a request by attorneys for the Conservative Action Fund PAC last month.

The Bitcoin Foundation, a trade group, recently sent a letter to the FEC expressing its position that bitcoins are acceptable for donations.

The foundation believes that the FEC should "leave it open as to whether [politicians] treat [bitcoin] as cash or in-kind donations," says Jon Matonis, executive director of the foundation.

Matonis says he is optimistic that the FEC will favor the use of bitcoins.

"Campaigns want to accept bitcoin to appeal to a specific demographic…or because they're just looking at it as another payment type," he says. "There's a lot to look forward to about how broad bitcoin acceptance could become in politics."

One of the major issues in accepting contributions in Bitcoin is the digital currency's constantly fluctuating price. During Bitcoin's more tumultuous times, the price per bitcoin rose to about $260 — and plummeted to around $70 a day later after a prominent Bitcoin exchange suffered an online attack.

The price should be logged either when the candidate exchanges it for U.S. dollars or when the candidate files forms with the FEC, so politicians can choose to hold bitcoins, says Matonis. The recipient also has the burden of obtaining donor information, says Matonis.  

Another issue is the risk that the donated bitcoins have been tainted, such as being traded on Silk Road, an online black market for illegal narcotics sales among other nefarious activities. There is a movement among bitcoin users to decrease the value of tainted coins.

We're "not in favor of anything that would make some coins worth different amounts than other bitcoins," Matonis says. Not only would a layer like this restrict fungibility, but it is also nearly unenforceable, he says.

"The political answer is that currency doesn't have a morality," Matonis says. People do not typically question the value of cash if it has previously been misused, he says.

Subscribe Now

Authoritative analysis and perspective for every segment of the payments industry

14-Day Free Trial

Authoritative analysis and perspective for every segment of the industry