Californians will soon be able to donate to political campaigns using digital money following a July 21 vote by the state Commission on Fair Political Practices.
Citing traceability concerns, the state banned donations in crypto four years ago. In presenting to the commission a proposal to lift the ban, Advocate General David Bainbridge said the new measures would prevent money laundering.
“We had to address the inherent problem with cryptocurrencies and the opportunity it provides for illicit donations, as under certain circumstances it is inherently and intentionally anonymous. In many cases, it cannot be tracked. In developing these rules, we were aware of these very legitimate concerns,” Bainbridge told the commissioners.
To avoid anonymous donations in crypto, donors must use a federally approved payment processor that will verify the identity of the contributor. The donation, to the extent permitted by law, will then be converted into US dollars.
In California, contributions go to beneficiary committees registered at the state level. These committees represent candidates or organizations that collect political donations. A donation converted into cryptocurrency, like other donations, will go to such a committee. According to the proposal (pdf), committees are prohibited from holding cryptocurrencies.
“By preventing committee ownership of the cryptocurrency, it avoids concerns about the possibility of value manipulation after the transfer,” Bainbridge said.
The new rules apply only to national and local political campaigns. Candidates for federal positions can already accept donations in cryptocurrency. The California change will take effect within two months.
Cryptocurrency is a digital or virtual currency that is an alternative form of payment that uses encryption algorithms. Crypto does not rely on banks to verify transactions. Instead, it uses the blockchain to record all transaction updates. According to Kaspersky, a cybersecurity firm, the first cryptocurrency, bitcoin, was introduced in 2009.
California and 8 other states ban cryptocurrency contributions. According to the memo (pdf), under the regulatory changes, California will join the 12 states plus Washington, D.C. that allow cryptocurrency contributions.