Internet Money Not Political Cure-all?

ImageBitcoin, a fast rising virtual cryptocurrency, has recently been exposed to the public in the mainstream media after an exceedingly positive meeting on the currency by the U.S. Department of Justice. While Washington seemed to see value in Bitcoin as a near frictionless way of transferring currency across the globe, others have different ideas of what is possible with Bitcoin. Peter Overby, in his article, “What A Bitcoin Political Debut Could Mean For Transparency”, cites one possible use of Bitcoin as a way to increase anonymity in campaign donations to reduce corruption.   It’s no surprise to anyone that our current system of campaign donations has its negative side effects. On a smaller scale, business owners are able to manipulate the system to skirt donation limits. In Louisiana, for example, the top 400 campaign donors skirted the donation limits by donating under the guise of different corporations that they owned. In terms of a presidential election, individuals and businesses are free to donate as much as they want to a “super PAC”, otherwise known as an “independent expenditure-only [Political Action Committee]”, so long as it uses the money indirectly to advocate a candidate. It is argued by Liz Kennedy, of Demos, as well as others, that these manners of donating are harmful to democracy and an honest voting process, as the influence of money can have a corrupting influence on candidate’s decisions.  


So where does Bitcoin come into all this? Due to its virtual and anonymous nature, political scientist Ray La Raja (NPR) asserts that Bitcoin “could cut off this corrupt exchange”. His reasoning stems from the fact that Bitcoin is supposedly anonymous. The currency, which is an expression of units of cryptological work performed by a computer, in a general sense is anonymous; there is no name or physical address necessarily linked to any transaction of Bitcoin. However, all transactions of Bitcoin are publicly recorded in a website called the blockchain. The reason this website must exist is because Bitcoin operates on a peer to peer network. This network connects all the users running a Bitcoin application together in order to authenticate each user’s transactions. Without the blockchain, the legitimacy of Bitcoin would not be able to be authenticated by anyone, and it would lose its value, making it necessary to its function as a currency. Thus, Bitcoin operates under a system of pseudo-anonymity, wherein all transactions are in the open, but are not necessarily connected with public figures.  


Though there is not implicitly a direct link to one’s identity when using Bitcoin, if one does ever link their identity to a Bitcoin Address, such as on a website advertising something for sale, all future transactions can be tied to that real life identity. By traversing the blockchain, a person determined enough could trace suspect transactions (unusually large transactions, for example) back to a real life identity. This fact partially counters the position that Bitcoin adds anonymity to the campaign donation process. Instead of having these supposedly anonymous donations through Bitcoin, someone running for office would easily be able to track these donations to any past connection to a public identity.  


But what if there never was a connection to a public identity by this hypothetical Bitcoin Address that one could trace? I believe that Bitcoin would still fail to cut down on the corrupt exchanges of money Raja describes. Since we first supposed that there was no connection between these transactions and a public identity, there would be no way to identify a donor who used Bitcoin. Rather than donations taking the semi-transparent form of super PACs, wherein the actual donors are obscured by vague names yet still publicly available, Bitcoin donors would be completely anonymous. But would this anonymity lead to reduced corruption in campaign donations? I posit that it would not. As Bitcoin can be paid in any amount the sender wishes, it would be trivially easy to send a unique, agreed upon amount at an agreed upon time to a candidate. Usually the government would step in to regulate such events, such as by mandating that donations only be in certain amounts, such as $5,000. But Bitcoin is a currency that cannot be directly regulated by the government. The peer to peer and decentralized, open-source nature of Bitcoin makes it such that no mandate could truly be made to enforce laws upon Bitcoin users. In the example of the $5,000 mandate, it would still be possible to anonymously send many instances of this amount equaling a previously agreed upon total. While this is only one specific instance, the very nature of Bitcoin lends itself to loopholes around the law.  


Another possibility is that the Government could mandate only publicly tied Bitcoin Addresses be used to make donations. In order for these records to be “auditable” they would suitably need to be tied to a public identity. This entirely erases whatever anonymity Bitcoin provides, leading us back to an open system where the rich buy favor from politicians. It seems, in terms of anonymity, that there is no middle ground for Bitcoin use with the government.  


At the heart of the issue lies the argument between anonymity and transparency in campaign donations. Conor Friedersdorf traces the history of the private voting booth, citing that vote anonymity led to “vote buying becoming difficult”. If the history of the United States voting system is any authority, transparency of voting (and theoretically, of campaign donations) leads to vote buying and politicians looking out for their biggest donors. As Friedersdorf intones, anonymity made votes more difficult to buy, as a candidate could not be sure the voter would stay true to their word. However in the world of campaign donations, this shakes out differently. In this situation it is the donor who is expecting something in return from the candidate, instead of the candidate expecting something from a voter. As a candidate is a public entity, their actions are freely viewable by an anonymous donor. Therefore a candidate would still be beholden to the requests of an anonymous donor, provided they wished to continue receiving such donations. Logically, then, anonymity is no guaranteed cure to political corruption.  


While Bitcoin can be a pseudo-anonymous currency, it has other issues as a vehicle for campaign donations. An example is that Bitcoin exists in limited quantity, so it takes on a role much like gold. The value of Bitcoin constantly shifts, and it has little practical use, but rather is largely used for speculatory purposes. As Paul Krugman of The New York Times argues, “there is an incentive to hoard the virtual currency rather than spending it”. This behavior mimics that of gold and other precious commodities. This essential fact about Bitcoin is antithetical to its use as a vehicle for campaign donations; no one would logically donate the increasingly valuable Bitcoin over the inflating dollar.   While Bitcoin does not provide a wholly anonymous method of transferring currency, it does broach some questions in the debate over anonymity vs. transparency. In anonymous donor situations, it is difficult to audit a decentralized currency like Bitcoin. Even if it were audited, there are many loopholes surrounding the currency. Perhaps instead of debating the method of transferring currency, the question should be how much total should be allowed to be donated.   


One Comment to “Internet Money Not Political Cure-all?”

  1. Man, I gotta get me some before they run out…perhaps for anonymous donations! If I were a political candidate who won an election based on online anonymous donations, I would feel awesome about myself… I hope the bit coin amounts do get traded in only increments of thousands, so that the election is honest.

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