Politicians discover another way to use Bitcoin

20 May, 2019

What are the primary strengths of Bitcoin as a monetary system? First would probably be its decentralized architecture. Next would be privacy and security. Finally, you have to mention pseudonymity as well. It turns out all of these strengths make it possible for anyone to use Bitcoin to gamble online without exposing themselves to prying eyes.

It would appear as though politicians have discovered that the same crypto characteristics that allow you to play slots online can also be leveraged for campaign contributions. A case in point is a prominent politician in Russia likely to be Vladimir Putin's main opponent in his bid for re-election.

Numerous news stories have emerged in recent days detailing how opposition leader Alexei Navalny has taken in millions of dollars' worth of Bitcoin since he made his digital wallet available to donors a few years back. Indeed, the news of his Bitcoin donations is all the talk in Russian politics right now. It will be interesting to see how what is happening in Russia influences elections in other parts of the world.

Have wallet, will donate

Navalny's Bitcoin fundraising success has been achieved mostly through small donations. However, a number of exceptionally large transactions have occurred in recent months, catching the eye of Russia's Anti-Corruption Foundation (FBK). The FPK has reportedly begun looking into a few of those transactions as it seeks to know whether or not the Navalny campaign has done anything wrong.

As for the campaign itself, they say that the government investigation is little more than an attempt to keep Navalny from raising any more money. Regardless, one fact cannot be denied: people know Navalny has a Bitcoin wallet and they are happily contributing to it.

This creates a very interesting legal and political dilemma. Politicians in any country do not want their opponents being able to raise large amounts of campaign cash. After all, money generally buys elections one way or the other. It would be reasonable to assume that Mr. Putin would like to do whatever he can to limit Navalny's funding.

On the other hand, cryptocurrencies like Bitcoin exist outside of government control. Even if Russia were to completely outlaw cryptocurrency overnight, the government has very few tools at its disposal to actually stop people from using it. Those intent on continuing to trade with Bitcoin have access to far too many workarounds.

Campaign donations and free speech

There are many places in the world in which campaign donations are considered part of free speech. That is the thinking in the U.S., the UK, Canada, and many other largely democratic nations. The idea being that contributing to a political campaign gives the opportunity for a person's voice to be heard.

Without the ability to donate, a voter has no leverage and no means of getting a candidate's attention. And without that attention, there is little hope of explaining one's point of view to said candidate. On the other hand, candidates are generally willing to listen when there are campaign donations involved. So if you want a candidate's ear, donate to his or her campaign.

This may be an oversimplification of how campaign donations equal free speech, but it works well enough as an illustration. It also serves as a reminder of how important cryptocurrency donations are to candidates like Alexei Navalny. Every Bitcoin donation he receives represents a measure of support from the voting public. The more money he raises, the more support he has.

Anonymous campaign donations

Getting back to the strengths of Bitcoin, we have to at least mention the ability to give to Navalny's campaign anonymously. Because one can set up a digital wallet and start dealing in crypto with little more than an e-mail address, it is fairly easy to get started without having to create traceable bank records.

Anyone can purchase Bitcoin, even in very low denominations, then transfer those funds to a political candidate without creating any kind of trail. And even if someone were worried that a Bitcoin exchange could be forced by a government agency to give up its information, it is amazingly easy to convert between multiple cryptocurrencies in order to make that trail impossible to follow. It can all be done within minutes, and the funds can still wind up as political donations to a particular campaign.

Where all of this gets sticky is in how far governments will go to get their hands on exchange information. In the case of Bitcoin, true anonymity does not exist. Rather, users are protected through something known a pseudonymity.

Every Bitcoin transaction is traceable to some extent. Transaction data does contain some identifying features that, once decrypted, would make it possible to associate certain transactions with the involved wallets. Users are protected in that those wallets are identified only by network addresses.

Use a cryptocurrency like Monero instead, and you have access to true anonymity. Monero transactions do not include any identifying information whatsoever. As such, it is nearly impossible to track who is moving money around on the Monero network.

Any way you look at it, making campaign donations via cryptocurrency offers more protections to people who don't want it known. Allow people to give anonymously and you are likely to see more campaign donations coming in. That is just the way it works.

Risks for candidates

As helpful as cryptocurrency may prove in funding the political campaigns of the future, there is no campaign funding model that is absolutely risk-free. Not even cryptocurrency is without its risks. The biggest risk is price volatility.

According to news sources, Alexei Navalny's total Bitcoin holdings were worth about USD $3 million on April 24. But that could change in a heartbeat. At around $5000 per coin, $3 million in holdings would translate into 600 coins. A price drop of just $100 would mean an instant loss of $60,000.

Price volatility will be a major concern for any candidate who attempts to fund the majority of his or her campaign using cryptocurrency. The campaign could have plenty of money to pursue its strategy today, but barely enough to keep the doors open tomorrow. The opposite is also true. A marginal candidate with very little funds can suddenly find him/herself with more money that he/she can spend.

The other risk here is associated with converting cryptocurrency into fiat. It is great that Navalny has millions of dollars' worth of Bitcoin on which to run his campaign. But at some point, some of what he owns will have to be converted into fiat to start paying for things. This is where the government could leverage its existing power and authority to come down on the Navalny campaign.

Shaking things up

No matter what happens with the Navalny campaign in Russia, it is clear that cryptocurrency is shaking things up everywhere you turn. We have known for quite some time that you can purchase bitcoins to play slots online. We have known for quite a while that Bitcoin, Ethereum, and all the rest have made many people wealthy through strategic investments. But seeing Bitcoin play a role in politics is something entirely different altogether.

Cryptocurrency began its life as nothing more than an alternative monetary system. Bitcoin was created to give people another way to pay for things without having to dabble in fiat. It gave them a way to conduct business without having to use their bank accounts, credit cards, and so forth. It was all good way back then.

It wasn't long before people began seeing the potential of cryptocurrency as an investment tool. That is when the big money started flowing in. Investors started buying up bitcoins like they were gold, pushing the price to nearly $20,000 at Bitcoin's peak in 2017.

Alas, with every bull market there is an accompanying bear. Cryptocurrency prices began falling until they reached a comfortable level of stability. And once that stability was reached, crypto once again reverted to a payment system. That's where we are today.

It is all about utility

At the end of the day, the strength of cryptocurrency is its utility. Cryptocurrency assets are not worth having if you cannot do anything with them. Even investors know that. If they cannot eventually convert their bitcoins into fiat, the coins are worth very little as a store of wealth.

Utility for most of us means using our digital coins to pay for things we would otherwise purchase with fiat. We have talked at length about playing slots online with cryptocurrency. But what else can you do? That depends on where you live.

If you live in London for example, there are some taxi operators who accept cryptocurrency payments. Growing numbers of coffee shops and pubs are also getting on the crypto bandwagon. And no matter where you live, there are opportunities to shop online with your favorite crypto.

Contributing bitcoins to a political campaign is just another form of utility. People who want to donate but are otherwise unwilling to do so with fiat can contribute to the campaigns of their choice simply by transferring coins from their wallets to the campaigns. The campaigns can then spend the funds anyway they see fit.