Mining bitcoin to back political candidates?

Introduction

Would you go mining to support your favorite federal candidate? Mining for cryptocurrency, that is.

OsiaNetwork LLC, a newly formed limited liability company in Delaware, has asked the Federal Election Commission whether it’s legal for people to share the processing power of their computers and other internet-enabled devices to “mine” potentially valuable cryptocurrencies such as bitcoin — and support political campaigns with the windfall.

Not much is known about OsiaNetwork LLC. The firm was incorporated August 13 in Delaware, a state that requires little information to set up a company, and OsiaNetwork’s lawyer declined to provide any details. But its novel request comes at a time when government officials are struggling to regulate cryptocurrencies in politics — and even just understand them. Nevertheless, some politicians and political groups are showing an increasing willingness to accept and use cryptocurrencies, which are a type of digital or virtual currency.

Nine federal candidates, parties and super PACs together received the equivalent of almost $570,000 in cryptocurrency donations in the 2017-2018 election cycle, according to an analysis of federal records by the Center for Public Integrity.

Compared to the more than $2.5 billion raised by just federal congressional candidates in the 2018 midterms, that’s not much. But it is a huge leap compared to recent years: Political committees only raised the equivalent of $2,500 in cryptocurrency during the 2016 elections, and $38,000 during Election 2014. (Federal committees report cryptocurrency in inconsistent ways, so the Center for Public Integrity analyzed federal campaign contribution data for name-brand cryptocurrencies such as bitcoin, ethereum and monero, and exchange platforms such as Coinbase and Bitpay.)

On the state level, totals are harder to determine, and donors are faced with a patchwork of policies. Earlier this fall, the Center for Public Integrity found 20 crypto-candidates seeking all levels of office requesting or receiving cryptocurrency donations.

OsiaNetwork is specifically asking that cryptocurrencies generated by politically motivated “miners” be treated as a political volunteer activity, and not a political contribution.

This question has transparency implications because political contributions are limited to $2,700 a candidate per election, and are disclosed on public reports. Volunteering activities are exempt from both.

The FEC last week floated a preliminary answer that the commission intends to discuss and vote on in mid-December. If the FEC adopts its advice as written, the LLC is likely to be disappointed: That preliminary opinion states that, yes, people may offer up their processing power to generate cryptocurrencies, but sorry, such activity would be a considered a political contribution.

FEC commissioners will likely get a crash course in cryptocurrency accounting between now and then. Using bitcoin as an example: All bitcoin activity is recorded on a decentralized public “ledger,” or blockchain, and all transactions are verified by “miners.” A miner essentially uses his or her device to solve a complex math problem to authenticate an interaction, and in exchange receives a small amount of bitcoin as a reward.

For an individual, this doesn’t add up to much, and can be costly to run. But OsiaNetwork is proposing to pool lots of people’s processing power, take a chunk of the reward, and pass on the rest to political campaigns.

OsiaNetwork likened political cryptocurrency mining to other kinds of internet-based political actions that federal regulators consider volunteering: sending political emails, blogging and creating and hosting a website.

The FEC’s preliminary answer to OsiaNetwork’s request indicates the agency “did not intend the definition to be so broad as to encompass every activity that might make incidental use of the internet.”

Republican FEC Chairwoman Caroline Hunter and Republican Commissioner Matthew Petersen said they are waiting to see how OsiaNetwork responds to the FEC’s preliminary answer before they decide how to vote.

Democratic FEC Commissioner Ellen Weintraub said she is leaning towards supporting the FEC’s preliminary answer to OsiaNetwork, but is “happy to hear what [OsiaNetwork] has to say and maintain an open mind.”  

Some advocates of campaign finance regulations aren’t keen on OsiaNetwork’s plan for political cryptocurrency mining. Ronald Fein, legal director for nonprofit Free Speech For People, compared the question to asking if drones, which don’t have the physical limits humans do, could mine precious minerals and donate unlimited high-worth jewels to campaigns and call that volunteering.

“The request seems deceptive, in that it’s proposing something that seems like a modest extension of past opinions, but in reality would create a loophole to exploit and bypass all campaign contributions,” said Fein, whose group sent a letter to the FEC in opposition to OsiaNetwork’s request.

Fein also questioned whether the FEC is fit to consider the matter: “We worry that some members of the FEC may not have technical backgrounds and be bamboozled by this.”

Petersen, the Republican commissioner, disagreed. “I’m not sure how he thinks we’re being potentially bamboozled, but I’ll go look up his comments,” he said.

But Fein did say he was pleased by the FEC’s draft response, calling it a “great first step” that “saw through the fundamental problem of OsiaNetwork’s proposal.”

His group may submit a follow-up letter to the FEC with suggestions. One disagreement he has: The amount of a “mining” donation should be counted by how much is mined, not the value of the computing services used. That’s like recording a gold miner’s minimum wage as a contribution, and not the value of the gold, he said.

Jonathan S. Sack, a partner at Morvillo Abramowitz Grand Iason & Anello PC, who represents OsiaNetwork, declined to comment on the matter while the FEC was still considering its request.

But in a letter to the FEC addressing Free Speech for People’s concerns, Sack framed the question as a new route for grassroots support, permitting anyone with a working internet connection to volunteer.

“Because many of these individuals may not have the financial wherewithal to support candidates with monetary contributions, OsiaNetwork’s proposal would help empower ordinary citizens to have a greater voice in the electoral process.”

There’s an argument to be made that lending your processing power, without getting any reimbursement, is in fact just volunteering, said Brian Svoboda, an election lawyer and partner at Perkins Coie. Just look at Bruce Springsteen performing for Democratic presidential candidate John Kerry in 2004, he said.

Fein sees political cryptocurrency’s potential quite differently: He envisions big campaign donors setting up server farms that could generate great sums of cryptocurrency.

Others are skeptical that such a “mining” operation would take place anytime soon.

“It’s still complicated to set up a mining operation of the size needed to have a meaningful impact,” said Kristin Smith, director of external affairs at the nonprofit Blockchain Association. “Today, there are more efficient ways for those seeking to influence campaigns to contribute to candidates. However, the technology is powerful, and, as mining becomes more accessible, the FEC should consider this issue carefully.”

The FEC has in the past narrowly addressed cryptocurrency in elections, leaving many questions lingering.

In 2014, the agency voted 6-0 to allow political committees to accept $100 worth of bitcoin but didn’t address more valuable bitcoin donations.

Chris Zubak-Skees contributed to this report.