Victory: Federal Election Commission Adopts Our Recommendations on Cryptocurrency Mining for Campaigns

Today, the Federal Election Commission voted 4-0 to adopt an advisory opinion that embraces Free Speech For People’s recommendations regarding a platform to enable use of distributed computers to mine cryptocurrency for political campaigns. Free Speech For People was the only campaign finance reform organization involved in the regulatory process.

BACKGROUND

In September 2018, a company called OsiaNetwork LLC submitted a request for an advisory opinion from the Federal Election Commission. The company proposed that donors could lend unlimited amounts of computer processing power to the company for “mining” cryptocurrency, which could then be donated to political committees without counting as a contribution. Under the company’s theory, nobody has made a contribution; rather, they have simply “volunteered” their computer processing power.

We submitted a comment to the Commission highlighting the absurdity and danger of this request.  There is no limit on the extent of an individual’s computing processing power. A wealthy donor might have access (including temporary, leased access) to vast amounts of computing power capable of generating millions of dollars’ worth of cryptocurrency. This could result in contributions substantially exceeding the federal contribution limits. Allowing OsiaNetwork’s request would create an enormous loophole by which wealthy donors (not even necessarily based in the U.S.) could circumvent all contribution limits and contribute large amounts of money directly to political committees, simply by doing it with a computer.

(For further background on OsiaNetwork’s request and our comment, see this article by the Center for Public Integrity.)

The First Draft Advisory Opinion

In November 2018, the Commission’s staff circulated an initial draft opinion that correctly rejected the claim that automated cryptocurrency mining is “volunteering.” As the draft opinion summarized, “although the proposal is permissible under the Act and Commission regulations, it does not fall within the volunteer internet activities exception, and would result in contributions from both the individuals and OsiaNetwork to the participating political committees.”

In December 2018, we submitted a comment on that draft opinion. We commended the Commission staff for correctly recognizing that those who use OsiaNetwork’s service to mine cryptocurrency and transfer it to political campaigns are not “volunteers,” but rather contributors. However, as we explained in our comment, the draft opinion said that the contribution should be valued at “the usual and normal charge for the computing services used.”

We argued that the proper valuation of the contribution is the actual amount of U.S. currency transferred from OsiaNetwork to the political committee and attributable to that user. To give a concrete example based on numbers drawn from actual data, if a user spends $531 in computing resources acquiring one Bitcoin, which is then converted to U.S. currency at $3,406 and transferred to a political campaign, this should be valued as a $3,406 contribution (which exceeds federal contribution limits), not a $531 contribution.

OsiaNetwork submitted its own comment again urging the Commission to treat the cryptocurrency mining as “volunteering” and claiming, without evidence, that the system could not be abused in the way that we described.

The Revised Draft Opinion

In April 2019 the FEC staff prepared a revised draft opinion. The revised draft opinion continued to reject OsiaNetwork’s “volunteering” argument. Furthermore, it made a key change from the initial draft: instead of valuing the contribution at “the usual and normal charge for the computing services used” as the first draft had, the revised draft opinion valued the contribution as “the value, in U.S. dollars, of the cryptocurrency that is mined by the pool for the committee’s benefit”—just as we had asked in our December 2018 comment.

The final decision

On April 25, 2019, the FEC held an open meeting on the advisory opinion request. The company, recognizing that it had lost the critical “volunteering” argument and perhaps wary of potential litigation risk, agreed to accept the revised draft opinion that implemented our comments. After a brief recess for closed discussion, the FEC voted unanimously (4-0) to adopt the revised draft opinion.

This is an important victory. New technologies, such as cryptocurrency mining platforms, will play an important role in campaign financing in 2019 and beyond. But it is important that they not be used to evade longstanding limits on how much wealthy donors can contribute to political campaigns and committees. We commend the FEC for reaching the right result.

Further reading:

Photo by Nanumas Nikhomkhai from Pexels.

 

 

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