Now what?

The voting’s over. Crypto’s work isn’t done.

Hey folks, and welcome to the final issue of The State of Crypto: Election 2020. My name is Nikhilesh De and it’s been a pleasure hosting you. Read to the end to see what comes next.

Today’s issue: Can crypto principles help strengthen elections?

Campaign briefing

I started writing this at about 2:30 a.m. ET, and wrapped up seven hours later. Ballots have been submitted but states are still counting, and it’s not yet clear who will become the next President of the United States. We do know roughly how the U.S. House of Representatives and Senate will shake out, at least regarding lawmakers important to the crypto space. 

There’s a lot to unpack from this election, but first I want to talk a bit about the systems we use to verify the election and how we determine the winner. Just moments before 2:30 a.m., U.S. President Donald Trump attempted to declare victory, claiming he was ahead in the polls in Georgia, North Carolina, Michigan and Wisconsin (as of press time, Biden had the lead in two of those states). None of these states had reported their final tallies and, indeed, it’s not even certain he’ll win those states. In Georgia, for example, Trump had a 117,000-vote lead with 300,000 votes left to be counted at the time he made those comments. In other states, he was predicted to be leading by the end of the evening as day-of ballots are counted, but these leads may change as early and mail-in ballots are counted starting Nov. 4.

His comments came just minutes after he made similar statements on Facebook and Twitter, prompting both of these social platforms to apply fact-check labels, a practice that is an ongoing point of contention among lawmakers. 

Indeed, pundits predicted Trump might declare victory before all the votes are in. It’s not that Trump can’t win at this point - just that he hasn’t yet. 

Clearly, it may take a bit of time to actually determine who won. But this raises another  important question: How does America's democratic system handle these kinds of unsubstantiated declarations? This problem isn’t limited to the presidential level because there are any number of positions for which a candidate might try to declare victory and attempt to invalidate efforts to count additional votes. The crypto space has already begun finding automated ways of finding the winners of election campaigns, if my understanding of Delegated Proof of Stake systems is correct.

I’m not advocating for blockchain voting in a federal election, to be clear. My understanding of blockchain voting platforms is they’re largely security theater with limited audits or oversight, and so “blockchain fixes this” is pretty clearly not a solution. However, last night’s events show this is the time to be thinking about how to improve our election process. A problem the crypto industry is already considering has now slammed into the national discourse with the force of a derailed freight train. 

Without resorting to putting votes on an actual blockchain, is there a way to apply crypto principles to future elections? 

It won’t be easy. This hypothetical system would have to employ strong encryption, match states’ varied voting requirements and quickly provide reliable results. It would have to be robust enough to stand up to malicious actors who might try to compromise such voting systems.

It would also have to be easy to use, preferably overseas as well as domestically, and be accessible to all voters – meaning, in addition to the technical solution every state would need to support its use. And it would have to be a system that is easier for regulators to understand and accept, such as using PGP keys for encryption rather than a – let’s face it, poorly understood – blockchain hashing algorithm.

Of course, the technical system is only part of the story. One reason some states are taking so long to report their results is because local laws prevent them from counting mail-in or early ballots until after Election Day. But that’s another problem entirely.

Fast fact

On the ballot

CoinDesk tracked 41 congressional races for lawmakers who are likely to have an impact on the crypto industry, whether by introducing legislation supporting the industry or trying to stifle it. Almost all of the candidates in our top 15 races won re-election, with the exception of Rep. David Schweikert (R-Ariz.), who was trailing at press time. Overall, this would suggest there are opportunities for the industry to engage with lawmakers and continue pushing for legislation that might bolster companies trying to operate within the U.S. 

Notably: Senator-Elect Cynthia Lummis (R-Wyo.) did win her seat, and is poised to be the Senate’s first full Bitcoin advocate. Senator Kelly Loeffler (R-Ga.), the former CEO of Bakkt, is headed to a runoff election next January after no candidate secured enough of the vote on Tuesday. 

We’ll be assessing the final list of victories and losses in the coming days and weeks to determine the real impact on the crypto industry.

Early returns

Prediction markets are an effort to create better polling by ensuring participants have “skin in the game” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens. 

CoinDesk monitored a number of prediction markets to see how they align with traditional polls and the final election results, including both centralized and decentralized platforms. What we found was while most of these markets predicted Biden would win, they switched pretty quickly after results began rolling in on Tuesday evening. As of this writing, there’s still no declared winner, but it’s striking that the markets roughly tracked the polls consistently until Trump won some early electoral college votes.

It’ll be interesting to see how the final results stack up to these prediction markets, but for now, as of 10:00 a.m. ET on Nov. 4, 2020:

Decentralized markets:

Polymarket: Donald Trump (R) will not win the 2020 U.S. presidential election.

Augur: Donald Trump (R) will not be re-elected in 2020.

PrediQt: Donald Trump (R) will not be re-elected in 2020.

FTX: Traders have bet more on Biden winning than on Trump winning.

Sounding board

This is the final edition of this pop-up newsletter, but with positive momentum and your reader feedback we’re just getting started. 

We’re launching “The State of Crypto” as a full-fledged CoinDesk weekly newsletter sometime soon, with a focus on the intersection of the crypto industry and the regulatory space. 

We’ll send you a confirmation email when it’s ready; to opt out, simply unsubscribe.

Until then, feel free to email me atnik@coindesk.com and keep the conversation going with other subscribers on Telegram.

Not our year

The election is tomorrow. Why doesn't the crypto world care?

Good morning and welcome to the penultimate edition of The State of Crypto: Election 2020. As always, I’m your host Nikhilesh De.

Today’s issue: What role, exactly, does the election play in crypto?

Campaign briefing

Tomorrow is Election Day. All votes should be submitted or postmarked by tomorrow and by sometime Wednesday morning we should have a rough idea of how things are looking, at least at the state, local and most federal elections below the President. At least 94 million individuals have already voted, breaking some records from 2016.

My thesis in thinking about this newsletter was that the crypto space should be more engaged in this election (as I’ve said repeatedly). The time to be talking about these issues is before and during the election process, and not just after a new President and Congress are sworn in next January.

After numerous conversations and dives into public FEC data (watch coindesk.com for an article on that later), I think my thesis still holds fairly well.

Certainly, there's some engagement in the form of direct donations to campaigns and political parties, though not in actively lobbying candidates on policy positions.This makes sense to me: Crypto is a niche, with a questionable reputation to boot. According to FEC figures, the majority of donations either went to a few presidential candidates or to generic party donation platforms like ActBlue and WinRed (ActBlue receiving the majority of these donations). Few donations went to crypto-friendly (or skeptical) candidates at the Congressional level. A crypto-focused Political Action Committee, HODLpac, raised a scant $27,000 since January, only about $6,000 of it since going public in March. Tyler Whirty, the group’s founder, told me he thinks this year's general election cycle has “sucked all the air out of the room when it comes to specific issues” like crypto or even broader tech policy.

Why does it matter? What role does the election play in our industry? Today, not a big one. But this brings us to the next question: What role should the election play? My answer remains: “a much bigger one.”

So, and I say this as a skeptic of much of the crypto space, there is still potential for growth.

This is, of course, different from the question of “what sort of role does crypto play in the presidential election.” In 2020, the answer was “literally none.” It wasn’t a campaign issue, even though technically at least two major crypto figures declared their intention to run (and one ended up arrested) and another third-party candidate brought it up. I doubt this will change unless the industry does actually become more engaged with the regulators and lawmakers. It can’t just be the Washington, D.C.-based nonprofits and lobbying organizations, but the actual developers and entrepreneurs.

It’s looking increasingly likely that, barring any electoral shenanigans, Democrats will control the House of Representatives, Senate and Presidency, which means there could be a coordinated effort to enact financial and technology regulation that will affect the cryptocurrency and blockchain space. And again, this doesn’t mean crypto-specific legislation (unless Libra?) but rules around the broader questions of encryption, digital identity and privacy, banking, financial access and even net neutrality.

There are people in the crypto industry building tools that touch on all of these issues. They should talk to their representatives.

Fast fact

On the ballot

A number of this year’s candidates for federal office have proposed crypto-related bills or suggested policies. Meet a few of them, courtesy of my colleague Sandali Handagama:

Rep. French Hill (R-AK)

Crypto stance: Pro-blockchain, CBDC proponent

Rep. Hill, a third-term congressman, wrote a letter to Federal Reserve Chair Jerome Powell with Rep. Bill Foster asking the government to consider a national digital currency. He is a member of the Congressional Blockchain Caucus. In a video interview with Yahoo Finance, Hill stated that blockchain tech is part of the future.

Rep. Ro Khanna (D-CA)

Crypto stance: Pro-blockchain

Rep. Khanna, a second-term congressman, is a member of the Congressional Blockchain Caucus. He was among the 11 lawmakers that signed a letter to Treasury Secretary Steven Mnuchin to consider blockchain technology for streamlining the distribution of funds and supplies to those in need during the Covid-19 pandemic. He also signed a letter addressed to the federal government, urging the administration to use blockchain solutions in pandemic relief efforts.

Rep. Ben McAdams (D-UT)

Crypto stance: Pro-blockchain, anti-Libra

Rep. McAdams, a first-term congressman, signed a 2020 letter to the US Treasury Secretary Steven Mnuchin, calling for the department to use blockchain technology to streamline pandemic relief efforts. He also signed a similar letter addressed to President Trump and federal officials months later. He is a member of the House Financial Services Committee’s fintech task force. McAdams has been critical of Facebook in the past, arguing that Libra might enable child exploitation by protecting predators.

Rep. Kathleen Rice (D-NY)

Crypto stance: Wary (?)

Rep. Rice, a third-term congressman, introduced the Homeland Security Assessment of Terrorists’ Use of Virtual Currencies Act in 2019. The bipartisan bill passed the house, and requires the department of homeland security (DHS) to develop a threat assessment report on virtual currency use by terrorist organizations. The bill was co-sponsored by Reps Peter King (R-NY), Brad Sherman (D-CA) and Van Taylor (R-TX).

Rep. Jerry McNerney (D-CA)

Crypto stance: Pro-blockchain

Rep. McNerney, a seventh-term congressman, signed a 2020 letter to U.S. Treasury Secretary Steven Mnuchin, calling for the department to use blockchain technology to aid pandemic relief efforts and the distribution of relief funds. He also signed a letter to President Trump, explaining the benefits of blockchain in streamlining administrative processes.

Early returns

Prediction markets are an effort to create better polling by ensuring participants have “skin in the game,” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens.

CoinDesk is monitoring crypto prediction markets to see how they align with traditional polls and the final election results.

Here’s what a random sampling of markets says (as of Nov. 1, 2020):

Centralized markets:

PredictIt: Joe Biden (D) has the best odds of winning the presidency.

Iowa Electronic Markets: Democrats are likely to receive the majority of the popular votes.

Decentralized markets:

Polymarket: Donald Trump (R) will not win the 2020 U.S. presidential election.

Augur: Donald Trump (R) will not be re-elected in 2020.

PrediQt: Donald Trump (R) will not be re-elected in 2020.

FTX: Traders have bet more on Biden winning than on Trump winning.

Neutral polling:

FiveThirtyEight: Biden is favored to win the presidential election.

Sounding board

Feel free to reply any time or email social@coindesk.com or nik@coindesk.com.

Between reads, or to talk about the polls as they start rolling in, chat with us on Telegram.

The election is eating everything

Even your Section 230 hearings

Hey, folks. Welcome to the fourth issue of The State of Crypto: Election 2020. I'm Nikhilesh De and Nov. 3 is coming up fast.

Today’s issue: Section 230 and the opportunity to replace Big Tech.

Campaign briefing

An estimated 80 million individuals have now cast their ballots, out of a registered 209 million or so, with some states seeing as many early votes in 2020 as they saw overall votes in 2016. Meanwhile, the social media platforms that were supposed to be a force for free expression have come under fire.

Earlier this week Congress held the first of several hearings around Section 230 of the Communications Decency Act, the clause that protects social media and other internet companies from being sued for content published by users on their platforms. Some elected officials feel that companies like Twitter and Facebook are taking advantage of this clause to spread disinformation or censor views they disagree with. Wednesday’s hearing, held by the Senate Commerce Committee, was supposed to be a fact-finding mission to establish whether or not there is truth to these claims.

While a few questions around how tech companies are regulated and protected from certain suits made it through, the majority of the hearing ended up being a space for lawmakers to air personal grievances or argue that the hearing itself was a partisan effort to distract from Tuesday’s election. What is clear is lawmakers are becoming increasingly fed up with Big Tech firms, and there probably isn’t a way for Twitter to make both political parties happy.

This election matters for tech regulation, because political appointees might create policy around these issues. I have two views here: First, stakeholders, which include developers and entrepreneurs in the crypto space, should absolutely engage with the elected officials representing them on issues like these. The U.S. Department of Justice (DOJ) might not call for reforming laws to allow them a smidge more control over internet platforms if there was widespread opposition (I assume, at least. Maybe the DOJ would publish draft legislation anyway). There are opportunities for the public to weigh in on proposed legislation or rulemaking, but it depends on industry participants actually providing informed commentary and suggestions.

Second, the overreach of big tech really should create an opportunity for decentralized platforms to pick up the slack. I wrote last week that perhaps it's too early for these platforms, or maybe we just haven’t built one strong enough to support real adoption. But if there’s any lesson in 2020, it’s that this is the year people actively look to alternatives. Last night reporter Glenn Greenwald publicly quit The Intercept and announced a new newsletter on Substack. He’s not the only reporter to move to this model of journalism: He joins reporters like Casey Newton and my former colleague Leigh Cuen in doing so. Substack’s an example of a young service that is easy to use. This is not true of decentralized platforms.

One final note: I’ve covered encryption and the U.S. government’s approach to it for CoinDesk. I just wanted to highlight this bit from a Reuters piece that came out Wednesday:

In at least one instance, a foreign adversary was able to take advantage of a back door invented by U.S. intelligence, according to Juniper Networks Inc, which said in 2015 its equipment had been compromised. In a previously unreported statement to members of Congress in July seen by Reuters, Juniper said an unnamed national government had converted the mechanism first created by the NSA.

Government officials called for backdoor access to encryption, and in doing so opened the system up to their own enemies. There’s a solid chance that cryptocurrency developers, like those building privacy-focused coins, might also face this sort of pressure, which would compromise the whole point of some of these projects.

Fast fact

On the ballot

A number of this year’s candidates for federal office have proposed crypto-related bills or suggested policies. Meet a few of them, courtesy of my colleague Sandali Handagama:

Rep. Brett Guthrie (R-KY)

Crypto stance: Pro-blockchain, introduced bills to promote blockchain adoption

Rep. Guthrie, a sixth-term congressman, introduced the Blockchain Promotion Act of 2018 with Rep. Doris Matsui. The bill called for the creation of a working group to study the technology, and create a common definition for government purposes. In 2020, the congressman introduced HB6938, a bill to survey the prevalence of blockchain technology across industries and governments globally, with the goal of setting up a national blockchain strategy.

Rep. Josh Gottheimer (D-NJ)

Crypto stance: Pro-blockchain, co-sponsored the Token Taxonomy Act

Rep. Gottheimer, a second-term congressman, co-sponsored the Token Taxonomy Act – which would exempt tokens from U.S. securities law.It was reintroduced to Congress in 2019, after it did not leave committee in 2018. He is a member of the House Financial Services Committee’s Fintech Task Force, and was among the group of lawmakers who signed a bipartisan letter to Trump advisor Larry Kudlow asking him to include blockchain in the administration's initiatives for emerging technologies.

Rep. Lance Gooden (R-TX)

Crypto stance: Pro-blockchain, introduced bill to clarify status of crypto assets under securities law

Rep. Gooden, a first-term congressman, was among the lawmakers that called for the IRS to clarify tax laws as they apply to crypto assets, airdrops and forks in 2019. Rep. Gooden and Rep. Sylvia Garcia introduced the Managed Stablecoins are Securities Act of 2019, aimed at classifying actively-managed stablecoins like the Facebook-sponsored Libra as securities and establishing oversight under existing securities laws.

Rep. Bill Foster (D-IL)

Crypto stance: Pro-blockchain, CBDC proponent

Rep. Foster, a fifth-term congressman, is co-chair of the Congressional Blockchain Caucus. Along with Rep. French Hill, Foster urged the Federal Reserve to consider the creation of a central bank digital currency in a 2019 letter to Chair Jerome Powell. The same year, he was among the lawmakers who called for clarity on crypto taxation. In the past he’s advocated for creating secure digital identity tools and predicted in 2018 that a central bank issuing its own cryptocurrency could impact the U.S. dollar’s status as a global reserve currency.

Rep. Doris Matsui (D-CA)

Crypto stance: Pro-blockchain, introduced bill to define blockchain technology for government purposes

Rep. Matsui, fourth-term congresswoman, introduced the Blockchain Promotion Act of 2019 with Rep. Guthrie in 2018, aimed at defining blockchain technology by creating a working group to research the space. With Reps. Guthrie and Darren Soto, she also introduced the Blockchain Innovation Act, calling for the assembly of a report on the state of blockchain technology in consumer protection and other areas.At a 2018 congressional committee hearing, Rep. Matsui asked Twitter CEO Jack Dorsey to explain the potential applications of blockchain, citing his interest in the technology.

Early returns

Prediction markets are an effort to create better polling by ensuring participants have “skin in the game,” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens.

CoinDesk is monitoring crypto prediction markets to see how they align with traditional polls and the final election results.

Here’s what a random sampling of markets says (as of Oct. 29, 2020):

Centralized markets:

PredictIt: Joe Biden (D) has the best odds of winning the presidency.

Iowa Electronic Markets: Democrats are likely to receive the majority of the popular votes.

Decentralized markets:

Polymarket: Donald Trump (R) will not win the 2020 U.S. presidential election

Augur: Donald Trump (R) will not be re-elected in 2020.

Neutral polling:

FiveThirtyEight: Biden is favored to win the presidential election.

Sounding board

Feel free to reply any time or email social@coindesk.com or nik@coindesk.com.

Between reads, chat with us on Telegram.

When privacy?

On the complexity of ballot initiatives

Hey, folks. Welcome to the third issue of The State of Crypto: Election 2020. I'm Nikhilesh De and our countdown clock is now at six days.

Today’s issue: Privacy initiatives, or lack thereof in state ballot initiatives.

Campaign briefing

An estimated 70 million individuals have now cast their ballots, out of a registered 209 million or so. First thing’s first: About 30 minutes after this goes live the Senate Commerce Committee will be holding a hearing on Section 230 with the CEOs of Facebook, Google and Twitter. We’ll be discussing that on Friday, but tune in here if you’re interested.

According to the International Association of Privacy Professionals, only three states in the U.S. have “comprehensive” privacy laws: California, Nevada and Maine. Another 20 are considering privacy bills but many “will fail to become law.” Generally these laws are passed by state legislatures but this year, two states are letting voters weigh in on digital privacy initiatives through ballot measures.

There are 120 ballot measures in 32 states for voters to decide on this year, covering a range of topics from permitting medical marijuana to managing wolves to taxing oil production. There are two measures of primary interest to the crypto space: California Proposition 24 and Michigan Proposal 2. Both appear to deal with data privacy issues, though California’s initiative focuses on private businesses while Michigan’s looks at police search warrants.

California’s measure:

Permits consumers to: prevent businesses from sharing personal information, correct inaccurate personal information, and limit businesses’ use of "sensitive personal information," including precise geolocation, race, ethnicity, and health information. Establishes California Privacy Protection Agency. Fiscal Impact: Increased annual state costs of at least $10 million, but unlikely exceeding low tens of millions of dollars, to enforce expanded consumer privacy laws. Some costs would be offset by penalties for violating these laws.

At first blush this would seem reasonable to those interested in protecting their privacy. End users would be able to limit the amount of personal information a business they use can take advantage of. Proponents say it would protect children and other users by strengthening the California Consumer Privacy Act. Entrepreneurs and former presidential candidates like the blockchain-friendly Andrew Yang have come out in support of the measure.

Opponents, on the other hand, which include the Northern California affiliate of the American Civil Liberties Union (ACLU), argue that the measure will place a greater burden on the end user and say the actual protections described are weaker than those already enshrined in existing law. Specifically, critics of the measure claim that companies might be able to charge customers more to protect their privacy, noting language in the actual text that could allow businesses to charge fees for “excessive” opt-out requests. The proposition would also change a business’s default privacy approach from opt-in to data harvesting to opt-out, the ACLU says.

Michigan’s electronic data privacy proposal would amend the state constitution:

This proposed constitutional amendment would:
• Prohibit unreasonable searches or seizures of a person’s electronic data and electronic communications.
• Require a search warrant to access a person’s electronic data or electronic communications, under the same conditions currently required for the government to obtain a search warrant to search a person’s house or seize a person’s things.

This measure is a lot more straightforward. Proponents say it will formalize certain protections for individuals’ electronic data, such as communications carried out over the internet. According to Michigan Radio, a state affiliate of NPR, it would pretty much just codify cell protections for cell phone data, emails, phone records, etc. by requiring law enforcement officials to secure a warrant before collecting this information. Both the ACLU and Michigan State Police appear to back it, and it seems there’s no formal opposition to the measure.

Fast fact

On the ballot

A number of this year’s candidates for federal office have proposed crypto-related bills or suggested policies. Meet a few of them:

Rep. Stephen Lynch (D-MA)

Crypto stance: Pro-blockchain

Rep. Lynch, a longtime Congressman from Massachusetts, has participated in a number of pro-blockchain initiatives in the House of Representatives over the past few years, including heading up a FinTech Task Force established by the Financial Services Committee. He’s also called on the White House to consider using blockchain tools to support COVID relief efforts.

Rep. David Schweikert (R-AZ)

Crypto stance: Pro-blockchain and crypto

Rep. Schweikert has been an active proponent of cryptocurrencies in the U.S., introducing a number of bills to regulate cryptocurrencies and acting as one of the Congressional Blockchain Caucus’s co-chairs. Just this month, he reintroduced a bill with Rep. Darren Soto that would let smart contracts and other information stored on a blockchain act as legal records. He’s also attempted to create a de minimus exemption for small payments conducted using cryptocurrency, a position many crypto advocates and lobbyists have called for.

Rep. Sylvia Garcia (D-TX)

Crypto stance: Pro-regulation of Libra in particular

Rep. Garcia, a former state senator, has not taken an overly active role in calling for crypto regulation, but introduced a bill that would classify stablecoins as securities after a House Financial Services Committee hearing about Libra last fall. She later modified the proposed text to specify the “securities” designation would only apply to “managed stablecoins,” referring to those backed by a basket of fiat currencies that are actively managed by a governing entity. In her view, Libra’s subsequent revamp was insufficient to address regulatory concerns.

Rep. Anthony Gonzalez (R-OH)

Crypto stance: Pro-studying blockchain, but has questions about certain privacy services

Rep. Gonzalez, a first-year Congressman from Ohio, has participated in a few hearings around blockchain technology, asking an infosec executive whether the U.S. had the ability to shut down anonymity-enhancing tools like Dark Wallet. He has also sponsored a bill empowering the Financial Crimes Enforcement Network (FinCEN) to study whether blockchain and other new technologies might be useful for the agency’s data collection and analysis efforts.

Rep. Maxine Waters (D-CA)

Crypto stance: Not wild about Libra especially

The Chairwoman of the House Financial Services Committee has a number of hearings around crypto and blockchain, including several after Facebook unveiled the Libra initiative. She’s said in public statements that private crypto projects like Libra cannot be allowed to compete with the U.S. dollar, and has called for a complete halt in development until lawmakers and regulators can get a better grasp of the project and how it might be regulated.

Early returns

Prediction markets are an effort to create better polling by ensuring participants have “skin in the game,” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens.

CoinDesk is monitoring crypto prediction markets to see how they align with traditional polls and the final election results.

Here’s what a random sampling of markets says (as of Oct. 27, 2020):

Centralized markets:

PredictIt: Joe Biden (D) has the best odds of winning the presidency.

Iowa Electronic Markets: Democrats are likely to receive the majority of the popular votes.

Decentralized markets:

PrediQt: Donald Trump (R) will be re-elected in 2020.

FTX: Traders have bet more on Biden winning than on Trump winning.

Neutral polling:

FiveThirtyEight: Biden is favored to win the presidential election.

Sounding board

Feel free to reply any time or email social@coindesk.com or nik@coindesk.com.

Between reads, chat with us on Telegram.

Forget the feds

There are 6,500 state elections. Some matter a lot

Hey, folks. Welcome to issue two of The State of Crypto: Election 2020. I'm Nikhilesh De and here we are, just over a week out from Election Day.

Today’s issue: the importance of state officials in shaping crypto policy throughout the U.S. Spoiler: They are, in fact, important.

Campaign briefing

An estimated 59 million individuals have now cast their ballots, out of a registered 209 million or so. Although cryptocurrencies are supposed to be decentralized, the winners of this election will get to shape and guide tech and crypto policy over the next few years. Last week I discussed the Big Tech implications of this election, but this week I want to focus on what’s likely to be an under-discussed aspect of the race.

I laid out the implications at the national level for CoinDesk this week. Here, I want to talk about the state-level races, which might be just as important as the federal ones. 

Because U.S. law gives states some control over money transmission, a lot of what companies do depends on state-level regulations. It’s why exchanges need state money transmission licenses instead of applying for a federal license, for example. 

The Office of the Comptroller of the Currency’s Brian Brooks hopes to change this. But there are no guarantees and his efforts will certainly face some legal challenges, so I wouldn’t expect any speedy implementation there. States might also be more flexible or willing to update their laws than the federal government. States, after all, have fewer lawmakers and a tighter set of priorities than a governing body for 330 million people.

Wyoming is a good example: Over the last two years state legislators passed a number of banking and finance laws that ultimately let a crypto exchange become a full blown state-chartered bank. Some of these state lawmakers are vulnerable to challengers. One of the lawmakers behind Wyoming’s bills, State Rep. Tyler Lindholm, lost a primary challenge and will no longer be able to champion cryptocurrencies as an elected official. He lost by about 200 votes.

State lawmakers are also looking at the idea of blockchain as a tool for storing records or cryptocurrencies for paying taxes. These efforts, like much of what the industry is doing, are in their early days. It takes an engaged electorate to ensure that those drafting bills believe it’s worth it. 

New Jersey lawmakers (who are largely not on the state ballots this year), for example, just passed a bill aimed at regulating the state’s crypto industry out of committee. If it is passed by the bicameral legislature and signed by Governor Phil Murphy (D), the state will create its own licensing regime for crypto businesses, a first for the Garden State.

I first wrote about this bill in February, meaning lawmakers have already had eight months to consider the merits or lack thereof in creating a license. My understanding is the bill was initially informed by stakeholder input, but there hasn’t been a whole lot of feedback since its introduction.

Anyway, according to Ballotpedia, 86 state legislatures are holding elections this year, accounting for around 6,500 seats. At least a few might be interested in crypto, so it may be worth it for the intrepid voter to explore their candidates’ views on the subject.

Fast fact

On the ballot

A number of this year’s candidates for federal office have proposed crypto-related bills or suggested policies. Meet a few of them:

Rep. Warren Davidson (R-OH)

Crypto stance: Pro-crypto, advocate for regulatory clarity

Rep. Davidson, a first-term congressman, is a firm proponent of cryptocurrencies and creating regulatory clarity through legislative action. He has sponsored the Token Taxonomy Actat least twice (with Rep. Soto [D-FL]) in the hopes of amending U.S. securities laws to create clear categories for cryptocurrencies. 

Rep. Brad Sherman (D-CA)

Crypto stance: Once said the Facebook-started Libra project might be worse than 9/11

Rep. Sherman, a longtime representative from California, has made his anti-crypto stance clear over the past few years, going so far as to call for a complete ban on cryptocurrencies during a House Financial Services Committee hearing. More recently, during a hearing over the Libra project, he said the stablecoin project would be a “godsend” to criminals, and touted the dollar’s role in enforcing sanctions. 

Rep. Patrick McHenry (R-NC)

Crypto stance: Pro-crypto, but wants responsible innovation

Rep. McHenry, running for his fifth term in Congress, is the ranking member of the House Financial Services Committee, which oversees much of the crypto space. He’s warned against regulating too heavily, saying there’s “a great opportunity around this technology.” However, he’s also raised concerns with certain projects, calling for a hearing around Libra as soon as it was announced last June.

Rep. Pramila Jayapal (D-WA)

Crypto stance: Introduced a “digital dollar” bill

Rep. Jayapal, a first-term congresswoman, co-sponsored a stimulus bill with Rep. Rashida Tlaib (D-MI) that would create a “Digital Dollar Account Wallet” accessible to every U.S. resident and granting them access to financial services. The chief idea is to use this system to issue $2,000 per month to each resident, backing the funds by minting a pair of $1 trillion coins. Jayapal is also a member of the House antitrust subcommittee, and told CNBC earlier this month that new bills targeting Big Tech monopolies could be introduced next year.

Rep. Ted Budd (R-NC)

Crypto stance: Pro-crypto

Rep. Budd, a first-term congressman, has co-sponsored a few bills to provide regulatory clarity around cryptocurrencies in the U.S. (alongside Rep. Soto), including the Virtual Currency Consumer Protection Act of 2018. He’s also sought to try and clarify crypto taxation laws, introducing a bill to prevent double-taxation on crypto transactions. Last year, he also wrote a letter with Coin Center asking Securities and Exchange Commission Chair Jay Clayton to say whether he agreed with one of his directors that ether, the second-largest cryptocurrency by market capitalization, did not look like a security. 

Early returns

Prediction markets are an effort to create better polling by ensuring participants have “skin in the game,” by asking them to actually bet money on the outcome of an event, such as an election. There isn’t a huge market, as my colleagues Benjamin Powers and Brady Dale wrote last month. But people are betting real money, either on centralized prediction markets or on decentralized platforms using tokens. 

CoinDesk is monitoring crypto prediction markets to see how they align with traditional polls and the final election results. 

Here’s what a random sampling of markets says (as of Oct. 25, 2020):

Centralized markets:

PredictIt: Joe Biden (D) has the best odds of winning the presidency.

Iowa Electronic Markets: Democrats are likely to receive the majority of the popular votes.

Decentralized markets:

Augur: Donald Trump (R) will not be re-elected in 2020.

FTX: Traders have bet more on Biden winning than on Trump winning.

Neutral polling:

FiveThirtyEight: Biden is favored to win the presidential election.

Sounding board

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