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 and keep the conversation going with other subscribers on Telegram.

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