Steve Helber/AP Photo
Workers look over racks of Bitcoin data miners during construction of a Bitcoin data center in Virginia Beach, Virginia, February 9, 2018.
Last Friday, Web3 Forward and Crypto Innovation, two PACs bankrolled by crypto industry leaders, announced that they would start running their first general-election ads “starting in two weeks.” Two weeks would take us to the Friday before the election, an inopportune time to begin a general-election campaign.
But the announcement may have been intended to cover up a political liability. Sam Bankman-Fried, the young billionaire CEO of crypto exchange FTX, had been criticized for promising as much as $1 billion to support Democrats in elections, and then slamming his wallet shut. Bankman-Fried, through his $2 million investment in GMI PAC, indirectly funds the Democratic-supporting Web3 Forward. (Crypto Innovation supports Republicans.) His PAC pushing out a last-second ad campaign of “at least six figures”—a pitiful sum these days—just as the criticism was coming to a head seems conspicuous.
Interestingly, the PAC Bankman-Fried chose for this purpose is not focused on his stated priorities of pandemic preparedness and other long-term threats. Web3 Forward explicitly supports the business Bankman-Fried has grown rich in, seeking “a clearer regulatory and legal framework” to enable “the broader open blockchain economy.”
A rare glimpse at how these PACs actually talk to candidates is even more revealing. The Prospect has obtained a variety of questionnaires from Web3 Forward, as well as GMI PAC, the primary funding source for Web3 Forward. Questionnaires are a way that PACs and issue-based organizations test whether candidates are on board with their policy preferences; they are often used to decide endorsements. They are also a way for interest groups to get information in front of future policymakers.
The information these two PACs are giving candidates, as you might expect, aligns heavily with the desires of the cryptocurrency industry. But it goes even further than what the companies might be willing to say in public. A section in one questionnaire labeled “Protecting the Environment” claims that Bitcoin “proof of work” mining, which has been criticized for using extreme amounts of energy, is actually a boost to a clean-energy electric grid, while using “2.5 times less energy than the banking system per dollar of value.”
The Prospect asked Web3 Forward and GMI PAC to provide sources for this, but they have not responded. As the questionnaire even concedes at one point, the arguments appear to be based on theories from proof-of-work mining participants themselves. Independent energy experts have scoffed at the claims.
The questionnaires have other areas of focus as well, like wanting to get the Securities and Exchange Commission (SEC) off the industry’s back, and seeking special carve-outs and tax breaks for digital assets.
The aggressive and at times questionable information these PACs are spreading demonstrates how money in politics really works. Regardless of the veracity of the claims, candidates are forced into the position of agreeing with or advocating for them as a condition of obtaining the funding necessary to get elected. It’s a benefit our system gives to the rich that no town hall questioner or constituent enjoys. And seeing it up close is bracing.
The information these two PACs are giving candidates aligns heavily with the desires of the cryptocurrency industry.
GMI PAC LAUNCHED WITH $5.3 million in contributions in January, aiming to raise and spend over $20 million on the midterms. FTX Digital Markets CEO Ryan Salame (himself a major Republican donor, showing how FTX works both sides of the aisle), Framework Ventures co-founder Vance Spencer, and CMS Holdings co-founder Dan Matuszewski made up the initial board of directors. SkyBridge Capital, the hedge fund led by former Trump communications director Anthony Scaramucci, was also a founding donor. (Scaramucci did not respond to a request for comment.)
Matuszewski called GMI PAC “the crypto community’s campaign arm” in a statement during the launch. Bankman-Fried had his own PAC, the pandemic preparedness–focused Protect Our Future, but he gave $2 million to GMI PAC in January. This was part of a blitz by crypto executives, investors, and venture capitalists, who staked PACs with at least $52 million through the end of May.
GMI PAC never made a single ad on behalf of a candidate directly. It transferred $3.6 million of its funds to two other super PACs, Web3 Forward (which got $3 million) and Crypto Innovation (which got $600,000). However, prior to that it did spend some money on polling (using the Democratic-linked Public Policy Polling), travel, and consulting and strategy. GMI PAC’s website, which remains live, looks almost identical to Web3 Forward’s, with the same design, “about the PAC” language, and mission statement (although GMI PAC talks about supporting “candidates,” while Web3 Forward modifies that to say “Democratic candidates”).
The questionnaires from GMI PAC and Web3 Forward (they have version numbers attached to them, so there were several that changed throughout the election cycle) are also similar. Both ask candidates to support “regulatory clarity” for crypto, and a stable enough business climate that would “keep blockchain and digital asset innovation here in the United States instead of pushing it overseas.”
That last comment is reminiscent of “national champion” arguments that Big Tech lobbyists have made, warning that other countries will reap the benefits of superstar companies if regulatory burdens make it impossible to grow stateside. “It definitely features in [crypto] industry talking points, and we hear it mirrored back from [congressional] offices,” said Mark Hays, a senior policy analyst with Americans for Financial Reform. Hays, who is skeptical of crypto, said he often responds by asking, “Do we want to make the U.S. a home for a risky and speculative asset class that could spread contagion throughout the financial system?”
As is typical for questionnaires of this type, they also ask candidates to sign on to various bills and initiatives, which fall into a few different categories. The first is tax laws. The Virtual Currency Fairness Act would exempt cryptocurrency gains from taxation under a certain “de minimis” threshold (between $200 and $600), and the Keep Innovation in America Act would reverse reporting provisions for digital assets in the bipartisan infrastructure bill that the industry doesn’t like.
The SEC is another preoccupation. Two bills supported in the questionnaires, the Securities Clarity Act and the Token Taxonomy Act, would exempt some digital tokens from SEC securities laws, and another supported proposal, from Republican SEC commissioner (nicknamed “crypto mom”) Hester Peirce, would give tokens a three-year safe harbor from securities rules. Candidates were also asked to overturn two SEC rules they say would give the agency jurisdiction over decentralized finance (DeFi), and to sign on to the Digital Commodity Exchange Act, the House version of a bill that would give oversight authority over much of the crypto market to the Commodity Futures Trading Commission rather than the SEC. (Bankman-Fried’s FTX has hired former CFTC commissioner Mark Wetjen as its head of policy and regulation.)
One questionnaire also asked candidates to support a letter eight members of Congress sent to the SEC, seeking to back the agency off a federal investigation into the crypto industry.
BUT THE MOST SURPRISING PART of the questionnaires was the positioning of Bitcoin proof-of-work mining as an environmental success. A study from the Bitcoin Energy Consumption Index found that one Bitcoin transaction uses enough energy to power the average U.S. home for 50 days, and mining overall uses as much electricity on an annual basis as Argentina.
The European Union and several other nations have called for banning proof-of-work mining. The White House Office of Science and Technology Policy has said that it could hamper the battle against climate change. And the fact that Ethereum, another popular blockchain, completely reimagined their network in a way that reduced energy consumption by more than 99 percent suggests that some in the industry recognize the vulnerability of such extravagantly large energy consumption.
But that sensitivity is reflected nowhere in the questionnaire, which seeks candidate support for proof-of-work mining. “By some estimates, bitcoin validating and gold mining consume approximately the same amount of electricity per year,” it states, with Bitcoin mining being cleaner because of the lack of physical pollutants. “The stretch here is that [Bitcoin] offers the same kind of value,” Hays said, given that Bitcoin’s inflation-hedging role as “digital gold” did not pan out when it crashed as inflation soared (while gold has a number of real-world industrial and medical uses).
The questionnaire also estimated that “bitcoin uses 2.5 times less energy than the banking system per dollar of value,” though it kind of gives the game away with the caveat that the estimates were created by “participants in the proof of work validation.” It’s unclear whether this is an apples-to-apples comparison, or whether it just compares Bitcoin mining to everything the much larger global banking system does on its own and invests in. A Greenpeace report about the financial industry’s climate-harming investments was used in exactly this fashion by the website Crypto Potato.
Hays also mentioned that the financial system can process thousands of transactions per second, while blockchain transactions are orders of magnitude slower. “The best test of a currency is how fast you can exchange that currency, and the answer right now [for Bitcoin] is ‘very slowly,’” Hays said.
Regardless of the arguments, many industry participants continue to prize their tokens over the health of the planet.
Proof-of-work was also described in the document as good for the energy grid. They provide “baseload consumption for solar and wind power generators that otherwise are unable to sell significant amounts of their production capacity,” the questionnaire states, and they “stabilize electric grids by helping to balance production and demand.”
Ben Hertz-Shargel, an analyst with energy consultant Wood Mackenzie who participated in a debate on this issue, doubted the claims. “Proof-of-work blockchains don’t stabilize the grid,” Hertz-Shargel told the Prospect. “As baseload resources, they keep demand higher around the clock, raising power prices, grid congestion, emissions, and the risk of supply shortages.”
In the debate, he said that the idea that solar and wind couldn’t reach other customers is a problem requiring investment in additional transmission, not proof-of-work mining operations that would siphon off energy to homes and businesses. “We need transmission investments, not kind of essentially feeding sugar to the generators to keep them humming while we fail to deliver the energy,” he argued.
Some Bitcoin supporters have raised the idea that, by being able to turn off in an emergency, mining provides a flexible safety valve to the grid, eating up excess generation and going away when the grid is stressed. Hertz-Shargel saw this as somewhat preposterous: “Abstaining from cigarettes every once in a while doesn’t make smoking good for your health.”
Yet regardless of the arguments, many industry participants continue to prize their tokens over the health of the planet. Jack Dorsey, the co-founder of Twitter who now runs Block (formerly Square), briefed members of Congress about Bitcoin in March, telling them that the industry “will always go toward where the energy is cheapest and most renewable,” and was “working on minimizing power consumption.” However, he added, banning proof-of-work mining would give up security for Bitcoin users. To that, Dorsey said: “We don’t believe those trade-offs are worth it.”
WEB3 FORWARD RAN ADS for 11 Democratic candidates during the primaries, with eight of them winning. Most were in uncompetitive races that Democrats were also sure to win in November, making their belated vow to spend on endorsed candidates in the general election a little hollow. Only three Web3 Forward candidates are in remotely close races: House candidates Val Hoyle (D-OR) and Seth Magaziner (D-RI), and Senate candidate John Fetterman (D-PA). None of the three responded to a request for comment about Web3 Forward and the questionnaires.
Web3 Forward has not said where their new round of advertisements would go.
It’s not clear that Web3 Forward’s money made much of a difference in the primaries. In no race did it spend more than the $540,000 it did in Hoyle’s race. The $212,000 spent for Fetterman in the primary pales in comparison to the $137 million spent by outside groups throughout the Pennsylvania Senate race.
But if crypto PACs were just piggybacking on candidates who were already likely to be successful, the information they disseminated could easily have a real-world impact. Candidates know that they could not only benefit from billionaire crypto titans spending in their races, but also be harmed by spending against them if they reject their wishes. That makes questionnaires important tools shifting policy at a critical time for crypto regulation. It’s especially true with something as complex as Bitcoin, which also carries the promise of financial inclusion, as Dorsey mentioned in his briefing with members of Congress. “We have an understanding that we’re reaching an underserved audience,” he said.
It’s an old game that Wall Street firms have played forever, to say nothing of other industries: Use simple, unchallenged messaging and the lure of big money to reel in policymakers to their way of thinking, regardless of what that means for their constituents.
“I think it’s clear that the industry has learned the money-in-politics game well, even if it’s not crypto money but fiat money,” said Hays. “Financial regulation is difficult to grasp, even in the traditional sense. When you add crypto to that and the financial inclusion hype and a fat wallet behind it, candidates without understanding it are going to jump on the bandwagon first and ask questions later.”
