Does crypto pose a threat to democracy?
What is crypto?
The term crypto refers to digital assets built on blockchain technology. This includes cryptocurrencies, such as Bitcoin and Ethereum, as well as other digital tokens like NFTs (non-fungible tokens).
Cryptocurrencies function as digital alternatives to traditional currencies like the British pound or the U.S. dollar. Instead of relying on banks to verify transactions, crypto uses a blockchain — a public digital ledger — to record and store transactions for anyone to view. By removing intermediaries, users can transact directly, often at lower costs than through banks. Some advanced cryptocurrencies even support smart contracts, which automatically execute complex transactions when certain conditions are met.
Although crypto is still far from replacing mainstream payment systems, its popularity continues to grow. A survey by the UK Financial Conduct Authority (FCA) found that 12% of UK adults owned cryptocurrency in 2024, compared to just 4.4% in 2021.
Typically, users buy or sell crypto through exchanges such as Coinbase, Kraken, or eToro, where they verify their identity and receive a digital wallet for storage. Others may choose to use a non-custodial wallets, allowing them to send and receive crypto without revealing their identity to any third party.
Each crypto transaction generates a unique Transaction ID (TXID) recorded on the blockchain. While transactions are publicly traceable, they remain pseudonymous — meaning the wallet addresses are visible, but the real-world identities behind them are not automatically known.
Why are governments concerned?
The UK Government’s 2025 National Risk Assessment identified cryptocurrencies as a growing threat for money laundering and terrorist financing because of their anonymity, speed, and global reach. Both the UK and U.S. have already banned crypto transactions linked to networks used to evade sanctions against Russia.
Law enforcement agencies have linked crypto to cross-border money laundering, helping organized crime groups and sanctioned individuals move funds under the radar — effectively creating a “shadow banking system.”
While major UK political parties currently refuse crypto donations, the Reform Party accepts them and advocates for making the UK a global hub for blockchain innovation — similar to efforts seen in Donald Trump’s 2024 presidential campaign in the U.S.
Critics, however, worry that crypto donations could become a loophole for foreign interference. MP Liam Byrne warned that cryptocurrencies could “hide who is funding political parties and what they might want in return.” Minister Pat McFadden has also suggested the Electoral Commission consider banning crypto donations entirely due to the difficulty in tracing them.
Can crypto be traced?
Tracking crypto payments is possible — but far from foolproof.
Every transaction is recorded on the blockchain, and with the help of blockchain analytics tools, investigators can sometimes link multiple transactions to a single entity. However, uncovering the actual individuals behind those wallets is much harder, especially if they use unregulated exchanges or non-custodial wallets.
UK crypto service providers must be FCA-registered and comply with Know Your Customer (KYC) regulations. This means regulated platforms can provide information to law enforcement during investigations. But the system relies on users actually using compliant services — which isn’t always the case.
Some donors or criminals use offshore exchanges with weak oversight or exploit “money mule” accounts — wallets set up in other people’s names — to further obscure their identity.
Common tactics used to hide crypto transactions include:
- Privacy coins (e.g., Monero, Zcash) that mask transaction amounts and participants.
- Multiple wallets to fragment transaction histories.
- Mixers or tumblers that blend transactions from different users to obscure origins.
- Smurfing, where large payments are split into smaller ones to avoid detection.
- Decentralized exchanges (DEXs) that operate without anti-money-laundering controls.
These techniques are often combined and linked to criminal activities. For instance, the founder of Bitcoin Fog, a mixing service, was sentenced to 12 years in prison for facilitating money laundering.
How should political parties handle crypto donations?
Under UK law, anyone receiving political donations must take “all reasonable steps” to verify the donor’s identity. The Electoral Commission has issued basic guidance, but not detailed procedures, for handling crypto contributions.
Crypto presents similar risks to cash or gold donations — but it’s far easier to transfer large sums instantly across borders. Political parties might record the name of the donor, but confirming whether that person is the real source of the funds can be nearly impossible.
The Reform Party, which accepts crypto donations, requires donors to provide their name, email, and a declaration that they are eligible to donate. They also claim to perform compliance checks on donations over £500.
Valuing crypto contributions adds another challenge. Prices fluctuate dramatically — sometimes by thousands of pounds within hours. The Electoral Commission requires donations to be valued in GBP at the time of receipt, based on exchange rates from the payment provider or a major exchange. Subsequent gains or losses must then be reflected in the party’s annual accounts.
The regulatory challenge
Crypto donations expose gaps in the current regulatory framework.
While the UK has made progress toward regulating crypto exchanges, many are still subject to less strict oversight than banks. FCA enforcement actions show that some crypto platforms fail to meet basic anti-money laundering standards. This raises doubts about their ability to identify or report suspicious political donations as banks do.
Even if exchanges wanted to help, tracing ownership of wallets requires specialist expertise and cross-border cooperation, since many transactions pass through foreign platforms. This makes enforcing rules especially difficult when overseas providers are involved.
These issues have led to growing debate about whether crypto donations should be treated differently from traditional ones made via bank transfers.
What can be done?
There are several straightforward steps the government could take to reduce risk and improve transparency:
- Ban privacy coins as a method of payment.
- Require political parties to only accept crypto via FCA-registered exchanges and wallets.
- Consider a complete ban on crypto donations above a certain value — a policy already adopted by Brazil and Ireland.
- Encourage the Electoral Commission to issue detailed guidance on how parties should record, value, and report crypto donations.
- Clarify in law how and when the market value of a crypto donation must be determined.
Ultimately, crypto’s potential for anonymity and borderless transfer of value makes it a high-risk channel for political finance. Until regulations are tightened and transparency improves, the safest approach may be to treat crypto donations with extreme caution — or avoid them altogether.
