Cryptocurrencies have become an integral part of everyday life, and consequently the global economy. Obviously the bitcoin rate is not monitored like the dollar exchange rate, but the ups and downs do appear in the news headlines. In some countries, cryptocurrencies are even recognized as legal tender (e.g. Bitcoin in Japan, El Salvador, CAR). Since 2012, cryptocurrencies have also burst into the world of gambling, stirring the minds and pockets of players around the world. According to some forecasts, including Global Betting and Gaming Consultants, by 2024 the global cryptogambling industry will reach more than 90 billion dollars, and at the moment there are already more than 200 gambling platforms registered. This raises the question: how is all this regulated and is it legal at all?
To begin with, it is necessary to define what is meant by cryptogambling.
Cryptogambling is a form of gambling, namely, online gambling, in which it is allowed to bet in cryptocurrency and receive winnings in it (this definition is a factual one, since no state has yet established a legal definition).
That is, in this form of gambling, cryptocurrencies are used instead of traditional fiat money. Cryptogambling in general can be divided into two types: off-chain and on-chain.
Off-chain
Off-chain cryptogambling allows the acceptance of cryptocurrencies as a method of making deposits into an account. Operators often use third-party services such as BitPay to convert cryptocurrency to conventional currency (or, conversely, convert conventional currency to cryptocurrency). For example, if a player deposits 0.002 BTC, their balance at the casino becomes $55. Such casinos, in general, are similar to regular casinos, the only difference is that they accept cryptocurrency. Operators of such casinos use centralized services, and the prerequisite for their use by users is registration. In addition, such operators often block IP addresses, denying access to players from certain countries.
On-chain
On-chain cryptogambling operates on the blockchain using smart contracts through decentralized applications. In this case, all the code functions on the blockchain network rather than on traditional centralized servers. If a player places a bet on the on-chain platform, that bet is recorded on the blockchain and represents a public confirmation of their wager. Then, depending on the outcome of the bet, the smart contract used on the platform directly pays out the winnings to the player or operator. The use of smart contracts promotes security and transparency. On-chain operators also do not require users to register and are generally less subject to government regulation. Cryptogambling undoubtedly has its advantages and disadvantages. Among the main advantages are the following:
- Fast transactions
- Cryptocurrency transactions are processed much faster than traditional bank transfers, allowing players to quickly make deposits and withdraw their winnings without delays. For example, the average confirmation time for a bitcoin transaction is 10 minutes.
- Cryptocurrency transactions are processed much faster than traditional bank transfers, allowing players to quickly make deposits and withdraw their winnings without delays. For example, the average confirmation time for a bitcoin transaction is 10 minutes.
- Transparency and reliability
- The blockchain technology used in cryptogambling provides transparency in the gaming process. Game results and transactions are recorded in a publicly accessible registry, minimizing manipulation of results, and smart contracts allow for automatic execution of terms and conditions without third parties.
- The blockchain technology used in cryptogambling provides transparency in the gaming process. Game results and transactions are recorded in a publicly accessible registry, minimizing manipulation of results, and smart contracts allow for automatic execution of terms and conditions without third parties.
- Low fees
- Cryptocurrency transactions often involve low or no fees. Typically, a fee is only charged in the case of conversion.
- Cryptocurrency transactions often involve low or no fees. Typically, a fee is only charged in the case of conversion.
- More generous bonuses for players
- Many cryptogambling platforms offer more generous and exclusive bonuses compared to traditional online casinos.
- Many cryptogambling platforms offer more generous and exclusive bonuses compared to traditional online casinos.
- Anonymity
- Most traditional casinos require customers to provide their private financial information (account details, card details). In cryptogambling, on the other hand, players can remain anonymous because transactions using cryptocurrencies do not require the disclosure of personal data.
- Most traditional casinos require customers to provide their private financial information (account details, card details). In cryptogambling, on the other hand, players can remain anonymous because transactions using cryptocurrencies do not require the disclosure of personal data.
Despite the significant number of advantages, cryptogambling is associated with a number of risks and disadvantages. The main ones are the following:
- Cryptocurrency volatility
- Cryptocurrencies are known for their high volatility, which leads to sharp price fluctuations – the value of digital currencies can change very quickly. For example, in the case of winning a large amount using cryptocurrencies, players’ winnings can drop in value before players have had a chance to withdraw them.
- Cryptocurrencies are known for their high volatility, which leads to sharp price fluctuations – the value of digital currencies can change very quickly. For example, in the case of winning a large amount using cryptocurrencies, players’ winnings can drop in value before players have had a chance to withdraw them.
- Untraceability
- While anonymity is seen as an advantage, it creates a double-edged sword : since cryptocurrency transactions are completely anonymous, operators providing this deposit option may also operate the same way – anonymously. Players may encounter scams or illegal operators with no way to protect their rights.
- While anonymity is seen as an advantage, it creates a double-edged sword : since cryptocurrency transactions are completely anonymous, operators providing this deposit option may also operate the same way – anonymously. Players may encounter scams or illegal operators with no way to protect their rights.
- A multitude of unlicensed casinos
- Cryptocurrencies are characterized by huge popularity, which gives rise to quite a large number of unlicensed casinos in the “gray zone”. Although, of course, many operators are licensed and regulated.
- Cryptocurrencies are characterized by huge popularity, which gives rise to quite a large number of unlicensed casinos in the “gray zone”. Although, of course, many operators are licensed and regulated.
In general, it can be said that cryptogambling is legal and allowed if two conditions are met:
- The jurisdiction allows online gambling;
- The jurisdiction has recognized cryptocurrency as legal tender or allows its use as a unit of account (e.g. Germany, Canada).
At the moment, there are not too many such jurisdictions, because many states either prohibit online gambling or do not recognize cryptocurrency as legal tender or unit of account. The most popular jurisdictions where cryptogambling operators obtain licenses are the following:
- Curaçao;
- Malta;
- Gibraltar;
- Kahnawake;
- Isle of Man.
These jurisdictions are famous for their favorable tax conditions, relatively easy procedures for obtaining a license, business friendly environment and quite solid reputation.
Let’s take a look at how cryptogambling is legally regulated in a few key parts of the world:
UNITED STATES
Generally in the US, there are no specific federal laws regulating cryptocurrency gambling and cryptocurrency on the national level. It is neither officially authorized nor prohibited. However, it is up to each state to determine the legality of online gambling and the legal treatment of cryptocurrencies. In most US states, online gambling is illegal. Online gambling is fully legal in six states: Connecticut, Delaware, Michigan, New Jersey, Pennsylvania and West Virginia. Some states only allow certain forms of online gambling, for example, Oregon, Indiana, Rhode Island only allow online betting. In other states, however, all forms of online gambling are prohibited. As for cryptocurrency, all U.S. states recognize cryptocurrency as a virtual currency, and virtually any cryptocurrency transactions are allowed in the U.S. (however, in many states a license is required).
Thus, we can say that cryptogambling is not banned in the 6 US states mentioned above. In addition, in 2019, FinCEN, the US government agency in charge of financial regulation, issued regulatory guidance on some business models related to convertible virtual currencies. According to it, online casinos that transfer money in convertible virtual currency (CVC)-or any person engaged in gambling that accepts and transfers value denominated in CVC-may be regulated under the Bank Secrecy Act as a money sender, which requires strict application of anti-money laundering rules.
UK
The UK Gambling Act does not contain any specific provisions regarding the use of cryptocurrencies. However, in 2017, the UK Gambling Commission published a position paper addressing the use of virtual currencies in the gambling industry. The Commission also requires notification of any changes to the methods or payment systems through which online gambling platforms accept payments from users. Thus, gambling operators intending to accept bets and make payments in cryptocurrency must first obtain authorization from the Gambling Commission. Operators are also first required to have a clear system of anti-money laundering rules.
Canada
In Canada, all forms of gambling are prohibited under the federal Criminal Code of Canada. However, Section 207 of the Code specifies an exception for provincial governments, which are allowed to “conduct and manage” gambling within their province.
On April 4, 2022, Ontario became the first province to establish a legal online gambling market in Canada IGaming. In Ontario, the Alcohol and Gaming Commission regulates all online gambling, and IGaming was established as a subsidiary and is responsible for issuing licenses to international operators and ensuring that they comply with the guidelines.
In Canada, cryptocurrencies can be used to purchase goods and services both online and offline. It is illegal for gambling operators to accept bets and pay out winnings in cryptocurrency. Thus, we can say that cryptogambling is allowed in Canada, but it should be taken into account that online gambling is legal only in one province, so cryptogambling is also possible only in Ontario.
European Union
In the EU there is no special legislation regulating cryptogambling. EU member states determine themselves the legal regime of online gambling, most of them allow online gambling. However, some countries allow all forms of online gambling, while others only allow certain forms (e.g. Cyprus only allows online betting). Cryptocurrency is generally considered legal in the EU. For example, the European Central Bank classifies bitcoin as a convertible decentralized virtual currency.
In Estonia, Germany, Finland and Denmark, online gambling with cryptocurrency is only allowed with a special license issued by the national regulator. Thus, the legality of cryptogambling in the EU depends on the particular member state. Since cryptocurrencies are legal in the EU, and if online gambling is allowed in a particular member state, we can say that there are no restrictions on accepting bets and payment of winnings in cryptocurrency for operators, i.e. cryptogambling is allowed in that state.
Commonwealth of Independent States
Online gambling is banned in most CIS member states. At the moment, online gambling is allowed in Belarus, Ukraine, Moldova. In Kyrgyzstan and Armenia online gambling is allowed with some restrictions. However, cryptocurrency is not recognized as legal tender or unit of account in any CIS member state. This means that gambling operators licensed by the aforementioned states are not allowed to accept bets and pay out winnings in cryptocurrency. In other words, cryptogambling is not yet authorized in any CIS member state.
Thus, cryptogambling offers a large number of advantages. However, casino operators wishing to accept bets and pay out winnings in cryptocurrency need to consider the risks associated with cryptocurrencies and a number of increased regulatory requirements. We see that many jurisdictions do not yet have specific legislation regulating cryptogambling. Nevertheless, many states are increasingly paying attention to the legal status of cryptocurrencies, including within the framework of gambling. It is expected that in the future many countries will develop special legislation regulating this sphere.
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