Will Cryptocurrencies Save Online Gambling? Don’t Bet on It.
Jonathan Meng, Dartmouth Business Journal
Online gambling was once thought to be dead.
Just six years ago, the domains of the world’s largest online poker platforms, Full Tilt Poker, PokerStars and Cereus were seized by the United States government for bank fraud and money laundering. The collapse of the premier online cardrooms spelled what appeared to be — at first glance — a kiss of death.
Yet, there is a new breath of life for online gambling. The growing use and adoption of cryptocurrencies represent a boon for online gambling, which is largely prohibited in the United States. The global online gambling market had an estimated value of $44.16 billion in 2016 with potential to grow to $81.71 billion by 2022, according to Berkshire Hathaway’s BusinessWire.
Online betting is illegal in the United States, “for the most part, under broad interpretations of both state and multiple federal laws,” according to a legal source referenced by Bloomberg Law in January 2018. In Washington state, playing online poker is even considered a felony. Additionally, in the United States, the use of cryptocurrencies to wager money in foreign online gambling platforms is likewise illegal. While online gambling is largely illegal for those in the United States, most major operators of online gambling platforms legally establish their operations in countries with more lenient regulations and laws.
Throughout the past year, cryptocurrencies have captured the curiosity and fascination of millions around the world, with tokens such as Bitcoin, Ethereum and Litecoin all seeing growth rates of at least 10,000 percent in the last year. Additionally, the exchange and use of cryptocurrencies is completely legal in the United States. Furthermore, the blockchain technology underlying cryptocurrencies has fundamentally changed online gambling by providing three key advantages: privacy, transparency, and instantaneous transactions.
First, cryptocurrencies theoretically reduce the risk of identifying information being exposed, as the only information posted on the blockchain is the user’s cryptographically transformed address. Anonymity is an especially important reason why online sports betting increasingly use cryptocurrencies.
Second, gamblers may feel more confident about the integrity and transparency of their transactions. Every transaction using Bitcoin or Ethereum is published on the cryptocurrency’s blockchain. As a result, it is unduly impractical — if not impossible — to create fraudulent transactions on the blockchain, as all of the transactions before the theoretical fraudulent transaction must also be edited.
Finally, instant withdrawals and deposits appeal to operators of online gambling platforms. Once a wager is set, the website instantly pays out winnings or takes away losses from one’s cryptocurrency wallet. There is no need for a bank or financial services middleman, such as PayPal, to facilitate transactions.
As a result, online gambling platforms, ranging from poker to dice, have largely adopted cryptocurrencies.
The largest cryptocurrency dice game website, Primedice, has had a total of 2,229,232 Bitcoin wagered since its inception in May 2013. According to the website Coinmarketcap, Bitcoin’s value has jumped from $111.25 on May 2013, to a staggering $10,214 at the time of writing in January 2018. Although it is impractical to convert the amount of Bitcoin wagered on Primedice into US dollars, given the currency’s extreme price fluctuations, it is certain that some hundreds of millions of dollars have been processed on Primedice through the use of Bitcoin.
With all of these factors in mind, it may seem that cryptocurrencies are changing online gambling into a industry with incredible growth potential. However, that is not the case, as obstacles in the cryptocurrency market will likely stall growth in online gambling.
For one, regulation always looms in the background. This is due to the high potential for criminals to exploit cryptocurrencies and the anonymity they provide to commit illegal acts, such as money laundering and drug dealing. This has been a problem since the inception of cryptocurrencies, such as the case of the Silk Road drug trafficking network, which was shutdown by the United States Federal Bureau of Investigation in 2013. Additionally, there is the possibility that countries, such as the United States, with explicit laws against online gambling will regulate or restrict access to foreign gambling platforms.
Further, the difficulty of regulating cryptocurrency exchanges has caused many issues for governments. The use of a cryptocurrency exchange opens up the possibility of security breaches or abuse. When Bitcoin was first introduced, the world’s then-largest exchange, Mt. Gox, went insolvent due to the theft of approximately 850,000 Bitcoin, much of which has never been recovered. Internationally, some nations, such as China and South Korea, have declared intentions of regulating cryptocurrencies and gambling websites. In particular, China has banned an absolutely essential part of Ethereum, effectively spelling doom for the cryptocurrency.
Most importantly, cryptocurrencies lack stable, intrinsic value. The most common cryptocurrencies, Bitcoin, Ethereum and Litecoin, are all generated by computers solving mathematical problems. They do not hold any intrinsic value and unlike legal tender, are not backed by any government. The price volatility of cryptocurrencies is also a significant problem for gamblers. Just a month after reaching a peak price of $19,282.73 in mid-December 2017, Bitcoin’s value has fallen 48% at the time of writing in January 2018. Volatility can cause gamblers to lose the winnings that they made, due to reasons entirely out of their control. Further, high levels of volatility erode trust in the cryptocurrencies’ use as financial instruments.
In a short span of time, cryptocurrencies have rapidly changed the face of online gambling, an industry that has long been riddled with legal complications and security concerns. With the use of cryptocurrencies, online gambling platforms have seen higher levels of transparency, integrity and faster transaction speed. However, cryptocurrencies are not a cure-all, as they are suspect to the constant specter of unrestrained price volatility and government regulations.
Online gambling may be going all-in on cryptocurrencies, but cryptocurrencies are by no means its savior.
Neither the Dartmouth Business Journal nor the author condone online gambling.