BitCoins in Online Gambling Causing Legal and Security Concerns

Posted By: Date: 01/15/2013 at 12:00 am Leave a comment

BitCoin is one of the latest forms of virtual currency, invented by computer programmer Satoshi Nakamoto in 2009. The idea behind BitCoin is relatively simple. It is not real money, per say, but it is valuable. People can purchase and sell BitCoins, and they can be used to make purchases at online markets where BitCoins are accepted.  Like any other currency, BitCoins can fluctuate in value, based on supply and demand, much like the value of physical coins fluctuate based on local economic conditions. BitCoins are currently valued at about USD-$13 per BitCoin. It all seems simple enough, comparable to buying and selling gold or silver, or ForEx (foreign exchange) marketing. The problem is that one of the largest markets for BitCoins is online gambling.  In regions where online gambling is legally regulated, it’s not an issue. In countries like the United States, however, it is certainly raising some concerns.

There are a number of online gambling sites where BitCoins can be used to purchased casino credits and poker chips, just like depositing with a credit card. In return, players can receive BitCoins as a withdrawal option when cashing out. They can then sell those BitCoins for cash. It is nothing more than an intermediary between payments and withdrawals, traveling through a slim loophole wherein there is no actual cash transfer taking place between a player and an operator.

Online gambling sites that permit BitCoins as a payment method for US customers proclaim that they are breaking no laws. There are other online gambling operators, however, who openly admit that it is nothing more than a loophole that the US government will surely seal in the coming future.  Josh Strike, founder of Strike Sapphire, a Costa-Rica based online gambling site that launched in 2011, said that his BitCoin casino does not permit American players. He believes the laws are too imprecise at this point to take the risk. “I’m an American,”? Strike said. “And the guys who help me with this””lawyers, part-owners, guys I’ve known since high school””they’re American. I don’t want to get anyone in trouble.”?

In the opposite corner is Michael Hajduk. He spent more than $20,000 over the course of a year on the development of Infiniti Poker. As his team approached an impending launched date, the vexatious day known round the online poker community as Black Friday struck. On April 15, 2011, the US Department of Justice shut down a number of poker sites, including the top 3 US-facing poker rooms in the world; PokerStars, Full Tilt Poker and Absolute Poker.

The DoJ was passing out indictments like they were concert flyers. The online poker world was flummoxed. “It was like a bomb went off,”? said Hajduk. But he wasn’t ready to give up yet.

Based in Calgary, in the Province of Alberta, Canada, Infiniti Poker was in its final stages of completion, and Hajduk had every intention of accepting American players. Black Friday put a damper on the alacrity of the website’s production, but he, like so many others, has chosen to integrate BitCoin into his system.  Infiniti Poker is set to launch later this month, with BitCoin being the sole payment option for US-based customers. Members of the online poker room who reside in other countries where online gambling is clearly legal will still be able to use common methods of payment, such as credit cards and wire transfers, but he believes the BitCoin option will become more popular across the globe due to the fact that cashouts can be processed in a matter of hours, as opposed to the potential 12 weeks it could take to receive a bank transfer.

According to Hajduk, BitCoin presents a perfectly safe means for Americans to continue gambling online without fear that the government will freeze their assets. More than $100 million was seized by the DoJ on Black Friday from American player accounts. That was nearly two years ago, yet Americans are still waiting for their frozen funds to be returned. “At the end of the day, [the government] cannot freeze your account because they cannot kick down the door to Bitcoin,”? bolstered a confident Hajduk.

Martin Williams, editor for GamblingCompliance, an organization that tracks and evaluates the gambling industry worldwide, believes that the concept of BitCoin will pose “new legal challenges for financial authorities”?, but that the DoJ will take the reins in due time. “I suspect that much of it will involve playing catch-up, as with so many other things relating to the Internet.”?

There are plenty of experts that advocate Williams’ theory, supported by a heap of evidence as to the precarious nature of the BitCoin. Let’s take a look at some of the more detrimental tribulations that the company has faced thus far.

First of all, once acquired, BitCoins are stored on a player’s computer. If that computer’s hard drive were to malfunction, the BitCoins would be lost. Like setting fire to paper money, there is no recovery method for vanishing BitCoins.  It’s not just technology that earns BitCoin criticism. Over the last year, there have been a multitude of BitCoin heists executed by hackers. Then there was the big alleged Ponzi scheme over the summer, wherein BitCoin Savings & Trust, termed a “BitCoin Hedge Fund”?, absconded with over $5 million that investors had entrusted to the account.

Erik Voorhees is the director of communications and marketing at BitInstant, a network of land-based agencies where users can purchase BitCoins over the counter. BitInstant has more than 700,000 locations across the US alone, as convenient as the nearest Wal-Mart. When commenting on the success of BitCoin usage at SatoshiDice, a BitCoin casino he himself helped to design, Voorhees said that the site only accepts BitCoins at this time, and since it is as yet unclear how it will be viewed by legal authorities, “it’s better to keep it completely separate from real life.  That statement could earn Erik Voorhees some much aggregated criticism. His ostensible conviction that online gambling is not real when BitCoins are used is ludicrous at best. That’s like saying poker chips at a live poker room are not real. You give the dealer real money, he/she gives you chips, and at the end of the day, you trade your remaining chips back in for cash. Just because BitCoins are “virtual”? does not separate their use from “real life”? gambling.

Even US law defines gambling as risking “something of value”?. BitCoins clearly fall into the category of something valuable. The bottom line is that BitCoins are currently a payment option for US players looking to gambling over the internet, but the ambiguity of legalities, not to mention their proven lack of security, could cause a great deal of complications for both players and operators in the near future.

Leave a Reply