Many questions surround the use of Bitcoin, a popular unregulated virtual currency. Gaming operators and national regulators have taken different approaches with regard to accepting and regulating the use of Bitcoin. However, many risks and uncertainties remain.
Bitcoin is considered a ‘cryptocurrency’ since it uses cryptography in order to control its creation and transfer. It was created in 2009 by Satoshi Nakamoto, an anonymous person whose real identity is still unknown. Bitcoin is unusual in that it is not controlled by any public entity. It is based on a peer-to-peer network that allows one to hold and transfer it in an almost fully anonymous manner.
Legal status of Bitcoin
Bitcoins are a kind of electronic currency, but it is unclear whether they fulfil the conditions to qualify as e-money in accordance with EU Directive 2009/110. Indeed, the main peculiarities of Bitcoin are the following:
- This currency depends on a specific exchange rate which is not linked to a traditional currency but is merely based on the market conditions;
- Bitcoin lacks any link to a traditional currency, which might cause issues when holders want to convert them into real currency; and
- There is no control or surveillance by a public authority but only by private entities.
What are the legal risks for Bitcoin?
The main issue usually raised by opponents to the usage of Bitcoin pertains to the potential breach of anti- money laundering regulations. Many European countries, including Italy, provide for specific rules applicable to land-based casinos and gaming halls, as well as gambling websites. Under anti-money laundering regulations, the withdrawal or deposit of money in a gaming account using payment means which are not held in the name of the gaming account holder may indicate a suspicious transaction.
Some commentators argue that transfers of bitcoins are even more traceable than ordinary cash transactions. However, the question is whether they can be easily traced by public authorities in case of investigations. Will gaming operators accept payments only in bitcoins held under the name of the gaming account holder? Will gaming operators accept being subject to more stringent investigations by public authorities in cases of Bitcoin transactions?
Also, Bitcoin is a virtual currency that is not regulated and is usually treated as a commodity rather than a currency itself. There is no public authority supervising it and transactions are not processed by “regulated” entities such as banks or financial institutions. Such conditions make it more difficult for public authorities to monitor these transactions.
An additional interesting issue affecting Bitcoin and gaming related matters is how to calculate the applicable taxation in case of Bitcoin transactions. In countries like Italy, gaming duties are paid for most of the games on a monthly basis at the end of each month. However, given that the value of bitcoins can considerably fluctuate over the course of a month, if it is considered only the value at the time of the payment, this might be an additional “gamble” for operators and even for players themselves in countries where gaming winnings are not taxed at the source.
Finally, the potential for cyber-attacks represents a further threat to this currency. It poses the additional risk that misuse of bitcoins might lead to considerable variations in the value of bitcoins, as occurred in 2011 when their value fell from $ 17.50 to $ 0.01.
Reaction by regulators to Bitcoin
Both the Bank of France and the Bank of Italy recently issued reports warning of the potential risks associated to this type of currency. Likewise, the Monetary Authority of Macau (AMCM) has issued a warning to Bitcoin users that trading in the virtual currency in Macau could break the law, although it did not expressly declare that the usage of Bitcoin will be forbidden outright.
The opposite approach has been adopted by the Isle of Man’s government, which recently announced that it will proactively monitor and control innovations within the digital currency arena. The goal of the Isle of Man regulator seems to be creating a friendly environment in order to encourage companies operating within the space to flourish.
Also, the regulator in Alderney has opened the race for the leadership in the Bitcoin sector. The Alderney regulator’s objective is to make Alderney a global hub for Bitcoin, although the initial plans for a gold-backed version of Bitcoin have been shelved.
.COM vs. .Country gaming websites and acceptance of Bitcoin
It is uncertain whether gaming operators are going to accept Bitcoin as a valid payment method. The first Maltese-licensed operator to accept Bitcoin was Vera&John. However, the Maltese regulator later forced Vera&John to stop accepting Bitcoin. Likewise, to our knowledge, no other European regulator has permitted the acceptance of payments in Bitcoin so far.
On the other hand, a much more liberal approach is followed by Curacao, where Curacao-licensed gaming websites accepting Bitcoin are considerably flourishing.
Also, in general, operators engaged in jurisdictions without clear regulatory frameworks always face uncertainty about the appropriate approach in relation to Bitcoin. Russia, in particular, is one of the jurisdictions in which these uncertainties exist.
The risk is that players willing to gamble in Bitcoin will be encouraged to play on unlicensed websites that in some instances are in breach of local gambling regulations. There is no doubt that both financial and gambling regulators will soon attempt to impose a regulatory framework for Bitcoin with the goal of protecting people trading with such virtual currency. However, the issue is whether a type of currency that was created for an unregulated environment can be regulated.