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.