How Is Crypto-Gambling Regulated Across the Globe?

Posted by Harry Kane on Wednesday, October 9, 2019

Whilst cryptocurrencies may no longer represent the controversial talking points that they did a decade ago, many people remain reluctant to use digital currencies or integrate them into their everyday lives.

However, there remains a considerable level of demand for cryptocurrency amongst investors, whilst the restricted supply of tokens helps to improve the value proposition of popular entities such as Bitcoin.

Interestingly, Bitcoin boasts a current market cap of $146,890, 378, which is considerably higher than any other digital currency. The fastest growing currencies in this respect include Ethereum, XRP and Tether, which tend to offer greater functionality to users and also serve as versatile payment platforms.

These platforms have empowered the use of cryptocurrency in gambling, and even led to the development of Bitcoin casinos in the UK and similarly progressive markets. But how do these entities work, and how are they regulated in the marketplace

How Does Crypto-Gambling Work?

In simple terms, there are two ways in which blockchain and crypto-based gambling can take place online.

The first of these is commonly known as on-chain gambling, which involves online and bricks-and-mortar casinos accepting various cryptocurrency tokens as a viable deposit method.

These outlets often leverage a third-party custodian to convert Bitcoin or Ethereum into a local fiat currency, meaning that players cannot withdraw their winnings through the same medium.

However, the UK market has recently seen the development Bitcoin-only casinos, which operate entirely without fiat denominations and are capable of paying out in your chosen cryptocurrency and wallet.

With on-chain gambling, transactions are processed through a smart contract, which comprises a decentralised app and a backend code that runs on a blockchain network. This optimises autonomy and means that no central authority has control over your transactions, creating a theoretically safer online gambling experience.

The second method relates to so-called ‘off-chain’ casinos, which are far less popular and much easier for regulators ban if they see fit.

Such entities can scarcely be described as being decentralised either, so they’re generally to be avoided if you’re looking for a secure and reputable online casino where you can wager freely with cryptocurrency.

Crypto-Gambling Regulations – A Snapshot

In most developed countries, operators and players must adhere to official regulations pertaining to online gambling activity.

However, Bitcoin and crypto-gambling remains something of a grey area, as this largely sits in a regulatory black hole where activity is neither prohibited or heavily monitored.

The nations that have regulated crypto-gambling are few, although they include progressive market leaders such as the UK, Italy, Greece, Poland, Belgium and the Netherlands.

The UK is arguably the poster boy for this type of regulation, with numerous British-based iGaming brands currently accepting cryptocurrency as a viable payment method. For the most part, cryptocurrency-oriented platforms must adhere to the same regulations as traditional online casinos and sportsbooks, creating a uniform approach that’s relatively easy for stakeholders to understand.

Despite this, however, the UK Gambling Commission (UKGC) has issued a warning against so-called “untrustworthy” platforms on its website, advising users to be cautious when using Bitcoin due to its universal and associated risks.

One of the most common regulations revolves around the conversion of cryptocurrency into an alternative fiat currency, as the UKGC requires players to be identified in this instance as part of Know Your Customer (KYC) and various anti-money laundering procedures (AML).

For some, this may undermine of the key benefits of gambling with cryptocurrency, with Bitcoin and similar entities known for providing a degree of privacy and anonymity,

In the case of emerging cryptocurrencies such as Monero (XMR) and Zcash (ZEC), these entities afford users an even greater level of identity protection, whilst also posing a far greater challenge to regulators who are looking to verify the identity of customers.

This type of loophole is likely to be a clear focal point for UK and similar regulators in the near-term, as they look to create a tighter and more stringent set of guidelines that ultimately benefit players and online operators across the board.

Of course, regulation is far more black and white in other countries, where Bitcoin and cryptocurrency as a whole is prohibited.

In such jurisdictions, Bitcoin and other cryptocurrencies are not considered as legal tender, creating a scenario where they automatically cannot be used in gambling either on or offline. This even remains the case in Japan, where crypto-gambling is incredibly tightly regulated despite the nation having recently relaxed its guidelines pertaining to both iGaming and cryptocurrency usage.

The Last Word and the Future for Crypto-Gambling

Overall, it’s hard to argue with the assertion that the global gambling industry is becoming increasingly friendly to cryptocurrency, with both off and online establishments across the globe now accepting this as a viable payment method.

Even Las Vegas establishments are now starting to accept Bitcoin and a handful of other cryptocurrencies and safe stable coins, despite the fact the U.S. maintains a relatively restricted regulatory approach to both corporeal and virtual gaming.

In the case of the aforementioned Japan, most commentators believe that it’s only a matter of time before crypto-gambling becomes commonplace. After all, the nation’s government passed a federal law that allowed the development of physical casinos in the country back in July 2018, with online entities set to follow shortly after the Tokyo Olympics in 2020.

Japan is also thought to have approved so-called ‘integrated resorts’, which are essentially multi-purpose entertainment complexes that include large casinos, theme parks and shopping malls.

Whilst these establishments won’t initially accept Bitcoin or allow for crypto-gambling, this is also something that’s likely to change gradually over the course of the next few years or so.

Projects such as Ethereum blockchain’s Zero Edge casino also offer an insight into the future, as whilst this particular venture has run into controversy there’s no doubt that the idea of a transparent online casino that negates the traditional house edge is something to aspire to going forward.

This would also enable blockchain technology and crypto-gambling realise its true potential on a global scale, so long as it was underpinned by strong and consistent regulatory measures.