Gambling and Bitcoin
(by way of Super Bowl 51)

Bitcoin - poker chipA NUMBER OF notable companies now accept Bitcoin, albeit usually via an intermediary like Coinbase or BitPay. Yet one Bitcoin use in particular seems to be catching on in a big way. “By most estimates,” PBS Newshour reported in 2014, “more than half of global Bitcoin transactions are wagers on gambling sites.”

To explain the growth of Bitcoin gambling, I need to talk about Super Bowl 51.

SB 51, which only sounds like pending Senate legislation, took place just a few days ago. It received a fair amount of media coverage, so you may have heard about it. You may even have had an opportunity to place an online wager or two, including a host of “prop” or “proposition” bets, which are tied to sporting events short of predicting winners and final scores. USA Today lists 86 of 2017’s most popular Super Bowl online prop bets, ranging from whether Luke Bryan was going to show up on-camera wearing a hat, to whether Malcolm Butler would intercept a pass, to which song Lady Gaga would sing first.*

Which is curious when you consider that online sports gambling in the United States is illegal. This is due to what’s commonly called the Wire Act, which only sounds like a circus routine. The Federal Wire Act of 1961 prohibits financial institutions from knowingly wiring funds for the purpose of sports gambling. In 2011, the U.S. Department of Justice ruled that the Wire Act applied equally to online sports gambling. Financial institutions could no longer allow clients to whip out a credit card to bet on their favorite team.

There is no federal law forbidding other kinds of online gambling. Individual states, however, can ban all the online gambling they like, and most do. Either way, online sports gambling remains verboten nationwide.

But never underestimate the ingenuity of Humans Seeking Loopholes (HSLs).** HSLs argue that, technically speaking, laying down money on how many times an announcer would say “Gronk” or “Gronkowski”*** isn’t betting on the game. So far, that one seems to fly with regulators. And since it’s illegal for U.S. companies to take online sports bets, enterprising HSLs set up virtual casinos outside the U.S. that you can access via the Internet (but would be wise not to). I’m not going to link to them, even though a recent Crypto Hustle article by Nick Jakubowski suggests that the law “… doesn’t specifically … target individual gamblers.”

As for that nasty detail in the Wire Act that forbids your bank from moving funds for sports gambling, that’s where Bitcoin comes in. Bitcoin leaves banks out of it. As NPR’s Cyrus Farivar quoted senior research fellow Mercatus Center at George Mason University, “Bitcoin … totally circumvents [regulations]. There is no Bitcoin company, there’s no Bitcoin building that regulators can get their hands on. It’s basically cash.” Farivar’s article goes on to say:

… no one knows if Bitcoin is money, a financial instrument or something else.

“We don’t have a bank account at Seals with Clubs,” says Bryan Micon, the spokesperson for … a Bitcoin-based poker site. “There’s no bank account. There’s no bank of any sort that we do. We only do this one weird brand-new Internet protocol transaction that some of the nerds out there are calling money.”

Micon says it might be tough for the Feds to regulate what is just a piece of computer code and not real money.

When it comes to gambling, enthusiasts praise Bitcoin’s alleged transparency and efficiency. According to the above-referenced Crypto Hustle article,

Legitimate Bitcoin casino operators and players have worked out arrangements between themselves for fair gaming. There are standards for provably fair games. The blockchain reinforces transaction fairness while allowing immediate deposits and, importantly, withdrawals. And, above all, the whole process is anonymous.

HSLs further argue that Bitcoin isn’t “funds” and that no one “wires” them. Some even challenge if online gambling using Bitcoin can even truly be considered online gambling. Which is kind of an interesting argument, considering that it’s called “online gambling using Bitcoin.”

So perhaps it’s no wonder that, amid the weaseling and wordplay, Kyle Torpey hyperbolized a few weeks ago in his CoinJournal article, “Bitcoin is eating the entire online gambling industry.” It’s difficult to know if he’s right or turning up the volume on his wishful thinking.

Maybe it’s just me, but none of this sounds on the up-and-up. Especially that part about “the whole process is anonymous.” If it’s legit, anonymity shouldn’t be a priority. As for trying to outwit the authorities on technicalities, well, that rarely goes well. Better not to proceed. Not even with caution.

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* No, yes, “God Bless America.”
** Do not take anything you read here for legal advice. If you’re bent on trying online gambling, first check with an attorney, which (and I cannot emphasize this enough) I am not.
*** Fewer than three.

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