For Cryptopay’s Eric Benz, Japan’s adoption of bitcoin as legal tender has shown the way to other countries that no regulation needs to change, while for Regulus Partners’ Michael Ellen, there are too many issues that currently counteract its practicalities as a frictionless payment option in regulated gambling, enough to bet against it reaching “mainstream adoption” within two years.
“Yes”: Eric Benz, managing director, Cryptopay
The payment landscape for gaming has never been an easy road to navigate. In the early days there were no services or products for operators and players to use, so everything had to be built from scratch to cater to this new ‘undefined’ market.
Many of today’s biggest payment companies and wallet providers credit the gaming industry for helping establish and create some of the most innovative solutions, which we rely on today.
Companies like PayPal were unknown and ineffective until the decision was made to enter into gaming. Overnight PayPal would become the ‘Go-To’ payment wallet for operators and players; the rest is history.
We have seen many innovative technology solutions over the past couple of decades but nothing more innovative than cryptocurrencies and blockchain. While it is still early days, bitcoin and other cryptos are rapidly becoming the ideal medium of exchange.
Having a way to accept payments and settle anywhere in the world without the need of SWIFT is a big deal for many territories and cryptocurrencies provides a means of achieving this. Bitcoin is a wonderful example of just how disruptive the underlying model is. You now have a means of exchange which can digitise cash for an online environment.
Bitcoin has started to open people’s eyes to the broader implications of cryptocurrency not just as a payment mechanism but as a completely new infrastructure. The adoption of bitcoin is no different from any technology cycle.
At first the technology is nascent; then there is no marketplace; next you have an undefined competitive marketplace. The early years for any new technology begin this way. Fast forward six years, and here we are with a more mature technology stack, a competitive landscape, and of course investment from prominent institutions such as venture capitalists.
As the adoption rate of bitcoin continues to grow, the only way forward is to build solutions around it and understand how to adapt to current regulatory guidelines. This brings us to current examples of what jurisdictions are doing in order to both harness bitcoin technology and adopt it within current infrastructure.
Japan is a perfect example of how bitcoin can be adopted and of what should now happen in other countries. The acceptance of bitcoin as legal tender means that no regulation has to change and everything can go on as normal.
As with the advent of wallets and solutions before, bitcoin is set to have an even more disruptive impact. Similar to how technological breakthroughs helped establish igaming; bitcoin will take the gaming experience to new levels for operators, players, and affiliates.
Bitcoin and cryptocurrencies not only provide frictionless means of getting ‘money’ into the game but also now the ability to provide frictionless payouts in real time. There is no better means of playing online than with cryptocurrencies, and as regulatory guidelines become clearer we will definitely see mainstream adoption for gaming payments by the year 2020.
“No”: Michael Ellen, Partner, Regulus Partners
Although Japan has recognised bitcoin (specifically, not cryptocurrency generally) as a payment mechanism, it has no accounting standard for it. Neither does Russia, allegedly also in the process of recognising it. There isn’t one.
The US’s regulatory statement on bitcoin, also in March, came with the SEC’s decision to block an exchange-traded bitcoin fund, based on shortcomings in the unregulated status and prospective unreliability of underlying exchanges.
The SEC’s current review of that decision is unlikely to change the outcome, and this goes to the heart of a major concern about the practical implementation of the underlying technology; the “Mt Gox” issue of effective exchange settlement.
This issue is recognised in current proposals for an agreed software rebuild, the so-called bitcoin fork, to introduce a second and more manageable generation of blockchain. Bitcoin isn’t the only digital currency — Zcash and Ether are newer variants, seen by many as better blockchain technology applications.
There are other practical hurdles down the track. The varying legality of digital currency in national laws around the world gives the remote casino operator another risk from the player location. In July 2014, the European Banking Authority advised European banks not to deal in virtual currencies until a regulatory regime was in place (there is none in UK).
Validating the legality of the player’s source of (bitcoin) funds is problematic – vis bitcoin’s link in the recent Windows XP ransomware scam; and its potential use in currency control evasion, for example, to convert Yuan Renminbi.
Bitcoin value has soared 130% this year, underlining the absence of fiat currency value – no ceiling and no floor – undermining any stakeholder’s or creditor’s assurance on the value of deposits made in the past.
There are theoretical hurdles too for regulated remote gambling activity. If there is a regulatory requirement for assurance on funding risks, by whom will blockchain technology be audited?
Conceptually blockchain-based online gambling could go beyond the reach of the regulator – with server-less casino and neither player, funds, nor games necessarily and identifiably present in any jurisdiction, but this goes beyond the proposition in question here.
GB’s Gambling Commission (GC) has identified a currently-sustainable position in this respect, enabled in part by the UK financial regulator’s recognition of crypto.
GC has confirmed its licensees’ ability to accept digital currencies IF the following issues have been addressed – the degree of anonymity associated with them, the absence of central authority and intrinsic value, and the association with crime – still leaving the operator to satisfy the regulator that they meet their obligations on anti-money laundering and socially responsibility.
That’s a big “if”. Europe’s Payment Services Directive 2 will require (commencing in 2018) all transactions over €30 to be subject to strong customer authentication. Operators must ensure they make “every reasonable effort to determine the legitimate use of the payment instrument”.
This interacts with the coming 4th Anti-Money Laundering Directive‘s enhancement of KYC and AML risk control; and with GC’s own leading position on social responsibility, requiring operator assurance on sources of funds, sources of wealth and identification of at-risk player behaviours.
Solving these issues is possible over time but for now they directly counteract much of the practical attraction of digital currency as a frictionless payment system within regulated gambling – probably enough to bet against digital currencies reaching “mainstream adoption” within the next two years.
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