Online Gambling Becoming Next Big Frontier In The Bitcoin World

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Friday, January 31st, 2014 | Written by Charles Washington

According to research firm H2 Gambling Capital, the global online gambling market was worth an estimated $30 billion in 2012 and will grow to reach $40 billion by 2015. However, the online gambling industry also relies heavily on being able to process fast, irreversible payments, whilst also reducing the transactions costs which would otherwise remove huge sums of cash from the online gambling market.

For years overcoming this problem has presented the internet gambling market with many serious difficulties and as a result specialized payment companies have sprung up around the industry trying to address the problem.

What are Bitcoins?

Now, bitcoin may be just the panacea the industry has been waiting for as the peer-to-peer, decentralized digital currency has the potential to circumvent banks and other payment processors, thus reducing the processing fees to almost zero. Furthermore, Bitcoins
can be used anonymously all over the globe without the need of a daily currency conversion rate.

There are basically three ways to earn bitcoins: mine them, buy them, or earn them by providing goods and services. Ignoring the last two options, especially the mining process which involves using our PC’s processor power to solve blocks of bitcoin transactions in exchange for a small slice of the pie, we are then left with the option of obtaining bitcoins by purchasing them from an e-wallet, such as Blockchain or Coinbase. Currently, one Bitcoin (BTC) is worth $945.

Although people have been using their bitcoins to purchase all types of products and services around the world, not surprisingly the intrinsic nature of Bitcoins themselves has attracted the attention of gamblers as well.

Bitcoins enter the mainstream

Incredibly, of all bitcoin transactions online gambling ones are the most common, with venture capital firm Lightspeed Venture Partners estimating that almost half of all bitcoin transactions are gambling related. Post Black Friday, most US banks refused to allow any transactions associated with online gambling sites, and so some sites decided to turn to Bitcoin in order to make it easier for players to get their money online.

Amongst the new generation of bitcoin gambling operators are such sites as SatoshiDice, BitZino, Seals With Clubs, WinPoker, with that Malta-registered casino Vera&John becoming just the latest in a long line of gambling sites to accept bitcoin deposits.

In addition, licensed gaming companies CoinBet and Infiniti Poker, have already entered the real money online gambling space vacated since Full Tilt Poker, PokerStars, and Absolute Poker were shut out by the US Department of Justice in 2011. Both CoinBet and Infiniti Poker are Costa Rica-registered, and unlike other legalized, license issuing gambling jurisdictions, does not require operators to obtain and verify its players’ identities. Commenting on its policy of accepting US players, CoinBet senior VP of gaming, John Bauer, proudly explained:

“Look, to take away a person’s fundamental right to spend their money on whatever they choose is wrong, unconstitutional, and without question, an un-American thing to do. We are not here to engage in a legal debate, we are here to serve up the very first legitimate workaround to the complex online gambling laws in this US market. We are returning to Americans their freedom to choose and giving them their power back.”

Legality of bitcoins

Up until recently, authorities seemed more concerned about the potential for illicit activities stemming from the virtual currency, but towards the end of 2013 US Federal Reserve Chairman Ben Bernanke, signaled a reversal of this long held view after he announced at a Bitcoin Senate hearing that bitcoin could hold “long-term promise, particularly if the innovations promote a faster, more secure and more efficient payment system.”

As far as the US online gambling market is concerned, outside of the regulated markets of Nevada, Delaware, and New Jersey, internet gambling in the US operates in a legal grey area, with offshore companies able to operate as long as payment processors don’t violate US regulations. However, the Bitcoin marketplace is mostly anonymous and does not fall into any specific government’s jurisdiction making it a potential logistical nightmare for countries trying to determine profit and tax implications.

Despite being a fast, secure, and low-cost means of payment, one drawback to the virtual currency at present is that its price is likely to remain volatile as the market works out its future demand. Furthermore, offshore internet poker sites embracing bitcoin will likely find it difficult to accurately price their poker chips, as the BTC exchange rate continues to fluctuate wildly.

In 2011, the value of one BTC was a mere $0.30, but by February of 2013 had reached $21 before soaring to around $1,200 by the end of the year. As of today, bitcoins are worth $945.