Crypto Gambling Regulations: What’s New?
Cryptocurrency and blockchain technology have disrupted most industries in recent years, including the gambling and gaming industries.
Blockchain and crypto-based gambling allow players to use digital currencies, such as Bitcoin, Ethereum, and others, to play games, make in-game purchases, and receive payouts. Traditional gambling and gaming rely on conventional payment methods, such as credit cards, bank transfers, or e-wallets, which are often slow, expensive, and have limited global reach.
In this article, we will explore the current state and regulations surrounding crypto-based gambling and compare them to traditional online gambling rules and regulations. We will examine the challenges faced by regulators and operators, as well as the potential risks for players, and discuss possible solutions to ensure a safe and fair gambling experience for all.
A Little Background
Cryptocurrency-based gambling has become increasingly popular in recent years due to the advantages it offers, such as anonymity, security, and fast transactions. However, the regulatory landscape surrounding crypto-based gambling remains murky and undefined, leading to concerns about the potential risks involved for players.
Unlike traditional online gambling, which is subject to strict regulations in many jurisdictions, crypto-based gambling operates in a legal grey area. The need for clear regulatory frameworks has created a challenge for regulators and operators in ensuring player protection and preventing money laundering and other illegal activities.
One of the main reasons for the need for more regulation is the decentralized nature of cryptocurrencies. Traditional online gambling operates on a centralized platform, making it easier for regulators to monitor and enforce compliance. However, crypto-based gambling often takes place on decentralized platforms, making it difficult for regulators to identify and address illegal activities.
Furthermore, the rapid growth and evolution of the cryptocurrency industry make it challenging for regulators to keep up with the latest developments and technologies. This further complicates the regulatory landscape, leaving players vulnerable to potential risks and scams.
So How Does it Work?
Crypto-based gambling is a type of online gambling that uses virtual currencies as a means of payment. The benefits of this method include the additional security offered by blockchain technology, and the ability for players to instantly withdraw money from their accounts, unlike in traditional online casinos.
Crypto casinos can be separated into two categories:
Off-chain and on-chain are two distinct approaches to transaction processing in the context of cryptocurrency gambling. In off-chain gambling, transactions occur outside the blockchain network, while on-chain gambling involves processing transactions on the blockchain.
Off-chain gambling relies on a third-party service provider to manage the transactions. This service provider may use traditional payment methods, such as bank transfers or credit cards, to facilitate the transactions. These transactions are not recorded on the blockchain network, but rather in a separate database maintained by the service provider. This allows for faster processing times and lower transaction fees, but also introduces a higher level of trust in the service provider.
On-chain gambling, on the other hand, involves processing transactions on the blockchain network itself. These transactions are recorded on the blockchain and are visible to anyone with access to the network. This approach eliminates the need for a third-party service provider and provides a higher level of transparency and security.
However, on-chain gambling can be slower and more expensive due to the nature of blockchain technology. Each transaction must be validated by network nodes, which can take time and require a fee to be paid to incentivize the nodes to process the transaction.
In summary, off-chain gambling offers faster processing times and lower fees but requires a higher level of trust in the service provider. On-chain gambling provides higher transparency and security but can be slower and more expensive.
Is Crypto-based Gambling Legal?
As of yet, crypto gambling regulation does not exist, and the feint remnants of regulation that do exist only serve to govern and protect the processing of fiat payments. As a rule, crypto-based gambling can be considered legal if the following conditions are met:
- A country allows online gambling.
- A country allows the use of cryptocurrency on the territory.
For example, some forms of online gambling are prohibited in the US on a state level. Therefore, if a player wants to conduct online gambling from such a state, they’ll likely be banned. Similarly, The RESTRICT Act prohibits common workarounds and is ready to make an example of any rulebreakers, holding them accountable with up to $250 000 in fines.
However, there are places that have banned or heavily restricted the use of cryptocurrencies (e.g., China, Qatar, Nepal, Bangladesh, etc).
In short, crypto gambling is neither prohibited nor allowed in many countries at the moment, leaving a gaping gray area for projects to exploit, as we have seen countless times over the past 18 months.
However, the situation may change over the next several years and gambling companies should ensure that they stay up to date with any relevant regulations. Here at House of Parlay, we’re striving to not only remain in line with regulations but work with regulators to pave the way forward for the industry as a whole.
License and Registration, Please
Rules and regulations vary by country and can be divided into two categories: licensing and operational requirements.
Licensing requirements typically involve obtaining a license from a regulatory authority. This process often involves a rigorous application process, which may include background checks, financial audits, and compliance with strict regulations. Once obtained, the license holder is subject to ongoing monitoring and must comply with strict reporting requirements.
Operational requirements cover various aspects of online gambling operations, including player protection, responsible gambling measures, and anti-money laundering measures. These requirements may include age verification, problem gambling prevention tools, responsible gambling messaging, and transaction monitoring to detect and prevent money laundering and other illegal activities.
Currently, no such framework exists in Web3 and the current licenses, or actually, sub-licenses, being issued are not even worth the paper they’re printed on. However, Curacao is currently in the process of overhauling its licensing system and only the true, trustworthy few are set to survive.
Overall, traditional online gambling is subject to strict regulations aimed at ensuring a safe and fair gambling experience for players, as well as preventing illegal activities such as money laundering.
The US, the UK, and Canada are the three biggest countries to consider taking a solid stance on the matter in Web3.
US Crypto Gambling Regulations
The US has a complex regulatory landscape when it comes to online gambling, and the situation is even more complicated for crypto gambling. The federal government has not issued any clear guidelines or laws that specifically target cryptocurrency gambling, but individual states have the authority to regulate online gambling within their borders.
As of now, only a few states have explicitly legalized online gambling, including New Jersey, Nevada, Pennsylvania, and Delaware.
However, even in states where online gambling is legal, operators still need to obtain a license from the state regulator, and the use of cryptocurrencies may complicate the licensing process ontop of the entire process remaining just as confusing.
Furthermore, the IRS has classified cryptocurrencies as property for tax purposes, which means that any gains or losses from crypto gambling are subject to capital gains tax.
UK Crypto Gambling Regulations
The UK has a more liberal approach to online gambling, and the regulatory framework is clearer for both traditional and crypto-based gambling.
The UK Gambling Commission (UKGC) is the main regulatory body responsible for overseeing the gambling industry in the UK, and it has issued guidelines specifically for operators that offer gambling services using cryptocurrencies or funded by cryptocurrencies.
Under the UKGC’s guidelines, crypto gambling operators must obtain a license and adhere to the same regulatory requirements as traditional online casinos. They must also implement anti-money laundering measures and ensure that their games are fair and transparent.
Canada Crypto Gambling Regulations
Canada has a decentralized approach to online gambling, with each province and territory having the power to regulate the industry within its borders. As of now, only a few provinces have legalized online gambling, including Quebec, British Columbia, and Ontario.
While there are no specific laws or guidelines that address crypto gambling in Canada, the general regulations that apply to online gambling also apply to crypto-based gambling platforms. Operators must obtain a license from the provincial regulator and comply with the anti-money laundering and responsible gambling requirements.
Risk vs Reward
Despite the benefits of crypto gaming, there are also risks associated with it.
The lack of clear regulations and oversight in the crypto-based gambling industry creates a breeding ground for fraudulent and malicious activities. Unregulated casinos may engage in unfair practices such as rigged games, refusal to pay out winnings, or even outright scams.
In addition, the anonymity and ease of use of cryptocurrencies can make it difficult for players to verify the legitimacy of an online casino. It is essential to do thorough research and choose a reputable casino that is licensed and regulated by a reputable authority.
Another significant risk associated with gambling online using cryptocurrencies is the potential for money laundering and other illegal activities. The anonymity provided by cryptocurrencies can make it challenging for regulators to identify and prevent these activities, leaving players vulnerable to potential risks and even legal consequences.
Furthermore, the volatility of cryptocurrency values can lead to significant losses for players. The value of cryptocurrencies can fluctuate wildly, and players may end up losing much more than they intended due to unforeseen changes in the market.
Unlike traditional gaming, which is subject to strict regulations and oversight, the crypto gaming industry is largely unregulated and decentralized. This means that players have limited legal recourse if they encounter fraud, hacks, or other malicious activities. It is important for players to do their research and choose reputable gaming platforms that prioritize security and transparency.
Moreover, crypto gambling can be more addictive and risky than traditional gambling since it allows for instant and anonymous transactions, which can lead to reckless betting behavior.
Wrapping Up
In summary, the regulatory landscape for crypto gambling varies across different jurisdictions, and operators and players must be aware of the laws and regulations that apply in their respective locations.
While the US has a fragmented regulatory framework and a lack of clarity on the legal status of crypto gambling, the UK and Canada have clearer guidelines that provide a more stable environment for operators and players alike. However, Web3 still does not hold the clarity or transparency it thinks it does when questioned on the topic of regulations.
With the rise of crypto gambling, it is important that the industry continues to evolve and adapt to ensure a safe and enjoyable experience for all stakeholders. We will always push the boundaries on what we think is possible over at House of Parlay and always ensure we’re leading the pack.
Cryptocurrency gambling and gaming is a promising and rapidly evolving sector. Set to reach a whopping quarter trillion dollars in the next two years. Web3 gaming has the potential to provide players with more transparency, fairness, and ownership of their in-game assets. However, players should be aware of the risks associated and exercise caution at all times.
These pseudo-regulations provide a framework for online gambling operators to operate legally and responsibly, but we are yet to be gifted a solid set of rules, until then, we’ll continue to create them.
It’s time Web3 wakes up, and that’s where House of Parlay comes in.
