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There are still relatively few U.S. states where gaming regulators have adopted rules that allow for the limited use of cryptocurrencies, a decision that has been attributed to the volatility of virtual currencies themselves.
The volatility of cryptocurrencies such as Bitcoin is well-known but a new study found it may have created a space within the gaming industry for new types of assets to be used, including stabletokens.
Currently, four U.S. states have clarified their position on the use of cryptocurrency, including Wyoming, Colorado, Nevada and Virginia, which permit its use to fund a wagering account if it is first converted to cash. A new state law to allow mobile sports betting in North Carolina also provides for digital, crypto and virtual currency as a potential means to fund a wagering account.
In a 22-page study released this month by the International Center for Gaming Regulation at the University of Nevada, Las Vegas, author Amanda Gore noted that the gambling community appears to have a very mixed view of implementing crypto payments.
Gore said that the discussion appears to be more advanced in Europe and the UK than in the U.S. in accepting crypto payments across gambling markets.
The study also highlighted crypto regulations in Cyprus, the Kahnawake Mohawk Territory in Canada, the Philippines, Malta, the UK, the Northern Territory in Australia, the Isle of Man and Curacao.
Kahnawake is a First Nations reserve in Quebec, Canada, that has established a significant online casino licensing presence. The Kahnawake Gaming Commission, which licenses and regulates gaming, does allow crypto payments.
The payments are subject to the existing anti-money laundering (AML) policies and regulations; however, cryptocurrencies cannot be the sole payment method.
Any cryptocurrency transactions greater than $10,000 need to be reported and specified if the transaction “involved cash, electronic funds transfer, e-currency or a cryptocurrency.”
Some of the hesitation on the part of regulators can be attributed to the fact that some of the largest operators that allow the use of virtual currencies are registered offshore and offer their services to multiple jurisdictions.
Many of these crypto casinos are operating with little regulation and, in most cases, the jurisdictions where these websites are registered are not yet regulating crypto-assets, in general; however, the landscape is slowly changing, Gore wrote.
According to the study, there are several opportunities to allow the use of crypto in both land-based casinos and online gaming.
For land-based casinos, Gore suggested they focus on allowing virtual currencies through digital wallets used for cashless gaming or crypto-ATMs on the casino floor that would allow virtual funds to be converted into cash before gambling.
Online crypto casinos could allow for wallet-to-wallet transactions with deposits being made from a player’s wallet to the operator prior to gambling. Gore also highlighted online casinos using third-party payment processors, such as Neteller or Skrill, to process deposits and withdrawals.
Gore, founder and CEO of the Center for Global Advancement, a UK-based firm that works to combat environmental and financial crimes, added that best practices suggest the exchanges should be regulated in the country in which the casino is registered.
In terms of using crypto both online and in a land-based casino, Gore suggested the potential use of stabletokens, allowing the conversion of currency into a virtual stable token that can be used as an in-casino currency like a digital casino chip.
She said stabletokens are increasingly being discussed as a technology built on blockchain that supports the development of an electronic casino chip that can be used in an omnichannel environment.
“Funds are transferred into the stabletoken to gamble and withdrawn as winnings in a closed-loop system,” according to the study that Gore published through UNLV as a guide for regulators to understand the anti-money laundering risks linked to accepting crypto-payments.
Those funds deposited on a customer’s digital wallet could convert to a dedicated “casino currency” that can be used to purchase food and beverages, entertainment and gambling.
Other potential virtual currencies the gaming industry could adopt include stablecoins, which do not have the same volatility in value that traditional cryptocurrencies have, and non-fungible tokens (NFTs).
Gore’s study highlighted a few of the benefits of adopting virtual currencies, such as payments that are irreversible, meaning there are no chargebacks, while fees are lower and settlement times are significantly faster, and all transactions are recorded on the blockchain.
In terms of recommendations for gaming regulators, Gore urged them to require each operator to submit a risk assessment relating to potential issues with accepting crypto payments prior to adopting any rules or licensing of operators.
A risk assessment should be conducted for each cryptocurrency the operator plans to accept, and if further information is needed, Gore urged gaming regulators to seek a legal opinion on the risks posed by specific crypto-assets.
Gaming regulators also need to make sure any third-party payment processor is regulated by the relevant authority within a jurisdiction, usually the state’s financial regulator, as well as ensuring existing anti-money laundering and counter-terrorist financing (CTF) controls are in place.
Finally, Gore recommended terms and conditions of using crypto payment should be clear from the operator, as well as consider if a regulatory and law enforcement infrastructure is in place and know your customer (KYC) processes for licensees.
