Legality of Gambling on the Blockchain
By: Ross Cormack
Tags: Blockchain, Ethereum, Online Gambling, Online Casino, Bitcoin

The more digging into the complex world of gambling regulation, the more there is to know and the more confusing it all becomes. With the addition of blockchain technology, Bitcoin based casinos, and the potential for many more blockchain based gambling platforms, it would seem prudent to get up to speed with the legalities of not just gambling on the blockchain, but of online gambling in general.

Blockchain is a distributed database or ledger spread over a network of electronic devices where records of cryptocurrency transactions are kept, away from revision or from tampering.

There are certain regions in the world that have specific legislation in place that allows them to license and regulate companies that operate online gambling sites or provide industry services (such as the supply of gaming software). These regions are referred to as online gambling jurisdictions or licensing jurisdictions. Within these jurisdictions, there’s usually an organization that’s responsible for issuing licenses and regulating the licensees. These organizations are typically known as licensing authorities.

For an online gambling site to offer its services to customers legally, it should hold a betting or gaming license issued by an appropriate licensing authority. A site will usually have to base at least part of its operations within the jurisdiction where it wishes to be licensed, meaning that many gambling sites choose their location almost entirely on the basis of the legislation and regulatory practices that they’ll have to adhere to.

But what about digital currency? Bitcoin, for example, totally circumnavigates these restrictions. Can a piece of computer code be regulated, since it is not money in the traditional sense of the word?

Below are examples of the different legal regulatory systems that are in place to manage the industry:

United Kingdom (UK)

Online gambling is legal in the UK and very well regulated. Sites operating both within and outside the region can offer their services to UK residents, providing they are licensed directly by the UK Gambling Commission (UKGC). This latest provision was introduced in 2014. Prior to that, any sites licensed within certain ‘white-listed’ jurisdictions were able to accept customers from the UK. ‘White listed’ jurisdictions are those gambling jurisdictions that are allowed to advertise gambling services in the territory of the UK.

The clear legislation and strong regulation in the UK makes this region an attractive market for operators; the only downside are the high tax rates.

Any gambling business wishing to offer gambling facilities to consumers in the UK using digital currencies, or virtual currencies that can be exchanged for cash or traded for items of value, must hold an operating license (UKGC).

Australia & New Zealand

Laws concerning online gambling in Australia are covered primarily by The Interactive Gambling Act of 2001 (IGA). This act makes it illegal for Australian companies to offer certain gambling services to Australian residents; only sports betting and lottery games are allowed. Regulation is carried out by both central government and local governments. There’s no law that specifically prohibits Australians from using overseas gambling sites. However, in January 2018 the Australian gambling regulator Northern Territory Racing Commission (NTRC) issued an informal ban against all cryptocurrency online wagering, singling out bitcoin and ethereum.

The online gambling legislation in New Zealand is more straightforward. The Gambling Act of 2003 clearly lays out exactly what is and what isn’t legal. Most forms of online betting and gaming are prohibited, but this only applies to companies based in the region. The act mentioned above explicitly makes it legal for New Zealanders to use sites located overseas.

US

The legalities of online gambling from within the United States can certainly be defined as unclear. Many sites provided their services to US residents for years, seemingly without any issues. However, there was an argument over whether or not the Wire Act of 1971 applied to wagering and gaming over the internet. This act was established to make interstate telephone betting illegal but since it was passed years before the World Wide Web was invented, it obviously made no specific reference to online gambling.

In 2006 the Unlawful Internet Gambling Enforcement Act (UIGEA) was passed, which changed things to some extent. It didn’t specifically make online gambling illegal but it did make it illegal for banks and other financial institutions to process transactions between US residents and gambling sites. Many sites took this as a clear indication that the US government considered online gambling to be illegal and stopped taking US customers as a result.

A number of other operators continued to welcome American customers though. Their argument was that if they were based and licensed in a jurisdiction where online gambling was legal, then they weren’t breaking any laws. Some Americans chose not to risk betting or playing over the internet, but many more carried on doing so. The general consensus was, and still is, that any individual using a gambling site isn’t acting illegally.

In recent years the legal landscape has changed again. A number of states have introduced legislation which openly makes online gambling legal and some states have even issued gaming and betting licenses to operators wishing to provide their services within those states. Several other states have announced plans to do the same, while others are continuing to debate the issue.

However, the federal government says online gambling is prohibited. In the last few years, the Justice Department has made it very clear: You cannot open-up an offshore casino online and start accepting bets using actual money from the United States.

So, things to remember in the US:

It’s never legal to gamble online in the United States

Accepting online gambling advertising is illegal in the United States

It is not legal to operate an online gambling site in the United States

No placing cyber bets on sporting events or in virtual card games in the United States

No transferring money electronically for gambling in the United States

No wagers in offshore Internet casinos even if you live in the United States

It’s also illegal for businesses to run gambling websites and to solicit online bets in the United States

Even companies handling transactions for cyberspace bettors can face federal charges

The FBIs strategy for dealing with illegal online gambling is to track down the gambling operator.

US Bitcoin casino operators have been hit hard, so hard that many offshore casinos now geoblock any IP address that’s linked to the US just so they don’t get caught in the crossfire.

Canada

In Canada, legislation is in place that makes it illegal for any company to provide betting and gaming services to Canadian citizens without a license from the provincial government; However, there is no law which makes it illegal for Canadians to use gambling sites that are located overseas.

Individual provinces within Canada are able to regulate gambling in their own regions, and some local governments actually operate their own online betting and gaming outlets. In 2004, the British Columbia Lottery Corporation launched Canada’s first legal online casino, PlayNow.com, which makes legal online gambling available to residents of British Columbia and Manitoba.

Russia

Online gambling was completely banned in Russia in 2006, and all forms of gambling were banned in 2009 in all but four regions of the country, namely; Kaliningrad Oblast, Krasnador Krai, Altai Krai, and Primorsky Krai, although it is believed that many Russians do continue to gamble online.

A ruling from the Russian Supreme Court in 2012, took the online gambling prohibition a step further when it stated that internet service providers must block sites operated by online gambling operators, with a view to making it impossible for Russians to access their services. Internet providers had previously refused to do this and had even won a lawsuit brought against them trying to enforce this, but this ruling threatened them with the loss of their licenses if they didn’t comply.

China

China does not allow internet or land-based gambling throughout their country. The only form of gambling that’s legal in China is the national lottery, but this doesn’t offer an online option due to internet scams involving fake lottery sites. Macau, which is a special administrative area of China, is the lone territory where Chinese citizens can go to gamble; however, the government has made it hard for people to get a visa to Macau. However, although a lot of online gambling activity in the country is strictly prohibited, the rules and reguations are starting to change in China.

Small Island States

Small island states have long sought to develop conventional export-based economies but are disadvantaged by size, location and a range of other factors. Set against the range of disadvantages, the comparative advantages of smallness and isolation are few. Conventional development proposals have thus encouraged small islands to develop niches where they have some form of comparative advantage.

Isle of Man

Isle of Man is a self-governing British Crown dependency, also termed the Bitcoin island. It is a center for online digital currencies such as bitcoins and other cryptocurrencies instead of cash. Thus it has become the hotbed for online bitcoin gambling. The gambling market is currently being controlled by the Gambling Supervision Commission (GSC). This makes it safe for the players as it allows casinos which deal with bitcoins to fill their applications to the GSC making it more favorable for users. The Isle of Man now wants to adopt blockchain in the gambling industry in order to boost its FinTech and digital operations.

The GSC and Treasury approved changes to the island’s gambling regulation in early 2016. Now digital currencies such as bitcoin can be accepted as a cash equivalent, highlighting the UK’s position that it sees bitcoin as a form of cash that can be accepted on gambling sites.

Alderney

Aldernay is outside the European Union and is an offshore finance centre. Development opportunities expanded with superior electronic communications, the emergence of the internet and the arrival of two internet gambling companies who moved to the island in the 1990s and established state of the art IT links. The development of IT has enabled Alderney to become one of relatively few jurisdictions with internet gambling. At the margins of legality in some jurisdictions, internet gambling provides significant revenue for a small number of countries, notably Antigua and Barbuda, which famously managed to use WTO legislation to fight off massive legal pressures from the United States to successfully retain its industry (Cooper, 2011). Other jurisdictions that have established internet gambling are few, but include Gibraltar and the Isle of Man.

Internet gambling began in 1997 and was quickly attractive to gambling companies because of the island’s lack of gambling and corporation taxes. Alderney is reputed to transmit more internet e-gambling traffic than any other place on the globe, including Antigua, and is larger than the combined activity of its three European rivals: Isle of Man, Gibraltar and Malta. To facilitate establishing a global e-commerce, e-gaming or e-betting presence, the States of Alderney has passed legislation to further the development of ecommerce on the island and to support the electronic transactions of businesses.

Curaçao

The Caribbean island created legislation for regulating online gambling in 1993 and over the years the Curaçao Gaming Control board has made online gambling a central industry for Curaçao. The Curaçao e-Gaming License Authority which became responsible for online gambling in 2002 has grown to accommodate one of the largest gaming license demands in the world. The licensing requirements in Curaçao are intended to be manageable for even small start-up online casino ventures. They offer IT infrastructure and hosting support for their members as well. At this moment in time the sub-licensing opportunities that exist are both low cost and easy to obtain making Curaçao the №1 top jurisdiction for launching a licensed Online Gaming Business.

All licensed e-Gaming businesses must use hardware located within the governments e-zone. This is a special area of the country used to house the needs of the e-Gaming industry within Curaçao, and offers the nation the ability to provide very low tax rates for online gambling companies exclusively. They currently offer a corporate income tax rate of 2%, with a 0% tax on gross incoming wagers which means that any company licensed within the e-zone will not have to pay taxes on anything other than their profit. In addition, Curaçao charges a tax of just 2% on net profits and does not put up massive barriers to entry for potential operators. This tax incentive is guaranteed until 2026, with no other associated taxes imposed.

Ethereum based Edgeless received its casino license in Curaçao which is the first time a blockchain based casino has been officially approved by legal authorities. The license gives the casino operator access to the gambling market and credibility and authority in the industry as well as access to banking services and payment providers amongst other benefits.

Other gambling platforms built on the blockchain include Betstreak which obtained its license in Curaçao, Unikrn which was awarded a gambling license in Malta, and Quanta which is licensed in the Isle of Man. Malta, the Isle of Man and Gibraltar, can also be included under the small island states that are aiming to become global leaders in legal and regulated cryptocurrency gambling. In fact Gibraltar has just introduced the Digital Ledger Technology Regulatory Framework which lays down the foundation for new legislation governing the cryptocurrency sector in the territory, where finanacial services and online gambling are the principal contributors to the ecomony.

Summary

Overall, there are about 80 countries that have legalized online gambling, and Europe has the largest online gambling market in the world (Source: businesswire.com). In the US, three states (Delaware, Nevada and New Jersey) already allow online gambling, and it is expected that more states are going to adopt similar regulations, allowing this market to grow in these regions. Currently a set of bills is making its way through Michigan’s legislature that will change the rules for gambling online within the state. Current laws say online gambling is illegal, but that could change, at least partially, if laws are changed.

All legal online gambling businesses must be registered and in compliance in at least one jurisdiction. The most common jurisdictions that online gambling businesses register in are Caribbean nations such as Antigua and Barbuda, Costa Rica, and Curaçao and European nations such as Malta and the UK.

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