In the United States, online gambling is heavily regulated, if not fully prohibited. Nonetheless, the advent of bitcoin has enabled American residents to gamble on a large number of online casinos and betting sites, bypassing the laws the and regulations that prohibit online gambling in most of the American states. Throughout this article, we will look through the regulatory challenges that face the US legislator with regards to online gambling.
The regulatory framework has been rather hostile to online gambling, as well as prediction markets. The Wire Act interdicts using wired communications in the transmission of bets or wagers, or info that assists bets or wagers on any sports contest or event. The Illegal Gambling Business Act (IGBA) considers operating illegal gambling businesses, such as online gambling sites, a federal offense under state law. Additionally, in 2006, the Congress successfully passed the Unlawful Internet Gambling Enforcement Act (UIGEA), which makes it illegal for a gambling business to accept payments related to unlawful bets or wagers via the use of the internet. It also required payment processors, such as Paypal, credit card issuers to block payments to casinos and other betting platforms.
Apart from this hostile regulatory environment, there are currently many gambling sites that offer casino games, poker, sports betting, binary options and event contracts to US customers, using bitcoin as a betting currency. Many of these gambling sites propose that as they use bitcoin as a payment method, the regulations do not apply to them. Some even state that bitcoin is not a form of legal tender and is not considered a legitimate currency under the US law, so legally speaking, bitcoin online gambling cannot be considered an illegal act even when the Wire Act and UIGEA are considered.
On the other hand, courts will not consider using bitcoin for wagering a shield from prosecuting US online gamblers. Federal interstate laws that regulate gambling emerge from state gambling prohibitions, which mark gambling transactions by three elements; chance, prize and consideration. Accordingly, the question is if bitcoin can be taken as a considerations, and courts have already confronted similar cases of “token consideration”.
For instance, in the United States vs Davis, the defendant owned an internet cafe in which users bought internet access time. For each dollar a customer used to purchase internet time, he/she was awarded 100 “entries” into a lottery. Users could participate in the lottery via several ways; one of which is to play casino-like games online using computers. The jury found that the defendant’s business was an attempt to turn an illegal lottery into a legitimate business in violation of IGBA, under Texas gambling regulations, as the lottery participants exchanged the entry tokens, a form of consideration, for the privilege to participate in the lottery. There are other cases similar to Davis’ using a similar analytical approach. As such, it would not come out of the blues if courts were to employ similar analytical approaches in online gambling cases, and come to the conclusion that bitcoins are actually money or tokens that represent money.