1. Presented by:
Lawrence G. Walters, Esq.
WWW.GAMEATTORNEYS.COM
North American Gaming
Regulators Association
Annual Conference – June 9-12, 2014
2. • Virtual currency has been
attempted since the inception
of the Internet
• Beenz.com famously failed in
2001
• Bitcoin, in 2009, brought with
it a resurgence of “altcoins”
The Beginnings of Alternative
Currency
3. History of Bitcoin
• November 2009: Satoshi Nakamoto
published “Bitcoin: A Peer-To-Peer
Electronic Cash System”
• January 2009: “Genesis Block”
mined
• Bitcoin meant to be: secure, non-
regulated, decentralized and
anonymous
• Cannot be created or destroyed
4. • Negative press and
uncertainty:
• Silk Road
• Closure of Mt. Gox
• Volatility of exchange rate
• However:
• Large, publicly traded
hedge funds investing
Bitcoin Today
5. • Bitcoin ATM unveiled on
Capitol Hill
• Major websites accepting
Bitcoin:
Bitcoin Today, cont.
6. • CoinMarketCap.com keeps
track of various altcoins
Other Alternative Currency
Major players
after Bitcoin:
• Litecoin
• PeerCoin
• Ripple
• Dogecoin
7. • IRS position: Bitcoin
“property,” not “currency”
• Federal Judge found Bitcoin is
form of “money”
• U.S. Dept. of Justice: Bitcoins
could be considered “legal
means of exchange”
Contemporary Regulatory Climate
8. “The fact is that virtual currencies
are unlikely to disappear entirely.
As such, turning a blind eye and
failing to put in place guardrails
for virtual currency firms while
consumers use that product is
simply not a tenable strategy for
regulators.”
-Benjamin Lawsky, New York’s
Superintendent of Financial Service
9. • New York planning “regulated” Bitcoin
exchanges
• ATLAS ATS, a Bitcoin trading platform,
has partnered with the National Stock
Exchange
Regulatory Climate, cont.
10. • New York may attempt to
adapt existing laws for
virtual currency
• Lawsky most concerned with
money laundering and
secondarily, tax issues
Regulatory Climate, cont.
11. • U.S. Treasury Dept. FinCEN:
individual miners/users are not
‘Money Service Businesses;’
Exchanges are MSB’s
• Accepting virtual currency may
trigger AML and KYC obligations
• Steve Stockman (R-TX) unveiled
“Virtual Currency Tax Reform
Act” to change status of altcoins
to currency
Regulatory Climate, cont.
12. Recent Developments
• Senator Joe Machin (D-W.Va) called
for all-out ban on Bitcoin:
“This virtual currency is currently
unregulated and has allowed users
to participate in illicit activity, while
also being highly unstable and
disruptive to our economy.”
13. Recent Developments
• Former Obama Adviser Larry
Summers: “Serious mistake” to
“write off” Bitcoin
• Bloomberg
terminal gets
Bitcoin: investors
believe this
might stabilize
price
14. • FEC allows political groups to
accept Bitcoin donations
• $100 contribution limit per person
per electoral
Recent Developments
16. • SatoshiDice launched in 2012
• Estimates claim online gambling
accounts for nearly half of all
Bitcoin transactions
• Online gamers betting billions of
dollars on Bitcoin sites
• CoinDesk: Legal online gambling
is next major Bitcoin market
Bitcoin & Gaming: The Explosion
17. • For the consumer:
• Anonymity
• Winnings received immediately
• Uniformity of currency
• Operators generally take lower
cuts
• Transparency of transaction
Popularity of Bitcoin & Gaming
18. • For the operator:
• Low transaction costs
• Game integration
• No charge backs
• Widespread customer availability
Popularity, cont.
19. • Licensed sites accepting Bitcoin from
known customers
• Winpoker
• Gaming regulators
prohibiting/warning against the use of
Bitcoin
• Vera&John began accepting Bitcoin
payments
• Subsequently asked by Malta’s
Lotteries and Gaming Authority to
cease accepting Bitcoin until
regulations are promulgated
Developments In Regulated
Jurisdictions
20. • Altcoins are here to stay!
• Need for regulator development of
effective, coherent policies:
• Reconciling anonymity of altcoins with
Know Your Customer (KYC) obligations
• Maintaining proper AML, accounting
and financial reports
• Enforcing compulsive gambling
exclusions and underage prohibitions
Issues Facing Gaming Regulators
21. • Prohibition
• Often initial reaction to unknown
• Rarely works
• May encourage underground
operations
• Customers may not understand
objections, especially if they have
existing relationship with company
Potential Approaches
22. • Conservative Regulation
• Insist altcoins only come from customer
with KYC info
• Require traditional payment history
• Require customer cooperation with access
to altcoin transaction tracing
• Require immediate conversion to currency
• Prohibit refunds or payouts in Bitcoin
• Prohibit Bitcoin-integrated games
• Insist Bitcoin only be used as payment
method to result in credits to account
Potential Approaches
23. • Moderate Regulation
• Eliminate one or more of Conservative
Regulation points
• Rely primarily on licensees to provide
accurate reporting
• Include KYC / AML requirements and
player/licensee cooperation for audits
and verification
Potential Approaches
24. • Minimal Regulation
• Permit payment and payout in Bitcoin
• Rely exclusively on licensees to keep
accurate accountings
• Permit integrated altcoin games
• Require AML/KYC elements to avoid
corruption, underage gambling & geo-
blocked or compulsive players
Potential Approaches
25. • No Regulation
• Not a viable or realistic option
• Bitcoin transactions subject to
abuse due to anonymity
Potential Approaches
26. • Altcoins will continue to grow in
popularity
• Players will increasingly
demand altcoin payment
alternatives
• Federal and state authorities
will become more active in
regulating
Predictions
27. • Getting ahead of the curve is
key
• Develop forward-thinking
policies and practices
• Update regulations as legal
climate and technology evolves
Conclusions/Take-Aways
