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Bitcoin: The Benefits & Risks to Players & Operators
Last week we covered the latest Bitcoin developments with both a breaking news item and an editorial. Today, we take an even deeper look at the potential of Bitcoin by assessing its benefits and risks to players and operators.
The positive implications of utilizing a decentralized, anonymous crypto-currency for real-money online gambling sites that operate in the United States and other markets that are either restricted or face insecure financial infrastructures are many.
But what about the benefits to players? Is Bitcoin convenient, safe and user-friendly? Does it have advantages that cash does not? And what about operators? Does Bitcoin have any tax or revenue-related upside?
Below, we answer these questions and more.
THE BENEFITS OF BITCOIN FOR PLAYERS
Last week, WinPoker announced that it would accept Bitcoin for deposits and withdrawals. While it wasn't the first poker website to accept Bitcoin – US-facing Seals with Clubs, online casino SatoshiDice and independent poker room Switch Poker, which was the first to add Bitcoin to its cashier options in November of 2011, all accept the faux currency – it is the first member of a major poker room network to do so.
Reaction has been both mixed and underwhelming. This is perhaps due to the fact that neither players nor operators have yet grasped Bitcoin's potential as a convenient, anonymous, fast and effective means of completing online financial transactions.
“Bitcoin affords players a great deal of convenience, privacy, security, and accessibility,” said WinPoker spokesman James Lucas after announcing the site would accept the currency.
Hundreds of businesses now accept Bitcoin and many say it is on the brink of mainstream adoption. WordPress.com, the online blogging platform, added Bitcoin support in November of last year, and domain registrar Namecheap did the same just weeks ago.
Eric Vorhees, director of marketing and communications at BitInstant and one of several creatives to help design the earlier mentioned SatoshiDice, says the site has taken in about $15 million in bets since its launch little more than one year ago.
According to Lucas: “[Bitcoin] is becoming increasingly ubiquitous, and [it] can now be bought through a multitude of online and offline vendors—players can link their bank accounts for increased ease of use, or buy Bitcoin in cash anonymously at one of thousands of offline shopfronts around the world.”
Speedier Deposits & Withdrawals
In some parts of the world, financial transactions between banks and online gambling websites can take up to 12 weeks. Conversely, players who use Bitcoin can get a payout in a matter of hours.
Michael Hajduk, founder and owner of the Canada-based, US-facing Infiniti Poker, originally included Bitcoin in his cashier options not to skirt US law, but as a means of reducing the time it takes to cash players out. Transactions on Hajduk's site take just ten minutes to be recorded, after which the funds are immediately available in the player's account.
“Players without access to bank or credit card facilities, or in areas with poor financial infrastructure, can have access to our games easily and cheaply,” says Hajduk.
One of the reasons for the speedy transactions is the fact that Bitcoin does not maintain an informational database for charge-backs (i.e. once a transaction is made it is considered complete). This allows for the rapid receipt and distribution of large deposits to and from players who want to bet on high-stakes games immediately.
With Bitcoin, the player information required to process funds with e-wallets and other online banking methods is not necessary, thus reducing the threat of identity theft.
Says Lucas: “Players control their own wallets, and choose what (if any) personal information to associate with them.”
Additionally, because of the zero-charge back principle, Bitcoin has no “storage” place for past transaction information. This cuts the risk of exposure to hacking and potential fraud substantially.
GamblingCompliance, a data procurement and processing firm that tracks the global gaming industry, puts the value of the US online gambling market at $4 billion to $6 billion. In April of 2011, when the now notorious Black Friday hit, US gamblers were shocked to learn that their online accounts (the total value of which was estimated at $100 million) had been frozen. Nearly two years later, the US government has yet to reimburse the players.
With Bitcoin, the risk of another Black Friday, wherein the Department of Justice rightfully applies existing laws to shut down sites and player accounts in violation of those laws, does not exist. There is no legislation against what is essentially Monopoly money, and therein, no threat of financial loss due to illegality.
That said, there are other reimbursement risks, which we will discuss later in this article.
THE BENEFITS OF BITCOIN FOR OPERATORS
Online gambling operators who accept Bitcoin enjoy benefits as well. The above mentioned speed and legality are among them. Unique to operators, however, are the currency's economic advantages.
Low Transaction Fees
Bitcoin transaction fees are low...very low. Unlike the standard 3 – 8% charges attached to e-wallet and credit card transactions, Bitcoin fees are rarely more than a couple of US pennies each way.
Hajduk says this translates to more deposits made in a greater variety of amounts: ”[Bitcoin]allows players to make small deposits – they can deposit as little as a single dollar, as our transaction fees are low.”
And more deposits – even small ones – means more revenue for operators.
As with any new technology, Bitcoin has kinks it must iron out and questions it must address if it hopes to be prolific in the online gambling world.
The fact that Bitcoin transactions are anonymous does not mean they are immune to nefarious activities. Recently, hackers have pulled off several Bitcoin heists, among them a Ponzi scheme that saw a company billed as a “Bitcoin hedge fund” make off with more than $5 million in funds entrusted to the site by investors.
Hard drive crashes and other technological issues can also impair Bitcoin functionality. According to Peter Vessenes, chairman of Bitcoin Foundation, which helps develop and promote the virtual currency, the former was to blame when a player recently lost 50,000 Bitcoins.
“It’s still a pretty raw technology,” says Gavin Andresen, chief scientist at Bitcoin Foundation. “It’s pretty obvious that it’s been designed by geeks for geeks. It’s not easy to use yet, but it’s getting easier to use all the time.”
Still, Hajduk contends that Bitcoin's potential outweighs its drawbacks: “We believe the ability to transact at no cost, to and from anywhere in the world, completely anonymously, is an exciting prospect for many gamers around the world.”
We at Gambling City are inclined to agree.