About a year ago I wrote an article suggesting that betting by way of virtual currency like bitcoins could be the future of the industry. One small poker site accepted bitcoin as payment and about 5 bitcoin only gambling sites were in existence at the time. Some offshore gambling companies considered offering the product as payment but confusion about the currency and the huge fluctuation in its value caused most sites to shun the virtual currency. Not long after I wrote the article, the CBS show The Good Wife featured the product in an episode titled "Bitcoin for Dummies." The show's plot saw the Treasury Department suing a lawyer for the creator of bitcoins for refusing to reveal the true identity of his client. In the show the lawyer for the U.S. Treasury argued that creation of a new currency was illegal particularly since it was being used for illegal purposes such as drug purchases and online gambling. In the end the Treasury lost the case because their lawyer could not prove who actually created bitcoins. The show revealed that there were at least 3 creators of bitcoins so no single person could be held liable. In real life Bitcoin's creator is listed as Satoshi Nakamoto, but he has never come forward and there are suggestions that Nakamoto is really several creators rolled into a pseudonym.
The Good Wife episode wasn't well received by critics due to the complexity of the show but the number of Google and Wikipedia searches soared after the episode and the value of bitcoins quickly rose but then dropped again. At the time of the writing one bitcoin was worth USD$6. It climbed to USD$8 then down to about USD$5 where it stayed for almost 5 months but it is now worth about USD$13. More importantly it brought awareness to a product that was pretty much unknown. I spoke with "RC" – the proprietor of btcsportsbet.com who informed me that the product has taken off in recent months.
"Our business has done very well over the last year. Clearly there is a lack of understanding among established gaming operators. We have discussed a partnership with a major US-facing offshore sportsbook where we would process and handle their bitcoins, but unfortunately we could not agree on terms. It is a very hard concept to explain to people who have been in the business a long time. Perhaps (it will happen) in the near future.
We now have several hundred active customers from all over the world and are certainly busier than this time last year. Soccer is extremely popular, as well as the US sports. Using bitcoin keeps overhead very low. Our staff mainly handles email enquiries, often from users new to bitcoin - the actual deposit and withdrawal processing requires no human intervention. No dodgy payment processors, no middle-man fees, nothing that has to clear or can be charged back. It really is the perfect currency for our needs. It is safer for our users as well - no need to keep large balances as deposits/withdrawals are unlimited and free. Sent bitcoins in the morning, bet a few games, then withdraw. Much lower risk than keeping large balances at an offshore book because funding is so difficult."
I actually talked to a couple of U.S. facing sportsbooks and poker site operators about bitcoin and they did acknowledge that they were seriously considering offering the currency as a form of payment but were concerned about the fluctuations in price.
"Payment issues are definitely becoming more of a concern and we're always looking for new ways to get money in and out but bitcoin is a bit scary since we don't really understand it and the price goes up and down like a yo-yo," one operator said to me. "If we had a way to hedge the bitcoins like any currency it would be a more viable option. At the same time it could be a last resort for survival."
That said traditional offshore sites catering to Americans may become a dodo anyways if bitcoin usage becomes more prevalent. And RC believes some offshore operators may decide it's just easier to become a bitcoin only operation:
"I see a future for online gambling in the USA - it is a matter of time before poker/sports betting become legal as the government is desperate for revenue. Bitcoin is simply the most efficient way to handle payments online. There is no risk on the merchant side (no charge backs) and benefits to the user side as well (do not have to provide personal information that may be misused, and do not have to rely on a third party bank or processor). There are also no "he said/she said" arguments around payments, meaning someone saying "I sent it, how come you didn't get it?" All bitcoin transactions are public and it is simple to tell what has or has not actually been sent based on the addresses involved, so there are no disputes."
One traditional style operation, Switch Poker, does accept bitcoins as payment along with credit cards and other common methods. Switch Poker doesn't accept U.S. customers but they decided to offer bitcoins as a test and it has paid off. Management at Switch Poker has stated that there are some challenges and no payments to an account using bitcoins can be cancelled but the upside vastly outweighs the negatives.
As for bitcoin only gambling operations, according to betwithbtc.com there are currently 52 sites offering betting using bitcoin albeit many have little action and some are down.
The most common sites are btcsportsbet.com, sealswithclubs.eu (a bitcoin poker site), btcsportsmatch.com (a peer to peer betting site), strikesapphire.com (a bitcoin casino), btc-play.com (another casino site) and bitlotto.com (a bitcoin lottery site). And some bitcoin pundits have suggested there could be as many as 500 bitcoin gambling sites in operation by 2015.
The reason for bitcoin's sudden popularity is uncertain but the most logical explanations are the ability for new adults to mine coins and understand its value and also the decision by some mainstream online companies to accept the currency as payment. "For the longest time, many companies refused to accept Euros as payment but the currency's popularity took off once more European companies made it a preferred form of payment."
Last month WordPress, the open source blogging company that ranks as the 21st most popular sites on the web decided to accept bitcoins as payment for their extra services. WordPress is free to use but to get an ad free version, upgrades, extra storage etc. people need to go to the store and purchase the features. WordPress argues that other funding methods block payments from some countries and WordPress considers it unfair. Consequently they decided to allow payment in bitcoins which can't be blocked. The following was in WordPress' release:
"At WordPress.com, our mission is making publishing democratic — accessible and easy for anyone, anywhere. And while anyone can start a free blog here, not everyone can access upgrades (like going ad-free or enabling custom design) because of limits on traditional payment networks.
Today that changes: you can now buy WordPress.com upgrades with bitcoins.
PayPal alone blocks access from over 60 countries and many credit card companies have similar restrictions. Some are blocked for political reasons, some because of higher fraud rates, and some for other financial reasons. Whatever the reason, we don't think an individual blogger from Haiti, Ethiopia, or Kenya should have diminished access to the blogosphere because of payment issues they can't control. Our goal is to enable people, not block them.
Bitcoin is a digital currency that enables instant payments over the internet. Unlike credit cards and PayPal, Bitcoin has no central authority and no way to lock entire countries out of the network. Merchants who accept Bitcoin payments can do business with anyone."
Also helping bitcoin to gain acceptance is their willingness to fix major concerns. Many bitcoin merchants and customers have acknowledged that the currency has received some bad press in the last while and has been shunned by Libertarian groups and activists that one would expect to embrace the currency. Helping create this bad press was a heist where $270,000 worth of bitcoins was stolen from mtgox.com (a trader and seller of bitcoins) as well as concerns that some bitcoin sites promote money laundering, tax evasion and criminal activity. Without question Silk Road, the tor based site that sells and mails out all contraband like heroin, lsd and cocaine (and many suggest things like sawed off shotguns aren't far behind), has tarnished the reputation of the currency. As a result, some bitcoin users formed the Bitcoin Foundation, headed by its Chief Scientist Gavin Anderson. The Bitcoin foundation is a member based site whose mission is to standardize, protect and promote the currency. The following quote is from its website:
"As the Bitcoin economy has evolved, we have all noticed barriers to its widespread adoption—botnets that attempt to undermine the network, hackers that threaten wallets, and an undeserved reputation stirred by ignorance and inaccurate reporting.
To us, it became clear that something had to be done. We see this foundation as critical for bringing legitimacy to the Bitcoin currency. Only then can we increase its adoption and positive impact on the world's finance."
Whether or not the foundation will have any luck in shutting down operations like Silk Road, which has attracted the attention of the DoJ and DEA, is uncertain but at least having a contact person who will stick up for the currency is a good first step.
Contact Hartley via email at Hartley[at]osga[dot]com.
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