Around 18 months ago when I first started writing about bitcoin as a possible payment solution for online gambling there was some recognition of the currency among the general public and with traditional retailers but for the most part was still pretty much unknown. As a result of numerous developments, however, that changed and today most of the public has heard of bitcoins. The following is a brief synopsis of the major developments over that time that has put bitcoin on the map.
First of all, the value of the currency has skyrocketed in relation to other currencies. 18 months ago bitcoins were trading at just under USD$6 per coin and today they are valued at over USD$100 per coin. Second, the currency has been all over the news as it is being targeted by the Department of Homeland Security and is being monitored closely by the DEA as a result of illegal activities being done using bitcoins such as the sale of illegal drugs, other contraband and of course illegal gambling. In fact Homeland Security even seized bitcoins from an individual's wallet as part of a seizure order for using Silk Road to sell drugs online. This type of seizure was supposed to be impossible to do with bitcoins but obviously can occur. Third, the U.S. Treasury issued a statement that all companies that trade U.S. dollars for bitcoins are bound by the same rules as banks and foreign exchange companies and must register with the U.S. government in order to trade for U.S. dollars. In fact the government issued a cease and desist order against Mt. Gox, the biggest bitcoin trader for failing to register with the U.S. Treasury. The government seized the assets of Dwolla, a payments company that transferred money from U.S. citizens to Mt. Gox for buying and selling of bitcoins and after the seizures Mt. Gox temporarily suspended all trading in U.S. dollars. Fourth, a Texas court judge ruled that Bitcoins are indeed a form of real currency because they have monetary value as they can be used to purchase items and can be traded for other currencies. The ruling was part of a case brought by the Securities and Exchange Commission in Texas where they were trying to charge a Texas man, Tevor T. Shavers with running a ponzi scheme using a company called Bitcoins Savings & Trust. Shavers' lawyers argued that the case had no merit because bitcoins weren't a real currency and thus not subject to the same rules as other currencies but judge Amos Mazzant ruled for the SEC claiming that bitcoins were indeed a real form of money. And lastly, bitcoins have been mentioned and talked about in major magazines like Forbes and was also mentioned in several shows including the Good Wife which featured it in one of their episodes.
So with all that publicity and interest one would expect that the market for bitcoins would be very high, particularly at online gambling sites which have always been the first adapters to new payment options but that hasn't been the case. When I first wrote about bitcoins 18 months ago there were no traditional gambling companies accepting bitcoins as payment and today that still holds true. Switch Poker was the first traditional site to introduce bitcoin as a payment option on a trial basis but apparently it still is only a small percentage of their business. If anyone wants to wager with bitcoins they need to use bitcoin specific gambling sites like Sealswithclubs, Strike Saphhire, BetZino, Satoshi Dice and BTCSportsbet. Satoshi Dice is by far and away the largest of the bitcoin gambling sites and today still accounts for almost 50% of transactions made with bitcoins but Satoshi Dice is effectively just a form of the old "pick a card" game where one person wins and one loses. Naturally this is of no interest to most offshore bettors and the site recently decided to block IP addresses originating from the United States, citing legal concerns. Since bitcoins were supposed to be a way to avoid this concern it has many people scratching their heads. From the beginning my main contact regarding betting with bitcoins was with "RC", the general manager of BTCSportsbet, who has always been enthusiastic about the potential growth of his operation. 18 months ago there were only a few hundred bets made each month at BTCSportsbet but he was convinced that number would grow significantly once traditional sportsbooks started accepting the currency and once new bitcoin sportsbooks started up to provide some competition. He also acknowledged there was a need for bitcoins to be accepted for more traditional purchases. Over the last 18 months the number of bitcoin sportsbooks has indeed increased with the introductions of Bitbook, Sportsmatch and Nitrogen Sports, along with a few smaller sites but still not one traditional sportsbook has accepted the currency despite indications they were prepared to come aboard. When I first wrote about bitcoins I received 3 emails from traditional gambling companies (2 U.S.-facing and one based in Europe that didn't allow U.S. players) that wanted more information including contact information to determine how to incorporate bitcoins into their sites. I decided to follow up with each of them to find out why they hadn't gone ahead with the plans and each was quite forthcoming. I won't mention their names since I never asked if I could quote them directly.
The first site's manager which offers sports, poker and casino betting to American clients was clear that they never introduced bitcoins because the currency is hard to implement into their system and they believe they would be taking monumental risks with the U.S. government now sticking their nose into bitcoins. Most importantly, however, the site's management just doesn't see a demand for the product. The manager stated that they asked a sampling of 100 of their clients if they would bet with bitcoins if it was available and only one said they would consider it.
"What's the point of offering something people don't want? We'd be spending a lot of money to make a few people happy and they aren't even our main clients."
The second European based site manager gave almost an identical answer.
"We asked our customers if they wanted it and not one did. If there's a demand for it in the future we will look at the option again but for now we see no reason to pour money into something that has so little interest."
The most interesting comments, however, came from the operator of the first sportsbook to approach me almost 18 months ago. When I spoke to him on the phone there was actually some excitement in his voice about the prospect of bitcoins and the real possibility that his site could run an operation that is out of reach to the U.S. government, would have no processing fees and that he would never have to worry about another chargeback. But now his excitement has dissipated. When I asked him last week why his site never bothered to offer bitcoins as a payment option his response was that as far as he is concerned bitcoins "really have no value".
"They say these coins are worth over a hundred bucks apiece but to who? I don't know anyone who actually wants them other than for a get rich quick scheme and they certainly are useless to us in the real world. We have to pay our bills and we use our profits to compensate employees, consultants and management. We have to pay for electricity, communication fees, research and development and the government's licensing fee. If I went to Cable and Wireless and said to them that our bill for the month is $4,000 so here's 40 bitcoins I'm sure they'd cut off our electricity rather than taking the coins. And I doubt the government would be impressed if we told them that we can't give them their annual fee but we can arrange to get them a couple of pounds of cocaine sent to their residence from underground bitcoin contraband sites (Silk Road)."
He also offered some comments regarding Mt. Gox and the process of using that site or similar ones to convert bitcoins to U.S. dollars.
"We were approached by a couple of bitcoin processors who said they could set up a payment solution using our site and Mt. Gox but the fees were insane and the limits were paltry. The amount of U.S. dollars we could get out of Mt. Gox by trading in bitcoins is almost irrelevant and from everything I hear Mt. Gox does everything they can to make it difficult to get money for bitcoins. They're only too happy to sell bitcoins for real currency but put up huge roadblocks for the opposite. Then earlier this year when we discussed maybe looking at bitcoins again we found out that a bitcoin processor (Dwolla) had their funds seized by the feds when trying to get payments to Mt. Gox. I thought bitcoins were out of the reach of the American government which is really the only reason we had interest in the first place. We work hard to stay under the radar and out of the crosshairs of the justice department. Why would I want to take that risk and take a chance of losing a multi-million dollar business for the sake of processing a few bitcoins. No thank you."
All the operators also expressed some concern with the volatility in the price. Strategic decisions are made by looking at potential revenues so if they have no clue whether a bitcoin is going to be worth $10 or $100 it's hard to plan. Most bitcoin proponents will argue that the value of bitcoins in USD or any other currency is irrelevant because bitcoins should be used in the bitcoin marketplace anyways and not exchanged for other currencies. And of course this would be the case if the bitcoin marketplace had enough vendors that would be willing to sell goods and services for the currency but that just isn't the case. I haven't found one site that will ship a pair of Levi jeans to me for 0.5 bitcoins but with a 50 dollar bill I can go to one of thousands of traditional retailers and obtain the product.
So it's not surprising, although it is somewhat sad, that 2 NFL seasons later the only way someone can bet on football with bitcoins is with BTCSportsbet or one of the other bitcoin sports sites. RC is still very excited about the growth of his site but he was also clear that he won't know for certain how many bets he will get this year on NFL football until around the second week of the season. One thing that is sure, however, is that because the bitcoin marketplace is still not developed there won't be much interest with traditional online sportsbooks to implement bitcoins any time soon.
Contact Hartley via email at hartley[at]osga[dot]com.