Crypto-Gambling Proves to Be a Legislative Nightmare for Regulators

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Cryptocurrencies and the blockchain technology that drives them are creating new possibilities in the industry.

So-called crypto-gambling is enabling gamers to participate in previously untapped and potentially criminal markets.  It all starts with a bet, but often the bet has consequences that require evidence. From wearing silly clothes to attempted murder, there are often bounties wagered on events you would never even dream about.

Still, platforms that can offer prediction markets or betting of any sorts are seen as potential trailblazers for a new form of gambling that is legal in countries where other forms of gambling and trading are banned.

A new marketplace

Augur is a market prediction platform that uses cryptocurrencies and runs on blockchain technology. Users can place bets on an infinite range of outcomes, so much so that they can effectively be limited only by their own imaginations. Unlike other forms of online gaming, there are no geographical restrictions, and the use of crypto allows users to benefit from a certain level of anonymity.

The platform allows users to create an event on which other users can bet, thus creating a market around the outcome. Participants can even trade shares based on the possible results. Topics are varied, but popular choices range from market crashes to natural disasters. When a person wins a bet, they can create a report to be provided to other users, who can then agree or disagree with the outcome. Once the market is resolved, the winnings are paid out in Ethereum, the cryptocurrency used by the platform for trading.

According to Nolan Bauerle, director of research at Coindesk, prediction markets could potentially tap into crowd wisdom in ways that no other platform has been able to. The platforms could prove to be invaluable if they grow on a global scale, and it is expected they will as more people open crypto-wallets. The market has more than quadrupled since 2015, and could potentially provide a new source of industry trends and insights for analysts across different markets also.

Issues of legislation

As with most forms of new technology, crypto-gambling has raised a range of legislative questions about how governments can regulate the market adequately. The main legal issue with Augur is that the platform blends gambling and prediction markets, the latter of which is banned in many countries.

Indeed, the practice is banned in China, the United Arab Emirates, Japan, Brunei, Cyprus, and Japan, among others. However, an outright ban can be a complex issue because the platform has not yet been found to break any laws, so no formal charges or investigations have been launched against the company.

Further concerns surround ownership of the software used to run the platform. It was created by Forecast Foundation, which has since distanced itself from the technology, claiming that it is now open-source software.

This leaves legislators with a big question as to whom they should negotiate with about legality. Developers have also stated that they have no control over the peer-to-peer platform and do not have access to user private keys or personal information, making the platform a potential hotbed of money laundering through anonymous transactions. In the United States, the Commodity Futures Trading Commission is investigating whether transactions carried out on the platform fall under its jurisdiction.

Crypto-gambling gaining pace

The practice has been steadily growing over the years, with increasing numbers of people using cryptocurrencies in their day-to-day lives. Of course, you might say that using any form of cryptocurrency to gamble is not necessarily new. In 2013, around half of all transactions carried out involving Bitcoin were related to gambling.

Crypto-gambling, however, is picking up speed and proving to be particularly popular in countries where other forms of gambling have been outlawed. In June and July 2018, the numbers of participants in crypto-gambling rose sharply, possibly in part due to the range of important sporting fixtures that took place during the period.

In China, for example, authorities broke up a gambling ring that used crypto-gambling during the World Cup tournament to process around $1.5bn (£1.17bn) in bets placed by over 300,000 people. The scheme was based on the dark web and had been accepting several forms of cryptocurrency including Bitcoin, Ethereum, and Litecoin over a period of eight months.

The growth of this underground operation is proof of how large a platform such as Augur could become, based on the targeted market that it caters to. The Chinese market is a prime example. With cryptocurrency gambling and trading illegal in the country, people are skirting the laws by using decentralized platforms such as Augur to take part in the practice. Since prediction markets are a grey area in many countries, we can expect to see governments and other legislators tackling the problem head-on soon, trying to close the loophole created by these systems.