Blockchain-based technology and digital currencies are readily available at a select number of online casinos. What are the benefits? What are the pitfalls? This expose puts it into perspective.
Enter the Gaming Realm of Cryptocurrency Online Casinos
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Blockchain technology is the foundation upon which the world’s premier cryptocurrency, Bitcoin, is built. Beyond digital currency, blockchain serves as a distributed public ledger-style system. It is fully decentralized, meaning that it is not beholden to government authorities, big banks, or entrenched financial networks. At its core, blockchain stores digital data which is saved in a public database, in a chain. These blocks retain sensitive information such as the date and time of the transaction, as well as the value of that transaction. The parties to a transaction are also recorded in these blocks by way of unique digital signatures, not names and IDs.
Each block is unique in the blockchain, courtesy of a unique code system known as a hashing system. Thanks to cryptography, each block is chained to one another, in a network. Blockchain technology has many useful applications beyond cryptocurrency, including digital medical records, smart contracts, ensuring the safety of election voting systems, and blockchain-based online gambling. We now turn our attention to cryptocurrency online casinos.
The Entertainment Angle: Online Casinos Accepting Cryptocurrency
In an age where regulation and licensing characterize much of the online gaming market, many online casino players are restricted from participating in legal online casino games. Given the risks involved in depositing funds via traditional methods like MasterCard, PayPal, MuchBetter, and bank wire with unregulated online casinos, player suspicions can certainly run high. Likewise, central banks and law enforcement authorities tend to view many crypto-casinos with skepticism, and the tax authorities are also suspicious of their operations for money-laundering purposes.
The authorities want as much information as possible about players to combat money laundering and tax evasion. Online casinos which develop their own tokens are more likely to get regulated since they have full control over operations: they know who’s sending funds, the source of the funds, and they can verify age-related transaction data. There is much work to be done for crypto-casinos to achieve mainstream, regulated status.
Players take pride in registering to play for real money with proven operators which have a strong global presence across multiple jurisdictions. Fully regulated online casinos offer peace of mind, knowing that all aspects of the registration process are vetted by these companies and the authorities overseeing their operations. UKGC-licensed online gaming giant, 888casino is one such example of a fully regulated PayPal casino with watertight operations, AML protocols, KYC policies, age-verification checks, and guarantees of reliable payouts.
Innovation Leads to the World’s First Ethereum Casino
Trust is certainly possible with the adoption of a blockchain-based online casino within a fully regulated framework. These casinos run on the blockchain in a decentralized, P2P network. A recent innovation has seen the Ethereum blockchain launch the world’s first Ethereum casino. The Edgeless Group casino, known as Edgeless now runs entirely on the Ethereum blockchain. This groundbreaking project offers a variety of slot machine games, lucky games, card games, and multiplayer games.
This online casino is fully licensed by the Government of Curaçao to offer real-money gambling games to legal-age players. Edgeless operates on the cutting-edge. Players from restricted countries are not allowed to register and play at this online casino, but the platform itself is fully licensed by the Curaçao authorities and the benefits of registering at this secure online casino are instantaneous cashouts courtesy of Ethereum smart contracts.
There are many other cryptocurrency online casinos, notably 1XBit.com, Syndicate Casino, MintDice, Commegh, ZeroEdge, AdmiralSpot.com, BitStarz Casino, and Cybergames.io. Some of these online casinos are licensed and regulated by reputable authorities, while others are not. Players are better served by registering with regulated crypto casinos, since they are beholden to the regulatory frameworks, and are fully compliant with the tax authorities.
Basic Blockchain Terminology
Blockchain lexicon masquerades as an entirely different language; a smorgasbord of tech jargon that baffles the layperson’s brain. Here are some common terms:
- Distributed Ledger – this online ledger is a consensual, distributed ledger on a database that is synchronized on the Internet. Every node on the ledger can access information (data) that is recorded on the distributed ledger.
- Blocks – these are files that store the data of transactions. Each block contains the time of the transaction, information relating to recent transactions, and references to preceding and proceeding blocks.
- Blockchain – This is an online database of all the interconnected blocks, starting with the Genesis block.
- Hybrid blockchain – this type of blockchain includes a private blockchain and a public blockchain, often deemed the best of both.
- Cryptographic hash – this cryptography transforms data into a unique string of text. Hashes are 1-way functions, and once data is input into an algorithm, a unique string is churned out
- Peer-to-peer (P2P) – A peer-to-peer network exists when 2+ computers are connected with one another and share all resources without a third-party system (server).
- Token – in crypto parlance, a token is a virtual currency that exists on the blockchain and has value by way of demand/supply.
- Smart contracts – these are self-executing contracts that exist on a decentralized blockchain network.
- Bitcoin – A digital currency that was brought to market in the wake of the global financial crisis in 2008 by Satoshi Nakamoto as a decentralized value-driven cryptocurrency.
- Mining – When you mine Bitcoin, powerful software and hardware is used to solve complicated cryptographic problems.
Different Types of Cryptocurrencies for Online Casinos
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The digital currency market is peppered with thousands of cryptocurrencies. Bitcoin (BTC) dominates the cryptocurrency market. Scores of altcoins (cryptocurrencies besides Bitcoin) are available, through various ICOs (Initial Coin Offerings). Market participants can dabble in any number of crypto options including: Ethereum (ETH), Ripple (XRP), Tether, Bitcoin Cash (BCH), Litecoin (LTC), and EOS. Cryptocurrency casinos tend to limit their cryptocurrency options to Litecoin, Monero, Ethereum, Dogecoin, Dash, and Bitcoin.
Players have several ways to store digital currency, notably digital currency wallets in a hardware form, or a software form (the Cloud), at cryptocurrency exchanges (Coinbase, Bitstamp, Binance), or software programs. Reputable cryptocurrency casinos can be trusted to safely store crypto balances in player accounts too. Safety and security features include bank-level cryptographic software with the SHA-256 hashing algorithm, SSL encryption, 2-FA and multiple password-protected logins.
What Crypto Security Breaches Occurred in Recent Years?
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- The Mount Gox scandal was a major blow to the credibility of Bitcoin when $450 million worth of BTC was stolen (850,000 BTC at the time)
- In January 2018, Coincheck in Japan reported a theft of $500 million in NEM coin
- In February 2018, BitGrail announced that 17 million Nano tokens were lost, valued at $195 million +
- In June 2018, Bithumb (South Korea) reported $31 billion worth of cryptocurrency theft in BCH, BTC, and XRP, although they recovered $14 million of the funds.
- In July 2018, Bancor (Israel) reported a data breach that resulted in $13.5 million worth of tokens being spirited away
How Are Your Online Casino Winnings Taxed?
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For tax purposes, the IRS regards cryptocurrency in much the same way that it regards capital gains or property. More recently, the IRS announced that anyone receiving cryptocurrency through hard forks or airdrops is obligated by law to pay tax on that digital currency. The taxable amount is determined by what the IRS deems to be the fair market value of the digital currency at the time.
Holders of cryptocurrency argue that taxes should only be paid when the ‘cryptocurrency’ has been exchanged for fiduciary (fiat) currency. The IRS states that virtual currency – digital currency – is an online representation of value that can have a store of value, be used as a unit of account, or a medium of exchange. In other words, the IRS defines it as ‘money’ in a different form. Winnings are taxed accordingly.
Many Bitcoin casinos allow for anonymous signups, with burner email addresses and no ostensible links that can be traced back to a person’s true identity. The jury is out on crypto-casinos. Whether they’re good or bad depends on many factors. The safe bet is always on a regulated casino, with SSL encryption, age-verification, KYC & AML policies, and a customer-centric focus.
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