Gaming industry should be careful about embracing digital currencies By Aaron Stanley January 31, 2014 at 8:10 am One of the hottest trends in 2013 was the soaring popularity of digital currencies such as Bitcoin. These decentralized tenders, backed by no government fiat or central bank, are starting to become viable means of exchange. Last week, two Las Vegas casinos announced they would begin accepting Bitcoins at their restaurants and shops. Neither casino allows Bitcoins for bets to be placed on the gaming floor, but their move is clearly an attempt to appeal to communities that use Bitcoins or find them intriguing. While the move could be seen as publicity stunt unlikely to make much difference in the long run, it is a noteworthy step in the spread of innovative payment methods that could revolutionize the world of commerce. For those enthusiastic about Bitcoin, it’s important to recognize that the currency is structured so that the maximum possible quantity in circulation can be only 21 million. That’s far too few to gain widespread acceptance as a global form of tender. Still, the Bitcoin revolution has blazed a trail that other innovators are following closely, with the goal of offering alternatives with the benefits of Bitcoin but with far greater circulation. Therefore, any efforts put into accepting digital currencies as a form of payment – as silly as they may sound at times – are not necessarily in vain. The gaming industry should take particular notice of the potential these currencies offer for internet play, which is aggressively expanding in the US. Speedy and cheap transactions costs are the most significant benefits; Bitcoin transactions cost a fraction of what a credit card swipe fee or an international bank transfer would cost. Also, Bitcoin’s inherent design offers an enhanced security scheme that protects users against fraud and scams. Every transaction is publicly recorded in what’s known as a blockchain and can be traced in the event of a claim of fraud. A small, murky cottage industry of Bitcoin-based online games currently exists. But the lack of any regulation (or regulatory approval) has caused most potential entrepreneurs in this area to take a “wait and see” approach, because of the potential for a government crackdown. But at least in the US, the currency earned the surprising support of some Washington regulators and legislators at a U.S. Senate hearing in November. While concerns were raised about Bitcoins being used for illicit practices, the questioners seemed to be more interested in being seen as friendly to tech start-ups and innovators. Such support helped the price of Bitcoins increase by 42 percent, to what was then its all-time high of $750, on the day of the hearing. Outside the US, countries have not exactly been laying out the red carpet. In China, the government has cracked down on Bitcoin trading in an effort to tighten its controls on capital flows. Alibaba, the e-commerce site which handles more transactions annually than eBay and Amazon.com combined, banned Bitcoin as a method of transaction earlier this month. In December, the European Banking Authority cautioned consumers of the risks of Bitcoins, arguing that the currency’s volatility and lack of regulation makes it a poor store of value. Such a concern is not without merit: In 2013, Bitcoin’s value fluctuated between $13.50 and $1,200, with monolithic peaks and valleys throughout the journey. But the most pressing concern to law enforcement is that the currency is being used to finance the illicit economy via money laundering and the purchase of contraband. While currencies such as Bitcoin offer the potential to revolutionize and streamline the way payments are transacted, there are serious risks to doing business in this wild west of commerce. Those concerns were illustrated in October 2013, when the FBI shut down the $1 billion online black market Silk Road and seized 144,000 Bitcoins from its website. In January 2014, Charles Schrem, a key Bitcoin promoter, was arrested and charged with attempting to sell more than $1 million in Bitcoins to criminals looking to market illegal goods via Silk Road. Schrem had been backed by a Bitcoin investment fund started by the twins Cameron and Tyler Winklevoss, worth several hundred million dollars because of Facebook. Much more than just a gimmick or a marketing ploy, digital currencies do carry the appearance of illicit activity and will surely draw the attention of authorities as their use increases. With opponents of online gaming circulating FBI memos warning of how internet casinos can be used by criminals to launder money, those in the gaming industry should be sure that the potential benefits outweigh the risks before drinking the Bitcoin kool-aid.