SII Focus 14th June 2018

Bitcoin sports betting and its potential impact on the integrity of sport

• Bitcoin has been linked to all manner of nefarious activities. So happens when match-fixers start utilising it for sports betting? Jack Kerr investigates.

Not even Dr. Knasmüller could explain it. An expert in internet betting fraud, even he was puzzled that games from an amateur football league in his hometown of Vienna were “so prominently represented” on the website of a “rather mysterious betting provider”. 

The company goes by the name of CloudBet. It is seemingly licensed in the former Yugoslav state of Montenegro. And it has a thing for off-Broadway competitions. Think Altona Magic vs Banyule City in the north-west suburban league of Melbourne, Australia; Weston FC vs The Villages in the North America’s Premier Development League (PDL). 

Or a practice match in Dr. Knasmüller’s hometown last year, attended by a lone spectator, which attracted the attention not just of international gamblers, but also of Austria’s Federal Police. But for Dr. Knasmüller – first name: Markus – it isn’t just the obscure level of games offered for betting that seems unusual; it’s also the method in which people were paying for their bets. CloudBet is entirely reliant on bitcoin, the digital payment system – or cryptocurrency – that has started to revolutionise the global financial system. 

“It is certainly innovative to accept bitcoins, but bitcoins only, I do not understand”, he argues. Perhaps it’s indicative of the bitcoin community’s bullishness these days. Bitcoin’s value was on an almost perpetual ascent for much of last year, and the financial markets are starting to take seriously what has previously been the domain of criminals, terrorists and libertarians. 

Its proponents call it the ideal currency for today’s globalised economy. It can move across borders frictionlessly, attracting no exchange fees and few transaction costs. In some countries, its payments may not be subject to tax. And its blockchain technology gives unprecedented security to those on both sides of the ledger. 

Unsurprisingly then, bitcoin is also becoming increasingly popular in the international online gambling space. As well as CloudBet, sites like Nitrogen Sports, Wagerr, and Lunarbet have emerged, each of them offering books on sports as diverse as Australian rules football, badminton and snooker. Live casino games, like blackjack, roulette and Benelux slingshot, are also a regular feature, if not the main one, of many sites, with all bets to be placed using bitcoin and other cryptocurrencies.

An analysis of the crypto-wagering sites listed by Sportsbook Review and elsewhere shows that the overwhelming majority claim to be licensed or located in Central America and the Caribbean. By comparison, sites specialising in government-backed (or fiat) currencies are generally distributed across both sides of the Atlantic, or found in the Philippines.

While crypto-wagering sites can be found in Panama, Antigua, Curacao, Jamaica and the Bahamas, it is Costa Rica – already a magnet for fiat currency sites due to its relaxed approach to regulation – that has established itself as the hub of the global bitcoin sports-betting industry. The popularity of this region on America’s doorstep is seemingly a result of the restrictions gamblers in the US face – from both credit card providers and federal laws – when trying to bet with dollars online. 

Indeed, gambling has become the primary purpose of bitcoin, with over 50 per cent of bitcoin transactions happening on betting sites. One site is estimated to have turned over $2 billion worth of bets in its first year of operation. 

“It is the fastest growing segment of the entire gambling industry, which is one of the largest industries in the world”, says Bitedge, a bitcoin gambling consultant originally from Australia. “In a few years, it will take 5% or more of the online gambling market. In 10 years, it will be somewhere from 15% to 25%.”

This shift in gambling habits is said to be of some concern to authorities, because another feature of bitcoin is the huge degree of anonymity (or pseudo-anonymity) it offers. It means tracing a dodgy payment back to its source can be almost impossible.

“It’s almost as easy to effect as cash transactions”, says Philippa Ryan from the University of Technology Sydney (UTS), “but as easy to implement as an electronic transaction”.

For sports, the fear is that bitcoin could provide the ultimate cover for criminal gangs fixing sporting matches around the world. Online sports betting has already proved to be fertile ground for this activity, and when liquidity in the bitcoin betting exchanges increases, such activity may be even harder to stop.

“It is most likely already happening”, says Bitedge, who describes bitcoin and match-fixing as a match made in heaven. “The incentive and the opportunity has existed for years. The first time we find out about match fixing being done with bitcoin will not be the first time it has happened.”

This is not to say that sites like CloudBet or the teams whose games are appearing on them are involved in anything untoward. Austrian police found nothing that made them suspect foul play was at hand in Vienna; there are no question marks against the games it offered in Melbourne or the PDL. 

But as has been well documented, it is the lower levels of sports that are the most vulnerable to match-fixing. Bitcoin adds a whole new level of threat.

“The fact is that bitcoins are, of course, innovative payment methods, but are unfortunately misused by criminal organisations to obscure payment flows”, say Dr. Knasmüller. “This makes it very difficult for authorities”.

The impact of changes to US laws

Changes to US sports betting laws are unlikely to have a significant impact on the crypto-wagering market that has sprung up on America’s doorstep, Bitedge says. A former employee of an online Costa Rican sportsbook (from the pre-Bitcoin age), Bitedge says changes in the US – where the Supreme Court has opened the door for States to regulate sports betting – will most impact fiat-currency sites.

“Costa Rica’s US-facing government currency sportsbooks, yes very much (will be impacted)”, the Australian-born gambler says from his base in South-East Asia. “But not all of a sudden. There will be a gradual decline over several years like we are seeing with online poker.

“The crypto gambling industry will be much less affected and much more robust… There are so many advantages to gambling with crypto, compared to legalised US government currency betting”. These include the speed, ease and anonymity with which one can place bets, he says.

He also points out some sites claiming to be based in Costa Rica are actually running their operations from elsewhere. “I know a large bitcoin gambling operator who you would be counting as being in Costa Rica but they have most of their operations in Manila. I consider the international crypto gambling industry decentralised and widely distributed.” Indeed, the location of many site’s servers can be traced back to the US, raising questions about their legality under the Wire Act and the Unlawful Internet Gambling Enforcement Act (UIGEA).

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