Some called it a fad investment at first, like Beanie Babies. But cryptocurrency—and in particular, the most widely used variation, bitcoin—has endured a wild ride that has yet to end.
Bitcoin was created as a peer-to-peer electronic currency in response to the U.S. economic collapse of 2008. Introduced by an anonymous October 2008 white paper attributed to the pseudonym Satoshi Nakamoto, bitcoin offers traders (also called “miners”) a decentralized tender unit not tied to any government or bank. Trading is recorded and logged via blockchain, a permanent electronic ledger of all transactions.
The inaugural price of a single bitcoin in 2009 was barely over zero—$0.0008, to be exact. After a month of trading, the price was up to 8 cents. Within a couple of years, it was $10, and by 2013, it had soared to $250. From there, things got really crazy—by late 2014, a bitcoin was worth $20,000. In 2021, trading yielded its all-time high value of $68,000, before dipping quickly to where it currently sits at $31,341.90, as of this writing in early May.
Volatility aside, bitcoin and other cryptocurrencies like etherium, dogecoin and litecoin have become normalized as a sort of commodity, with trades made on centralized and decentralized exchanges, and daily prices reported right alongside the Dow Jones and Nasdaq stock exchanges. Owners store their bitcoins or other units in electronic wallets, and can use those wallets to exchange the cryptocurrency into more centralized or “fiat” currencies like the U.S. dollar or British pound.
“Two years ago, there were industry leaders saying that crypto is for thieves, crooks and blackmailers,” comments Neeraj (Raj) Tulshan, founder and managing member of Loan Mantra, a financial advisory firm specializing in fintech issues. “Yet today, people are going to have crypto-based units on their 401Ks. Crypto is quick, it’s trendy, and it’s fashionable, especially for the younger ‘tech’ generation.”
Crypto ATMs are now popping up, Tulshan notes. “Mainstream financial institutions are documenting cryptocurrency, banks are documenting it. There’s a Latin American country (El Salvador) that has officially recognized crypto as a legal tender.”
As a legitimized payment vessel, cryptocurrency has inevitably reached the gaming industry. Dozens of gaming sites outside the U.S. allow gamblers to exchange cryptocurrency into gambling units, usually without any scrutiny into where those funds originated.
U.S.-based iGaming players, though, are typically prohibited from registering at so-called “bitcoin casinos” where cryptocurrency is converted for wagering. This is primarily due to strict anti-money laundering (AML) regulation.
In the U.S., there are currently no iGaming states that allow cryptocurrency to be used as a payment source. However, that may change soon, so long as cryptocurrency such as bitcoin is converted into fiat currency before any wager is made—as is common for online casinos outside the U.S.
In that scenario, cryptocurrency is exchanged for the accepted fiat currency at the current exchange rate. It becomes another funding source for gaming wallets, just like a credit card, debit card or deposit account for cashless wagering. Once converted, the crypto is used as U.S. dollars, or whatever fiat currency is legal tender for the jurisdiction.
Cryptocurrency has gained renewed attention as a potential payment source for brick-and-mortar casinos as well as internet casinos, thanks to the global Covid-19 pandemic of the last two years. “The renaissance of bitcoin is only two years old,” Tulshan says. “After it reached $20,000 in 2018 and then crashed, everybody stopped talking about bitcoin. And then when Covid hit and everything shut down, this new love for bitcoin appeared.
“In online gaming, it’s going to be huge. It’s decentralized. It will be the biggest thing in online gaming.”
Earle G. Hall is CEO of AXES.ai, vice chairman of the International Gaming Standards Association and a board member of the Blockchain Association. AXES produces a cashless payment app that incorporates cryptocurrency as a funding source.
“The most important thing to remember is that cryptocurrency is just a currency,” Hall says. “People that have an Apple Wallet or Android Wallet on their phones have their credit cards in there. They might even have a debit card. What they actually have is an electronic wallet that has different payment processors… Those payment processors are responsible for the KYC (“know your customer”). If I have a Visa card with Chase Bank, I’ve done all of the work with that bank to prove who I am. So when I use that credit card, theoretically, everybody knows who I am.”
The AXES wallet applies that KYC by converting the crypto to fiat currency.
“When we started this out, there were countries all over the world that were farther ahead in cryptocurrency than the United States, because we are in the most mature regulatory environment in the world,” Hall says. “So, the player has the AXES cashless app on their phone, and they connect it to their own personal electronic wallet for crypto. When they want to make a deposit in the AXES wallet, we trace the transaction they’re making, and what exchange it’s coming from. We record the entire transaction for regulatory purposes.
“So when we move that money into the casino float, the casino has full, transparent visibility—the name of the player, the amount of the transaction, the exchange it was taken from.”
Hall stresses that when the currency enters the casino float for wagering, it is in the form of fiat currency. In a crypto wallet, he says, “the funding will bring you to a currency exchange, just like when you’re on vacation and you go to the wicket with U.S. dollars and they give you back euros… It’s translated into a stable currency, and from there it’s sent to the online casino.”
Brick and Mortar, and Crypto
In April, Mississippi’s Scarlet Pearl Casino Resort (l.) became the first U.S. casino to add cryptocurrency ATMs to the casino floor. The machines, produced by Everi Holdings in partnership with B4U Financial and deployed by Everi subsidiary Everi Payments, Inc., convert bitcoin to U.S. dollars using B4U’s cryptocurrency solution and distribute it to the user as cash.
Additional integration capabilities include the ability for the casino to track the disbursement of cash through the B4U API to the owner’s existing systems in real time. This capability is enhanced by Everi’s real-time monitoring tools and remote diagnostics features.
According to Darren Simmons, executive vice president & fintech business leader for Everi, the ATMs only convert bitcoin to cash, but other cryptocurrencies may be added to the system in the future.
“Everi has actually been investigating crypto solutions for probably four years now,” Simmons says. “The product team has been looking at different opportunities in terms of how we can incorporate crypto effectively for payment acceptance into our world.”
That begins with the ATM, soon to be followed by crypto kiosks from Everi. According to Simmons, the kiosks will be equipped with the option to dispense TITO tickets, where the ATM solely dispenses cash.
Simmons stresses that Everi’s crypto products are different from the bitcoin ATMs that have appeared at various locations. Those, he says, allow purchase of cryptocurrency as well as liquidation of cryptocurrency for cash. These units only allow liquidation of cryptocurrency for cash at the current exchange rate.
“The world is becoming more and more crypto-savvy,” Simmons says. “Financial markets certainly are; retail markets are accepting it. And we’ve had requests from our customers, ‘What are we doing in terms of crypto?’ We’ve had a roadmap for a couple of years now, and this is the first product, and it’s fairly straightforward.
“Through our ATM, you can select to go to your bitcoin account and, through the standard barcode process, you can choose to liquidate a value of your bitcoin, and dispense the cash through our ATM. The actual fiat liquidation of the crypto happens with our partner at B4U Financial, and we get the settled fiat currency and dispense it through our ATM. It’s a fairly quick, straightforward transaction.”
And since the currency is fiat U.S. dollars when it reaches the casino, no new regulations were required to implement the solution, according to Jay
McDaniel, executive director of the Mississippi Gaming Commission.
“Scarlet Pearl is putting it on the floor strictly in an ATM environment where someone can access their crypto wallet and get money out,” McDaniel says. “But it has no tie to a gaming device; it is simply a funding source for that patron at this time.”
Everi’s Simmons says the ATM and kiosk are among several cryptocurrency initiatives for which the company is partnering with B4U Financial. Their next project will likely incorporate cryptocurrency as a funding option for Everi’s CashClub Wallet cashless system.
“It’s absolutely part of an extension of how we’ve approached the wallet,” he says. “If you think of the financial transactions that we provide today, when we went to wallet, the wallet is an extension of those financial transactions. So now that we’ve introduced the ability to liquidate cryptocurrency for fiat, bitcoin specifically, at an ATM, we’re going to extend that to wallet. We’ve done that work, and I expect that we’ll be launching that in the very near term.”
The cashless wallet, as well as the ATM and kiosk, handle any AML concerns about cryptocurrency, Simmons adds. “We took a very conservative approach,” he says. “The biggest thing you’ve heard of in the past about cryptocurrency or bitcoin concerns the actors that are associated with it. So, what we said is, we need to make sure that we’re going to (proceed) like the normal banking system.”
McDaniel at the Mississippi gaming board agrees, noting that Everi placed a limit on money that can be liquidated from cryptocurrency. “Right now, it’s a $500 transaction limit, and you can have up to three a day,” he says. “So it’s basically a $1,500 limit daily.”
“We’ve done things to minimize and reduce the AML concerns you would have, utilizing different technologies,” Simmons says. “For example, Chainalysis, which is fairly widely used and a very reputable company that’s engaged in the cryptocurrency industry. We have great tools that we utilize to manage those aspects of AML concerns.”
McDaniel says the Mississippi commission is examining whether new regulations are needed as cryptocurrency moves into cashless wagering accounts, and eventually, into online gaming—should Mississippi legislators authorize it, which hasn’t happened yet.
“What we’d be looking at is your gaming wallet, your wagering account, as far as how you get your money converted into a way that it can be for play in the machine,” he says. “How do you do that? You go to the cage and you give them $100 and they put it in, or you directly access a bank account, you directly access a Visa. In this case, would we allow people to access a bitcoin account and redeem that and put that into their wagering account? Those are the kinds of things we have to look at. What different sources could you use to fund whatever account it is you’re using to wager on that machine?”
He adds that as a Mississippi casino supplier licensee, Everi is bound to build AML safeguards into their system. “As a licensee, they’ve got to comply with all federal and state regulations, but at the end of the day, our regs just don’t really address (crypto) other than the fact that they must follow things like currency transaction reports, suspicious activity reports—they’re still required to follow those, just like they are with any other type of funding system.”
McDaniel says the pandemic has accelerated the need to address cryptocurrency in cashless wagering. “We’re taking our cue from the operators,” he says. “That’s what we have regulations crafted for in the case of cashless, but we don’t want to jump out there with anything until we make sure we don’t come up with something that doesn’t fit. We’re working with the operators: What do you see being the types of funding you want to allow? Are you going to do it through QR codes or debit cards, or cards that you put in the machine?
“The pandemic has sped this up. I visited Resorts World out in Vegas just to see how they do it. So, we’re at this point now, waiting for the operators to come to us and say, ‘We’re ready to do this.’ But I think you will see that sooner now that you’ve had the pandemic.”
For Tulshan at Loan Mantra, the use of cryptocurrency by the gaming industry, just like cashless gaming and other technologies, is simply an extension of general consumer behavior.
“Cryptocurrency will be the way people are exchanging products with each other; it’s a global currency,” he says.
But experts agree that more widespread use of crypto as a payment method in casinos will necessarily require an adjustment to the regulatory regime.
“My view on crypto is that it exists away from a lot of regulations today,” says Andrew Cardno, the chief technology officer for Quick Custom Intelligence, who has done a lot of work on intellectual property and patents in the crypto space.
“When you think about things like suspicious activity reports or anti-money laundering, regulations around that are very well-developed with traditional currency. You don’t see the same kinds of controls around crypto. Even trading in the markets—the markets operate in a much more unregulated way.
“That’s changing, with moves being adopted. But run the two parallel—fiat currency and the things we do, next to cryptocurrency and the things we do with that—the cryptocurrency is subject to a lot less governmental control and oversight. You can take a very large holding of cryptocurrency onto a piece of paper or thumb drive and hold it locally. It’s analogous to carrying very, very large amounts of cash around in a completely untraceable way. There’s no bank involved in the transaction; there’s no monitoring of it. If there’s a very large amount of cash redeemed, that triggers regulatory responses. They can put it into fiat currency in a crypto exchange, but they don’t know where it came from.
“It’s analogous to printed paper money in terms of how it can be tracked. When someone walks in and uses a credit card or a debit card, or creates a marker or withdraws money from an ATM, these are all bank transactions. In cryptocurrency, it’s like walking into a property with cash in your pocket.”
Cardno predicts more regulatory scrutiny on cryptocurrency in gaming will definitely come soon.
“As an industry that has prided itself on good regulatory oversight and commitment to AML, I would hope we bring these practices to the crypto world
really early,” he says. “Knowing the source of the cash, knowing that it’s legitimate, and that people are not doing money laundering, these are really important parts of the behavior of our industry. These are things we all do well, and deal with every day. And those same behaviors need to be brought into the crypto world.”