For decades the federal government has stopped Americans from gambling on the outcome of elections, such as Monday’s Iowa caucuses. And, for the most part, it’s succeeded.
Last week, with astonishing ease, I was able to place a symbolic $1 bet on the outcome of Monday’s vote from downtown Boston. I was able to do so simply by using bitcoins, the new “cybercurrency,” and the Internet. It did not require any great technical know-how. It did not require any information beyond what I could learn via Google. And if I had wanted, I could have kept the entire process anonymous, to the point where an army of G-men couldn’t have caught me even if they had tried.
Good luck maintaining those gambling laws.
First, I walked into a store in Boston’s Chinatown and bought a bitcoin voucher issued by a company called LibertyX. Then I went online, deposited my new bitcoins into an online account known as a “wallet,” and transferred them to an online bitcoin bookmaker.
Even if Uncle Sam were able to catch people betting with bitcoins, he might have a problem prosecuting it.
Then, to complete the process, I placed a symbolic bet of 0.0025 bitcoin, equal to $1, on libertarian long-shot Rand Paul to win Monday’s caucuses. (If you’re interested, I got odds of 40/1. But, no, Sen. Paul isn’t going to win.)
Total processing time, including the walk over to Chinatown, was about two hours. But most of that was spent setting up the system and transferring money. Betting takes mere seconds.
In theory, I shouldn’t be able to do this. You can’t place a bet on a U.S. election anywhere in America — not even in Las Vegas or Atlantic City. Laws and regulations ban it because of an alleged fear that gambling might somehow taint our political process with money. (Yes, really. Citizens United, anyone?)
For a while, up until a decade ago, the Internet enabled you to get around those laws. You could go online and place bets with bookmakers that were based in overseas locations such as London and the Caribbean. But Congress passed new laws to crack down on this, and the feds went after the bookmakers, and any U.S. banks that allowed it. One of the weaknesses in the system that the government exploited was that online bookies depended on U.S. dollars, and the participation of the banking system.
Who will win Iowa caucuses? Depends on who shows up
Then came bitcoin.
The so-called “cybercurrency” is an obscure subject that baffles 99% of people who’ve ever heard of it, and has for several years looked like an amusing bit of nonsense, and a solution in search of a problem.
Not anymore. Bitcoins make it easy for anyone to get around the current restrictions on online gambling.
You can buy bitcoins with cash and use them to make anonymous online purchases. The federal government has no power over bitcoins. The entire system is spread across a legion of individual computer operators around the world. No one controls it. And while Uncle Sam can stop any U.S. bank from allowing transactions to offshore bookmakers, there is, at the moment, absolutely nothing regulators can do about bitcoins.
You can swap cash into bitcoins, use the bitcoins to make anonymous bets on overseas websites and, if you are lucky enough to win, transfer your bitcoin winnings back into cash. The exchange rate between bitcoins and dollars fluctuates, but is currently around $400 per bitcoin.
Legally, this is still a gray area. Bitcoins are too new for settled case law.
But even if Uncle Sam were able to catch people betting with bitcoins, he might have a problem prosecuting it.
Why? Here’s why.
A few years ago, the Internal Revenue Service ruled that bitcoins were property rather than a currency. In other words, they had the same legal status as, say, gold coins or soybeans — or jelly beans.
It was a cynical maneuver by the federal government. The aim was to discourage us from using bitcoins by making them more heavily taxed.
But if bitcoins are property rather than money, “bitcoin gambling” may not really be gambling at all.
So when I wagered $1 worth of bitcoins on Sen. Paul last week, in the eyes of the law I wasn’t actually betting real money. I was just betting jelly beans.
Most bitcoin bookies are based overseas. Oh, and most of them aren’t really “bookmakers” — they’re just sites that allow individuals to make bets against one another, like an eBay for bets.
So in legal terms, I wasn’t just betting jelly beans. I was betting jelly beans against another private individual … overseas.
Will the feds start cracking down, using the laws against racketeering, money laundering, wire fraud and twerking without a license? I’d love to watch.