Bitcoin and beyond: what role for Gibraltar’s gaming industry?

Low cost, low hassle cryptocurrencies such as Bitcoin have the gaming world pricking up their ears, says KPMG’s Archie Watt. Here, he recaps a riveting discussion from Gibraltar’s most recent eGaming summit.

Sign Up

Get the New Statesman's Morning Call email.

“Bankers own the earth; take it away from them but leave them with the power to create credit; and, with a flick of a pen, they will create enough money to buy it back again... If you want to be slaves of bankers and pay the cost of your own slavery, then let the bankers control money and control credit.”

These words from Sir Josiah Stamp, Director of the Bank of England, spoken in 1940, might well have been the message that one of the panels at KPMG Gibraltar’s Fourth Annual eGaming Summit was seeking to expound to the record breaking number of delegates on the Sunborn Yacht Hotel on 3rd April.

This eagerly anticipated panel session, featuring The Counting House’s Paul Davis, Ukash’s Stephen Quinn, Ian Benson of Maclay, Murray & Spens, and Eric Benz, Chair of the UK Digital Currency Association, was titled “Bitcoins and Beyond – Payments, Conventional and Alternative”.  A Bitcoin is a piece of machine code passed electronically over the internet between two individuals who both believe that it represents value which, the panel pointed out, presents a threat to the established banking fraternity.  Because Bitcoins are perceived to be capable of being freely transacted across borders between individuals or entities, they are direct competition to banks and other payment service providers. 

Interestingly, when the audience (which was made up of representatives from all the major operators based in Gibraltar) was asked whether or not they accepted Bitcoins, not a single one of them admitted to taking them. Outside of Gibraltar there are only a handful of online operators who accept Bitcoins as a means of depositing. 

Part of this reticence is caused by a lack of understanding of how they are controlled, while another hesitance lies in the need to gain regulatory approval to include Bitcoins as a payment method. Despite these uncertainties Bitcoins and – more widely – “cryptocurrencies” are of great interest at the moment, particularly to companies which operate and transact globally. Why? Cryptocurrencies are exchanged between users at zero cost, and retain their value in any economy. Whereas traditional banking incurs transaction fees, expensive finance departments and exchange rate losses when moving between countries, a Bitcoin may travel from one jurisdiction to another without undue delay or fees. A Bitcoin is worth the same amount anywhere in the world – an intriguing prospect for any global company looking to reduce expenditure and avoid exchange risks.

Gaming companies are no exception.  The panel also highlighted this eagerness as the reason why central banks and governments the world over are keen on spreading the publication of negative stories, linking Bitcoins with drug dealing, terrorism and money laundering.

The session wasn’t only promoting good news about Bitcoins however, and the legal framework (or rather, the lack thereof) was discussed.  The need for regulators to understand the issues was debated, as was whether or not Bitcoin operators could or should be regulated.  This discussion led on to one of the most interesting, and indeed shocking comments made during the session: “there really is no anonymity to Bitcoin. There’s privacy, but every single aspect of Bitcoin is visible.”  Because every single transaction of a particular Bitcoin is shown via the “block chain”, a public ledger of all transactions in the Bitcoin network, nothing is anonymous.  The panellists maintained that this should mean that the “route of title” (i.e. a Bitcoin’s trail of ownership) is capable of being followed at each stage. The issue, however, is that Bitcoin traders are not currently regulated and are therefore beyond the reach of law enforcement agencies, hence the panellist strongly advocated that governments and regulators move forward quickly with the application of existing codes of best practice in order to give protection to consumers.

All panellists believed that Bitcoins are not the final solution to reducing transaction costs and that they will not be the only cryptocurrency to emerge.  However, they all agreed that they are a step on the road toward a more free-flowing means of currency exchange, at a reduced cost but with high levels of security and transparency.  All delegates were eagerly looking forward to this day, particularly in light of the forthcoming change to the Point of Consumption (POC) taxation of eGaming profits from UK customers, a key part of the business of the majority of operators based in Gibraltar. Click here to read more about how POC will impact Gibraltar’s gaming industry.

Widening the conversation beyond Bitcoin to discuss gaming payment methods more broadly, the panel turned its attention to the issue of unlicensed gaming operators and how best to discourage financial transactions with them.

Encouragingly, a recent announcement made by Baroness Jolly to the House of Lords on 4th March 2014 stated that the Gambling Commission will be working together with a number of major payment systems – including Visa, Mastercard and other major debit and credit cards processors - to “block financial transactions with unlicensed operators.”

Despite this high-level promise, the panel’s view was that such blockades were essentially unenforceable, since many payment systems organisations have no knowledge of to what exact use the currency they transact is being put.  For example, a customer can deposit with an operator licensed outside the UK perfectly legally, and the payment systems organisation has no visibility over how that deposit is ultimately spent.

Inevitably, the debate turned next to the Point of Consumption Tax (POC), and whether or not payment service providers would be willing to share in the pain that would be suffered by all of Gibraltar’s licensees.  Unfortunately Gibraltar operators were left without a simple answer. Panellists encouraged them to continue to negotiate hard with their payment service suppliers.  A ray of hope was to be found, however, in the potential for alternative payment providers, such as pre-paid cash card service Ukash, to add value to the payments process by reducing new customer acquisition costs or through reducing fraud. Alternative payment may therefore be of great importance for the future profitability of Gibraltar’s gaming sector.

The panel concluded a very lively session by returning to Bitcoins, taking a more philosophical turn by comparing them with another item with a “perceived value”: diamonds.  “The only thing that distinguishes a diamond from any other stone on the ground is that there are only so many of them, and that work has been done on them to create a perceived value,” explained Paul Davis of the Counting House. The value of a Bitcoin is derived from this same “perception of value” – it worth will exist only for as long as a community believes in that worth.  As Davis neatly summarised: “Bitcoin is the diamond of the currency world.”

Archie Watt is head of eGaming at KPMG