Colleagues in the Sport and Recreation Alliance office are by now (I hope) used to some of my more peculiar traits. One of these is to stare into the middle-distance, adopt a slightly puzzled expression and, shortly afterwards, utter something like: ‘I wonder what would happen if…?’
This blog came about shortly after one such recent episode.
Specifically I asked myself: what would be the impact on sports integrity if Bitcoin (or other cryto-currencies) became increasingly the currency of choice for betting? While this might sound a slightly odd question to ask oneself, it turns out the impact on sports betting and match-fixing could be quite profound. And not just sports betting: Bitcoin is at the centre of a wide-ranging debate – particularly in the US – over threats to national security, regulation, drug trafficking and money laundering to name but a few.
I will return to some of these arguments later as they are relevant to integrity. But first, in order to illustrate the potential consequences, we need to understand what Bitcoin is and how it works.
What is Bitcoin?
Bitcoin – like other similar crypto-currencies such as Litecoin and Dogecoin – is a virtual, decentralised currency. It differs from existing fiat currency like paper notes and coins in that it is not issued or backed by a central bank and it does not rely on a central clearing house to validate transactions. Instead, bitcoins are virtual (they do not exist in physical form) and are exchanged over a distributed peer-to-peer network using encryption. In this way, people are able to make direct, anonymous payments across the internet without involving an intermediary such as a bank or payment processor. Bitcoins can be converted from or to traditional currency in a number of ways including through Bitcoin exchanges.
Encryption and the block chain
Still with me? Good. Hang in there a little longer.
As many of us know from personal experience, existing currencies are open to abuse by criminals for fraudulent transactions. Cash can be counterfeited and credit or debit card details can be stolen. By contrast, Bitcoin arguably offers a more secure currency with which to transact. This is because a defining feature is that it relies on cryptography to govern the creation of bitcoins and regulate transactions. In order for a successful transaction to take place the payer and receiver must hold the right encryption ‘keys’.
Central to Bitcoin is the concept of the block chain. This is essentially a ‘real-time’ public ledger showing all verified bitcoin transactions to date. To keep things simple, all you need to know is that the block chain is maintained and updated using a serious amount of computational power. Transactions are verified and added to the block chain in a new ‘block’ every 10 minutes for every user on the network to see. Importantly, the value and direction of each transaction is shown but not the identity of the parties to it due to the encryption used.
A further key point to note is that, once a transaction is verified and added to the block chain, it is virtually impossible for it to be amended. In other words a criminal seeking to defraud by spending the same bitcoins twice (the basis of a lot of fraud with other currencies) would not be able to do it without having the sort of computing power Bond villains could only dream of.
The upside: Secure, flexible and low-cost
Ok, that’s the technical bit out of the way. Hopefully you’re still reading.
So the upside is that Bitcoin is less susceptible (although not immune) to fraudulent transactions than more traditional currency systems. Not only that, the decentralised, peer-to-peer network means there are very low or zero transactions costs, which means no handling fees or add-ons like you get with card payments.
Both of these benefits make Bitcoin – in theory at least – very attractive to both consumers and businesses alike. In the sports betting context gambling operators would face a reduced risk of fraud (Bitcoin transactions are irreversible which means no chargeback fraud) while gamblers benefit from low transactions costs and the ability to gamble across borders without the hassle of exchange rates. Unsurprisingly there is already a thriving online Bitcoin gambling community, including some operators offering sports betting.
The downside: Impacts on integrity
As you might by now have guessed, the attractions of Bitcoin – decentralised, secure, anonymous – become concerns when transplanted to the world of sports betting, particularly given the very clear threat presented by betting-related match-fixing.
In particular, the current approach to policing corrupt sports betting is, to a greater or lesser degree, focussed on ‘following the money’. Most online gamblers will have an account which contains personal information and which has been verified. This allows gambling operators to link specific transactions with specific individuals. Where there is a suspicion that corrupt betting linked to sport may have taken place, operators can pass this information to sports bodies, regulators and law enforcement to take action. Similarly, like online stakes, gambling operators track the nature and volume of cash bets made by individuals in traditional high street outlets very carefully.
However, with crypto-currencies like Bitcoin the link between the transaction and the individual is no longer clear. As already noted, the block chain records all Bitcoin transactions but does not reveal who made them. In this scenario, how would the individuals involved in corrupt betting be identified and prosecuted? How would betting patterns be monitored? Indeed if its precise legal status as a currency is unclear could a Bitcoin transaction even be considered a ‘bet’ for the purposes of existing regulations? Lots of questions…
Clearly licensed betting operators would need to think carefully before offering Bitcoin gambling but one can imagine the commercial pressures might be difficult to resist if crypto-currencies really take off. In the meantime there is nothing to suggest criminals involved in match-fixing will not take advantage of the ready availability of unregulated betting operators to bet on fixed games using Bitcoin. And shutting down Bitcoin gambling websites does not shut down the currency.
In addition, Bitcoin could potentially lead to changes in the model of betting-related fixing which at present tends to require several groups – including betting syndicates, fixers and sportspeople – to come together to deliver a successful fix. Bitcoin’s anonymity means there could be more opportunities for those closer to sport (e.g. players, coaches, officials etc.) to dictate fixing and bet on the outcome themselves. Or perhaps fixers may begin to pay corrupted sportspeople or officials in bitcoins to avoid arousing suspicion. From a regulatory perspective this would potentially place a much stronger emphasis on education and other preventative measures.
The future
It seems fair to say the regulatory response to Bitcoin and other crypto-currencies has remained in the starting blocks. This is partly because pigeonholing Bitcoin as a ‘currency’ is difficult. As a result the precise legal status of Bitcoin – much like gambling itself – varies across different jurisdictions; in some countries it is outlawed while in others it is simply tolerated, albeit uneasily.
At the moment this is a just-about-tenable position; Bitcoin’s share of the total value of global transactions is low and relatively few businesses accept it as a means of payment. However this does not mean it will remain a small player in years to come. Similarly, alternative crypto-currencies may well eventually grow up alongside or even displace Bitcoin to become the dominant virtual currency.
What is clear is that the decentralised and anonymous nature of these currencies presents a new challenge to the regulation of sports betting and integrity. What is also clear is that use of such currencies will be driven by individuals, not by Governments. If enough people want to pay using Bitcoin, businesses – including gambling operators – will almost certainly have to respond by offering it as an option.
If so, sports bodies and regulators need to be ready for the consequences. And to be ready first requires an understanding of the technology, both its good and bad points.
As I said at the outset, it’s often useful to stop and ask the question: ‘what would happen if…?’
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