Presented by: Lawrence G. Walters, Esq. AME A TTORNEYS. COM North American Gaming Regulators Association Annual Conference – June 9-12, 2014

Virtual currency has been attempted since the inception of the Internet Beenz.com famously failed in 2001 Bitcoin, in 2009, brought with it a resurgence of “altcoins” The Beginnings of Alternative Currency

History of Bitcoin November 2009: Satoshi Nakamoto published “Bitcoin: A Peer-To-Peer Electronic Cash System” January 2009: “Genesis Block” mined Bitcoin meant to be: secure, non- regulated, decentralized and anonymous Cannot be created or destroyed

Negative press and uncertainty: Silk Road Closure of Mt. Gox Volatility of exchange rate However: Large, publicly traded hedge funds investing Bitcoin Today

Bitcoin ATM unveiled on Capitol Hill Major websites accepting Bitcoin: Bitcoin Today, cont.

CoinMarketCap.com keeps track of various altcoins Other Alternative Currency Major players after Bitcoin: Litecoin PeerCoin Ripple Dogecoin

IRS position: Bitcoin “property,” not “currency” Federal Judge found Bitcoin is form of “money” U.S. Dept. of Justice: Bitcoins could be considered “legal means of exchange” Contemporary Regulatory Climate

“The fact is that virtual currencies are unlikely to disappear entirely. As such, turning a blind eye and failing to put in place guardrails for virtual currency firms while consumers use that product is simply not a tenable strategy for regulators.” -Benjamin Lawsky, New York’s Superintendent of Financial Service

New York planning “regulated” Bitcoin exchanges ATLAS ATS, a Bitcoin trading platform, has partnered with the National Stock Exchange Regulatory Climate, cont.

New York may attempt to adapt existing laws for virtual currency Lawsky most concerned with money laundering and secondarily, tax issues Regulatory Climate, cont.

U.S. Treasury Dept. FinCEN: individual miners/users are not ‘Money Service Businesses;’ Exchanges are MSB’s Accepting virtual currency may trigger AML and KYC obligations Steve Stockman (R-TX) unveiled “Virtual Currency Tax Reform Act” to change status of altcoins to currency Regulatory Climate, cont.

Recent Developments Senator Joe Machin (D-W.Va) called for all-out ban on Bitcoin: “This virtual currency is currently unregulated and has allowed users to participate in illicit activity, while also being highly unstable and disruptive to our economy.”

Recent Developments Former Obama Adviser Larry Summers: “Serious mistake” to “write off” Bitcoin Bloomberg terminal gets Bitcoin: investors believe this might stabilize price

FEC allows political groups to accept Bitcoin donations $100 contribution limit per person per electoral cycle Dish Network begins accepting Bitcoin Recent Developments

eBay CEO John Donahoe: “I think there's no doubt digital currency is going to play an important role going forward, and at PayPal, we're going to have to integrate digital currencies into our wallet.” Facebook users can now send and receive Bitcoin payments Apple opens door to Bitcoin applications Recent Developments

SatoshiDice launched in 2012 Estimates claim online gambling accounts for nearly half of all Bitcoin transactions Online gamers betting billions of dollars on Bitcoin sites CoinDesk: Legal online gambling is next major Bitcoin market Bitcoin & Gaming: The Explosion

For the consumer: Anonymity Winnings received immediately Uniformity of currency Operators generally take lower cuts Transparency of transaction Popularity of Bitcoin & Gaming

For the operator: Low transaction costs Game integration No charge backs Widespread customer availability Popularity, cont.

Licensed sites accepting Bitcoin from known customers Winpoker Gaming regulators prohibiting/warning against the use of Bitcoin Vera&John began accepting Bitcoin payments Subsequently asked by Malta’s Lotteries and Gaming Authority to cease accepting Bitcoin until regulations are promulgated Developments In Regulated Jurisdictions

Altcoins are here to stay! Need for regulator development of effective, coherent policies: Reconciling anonymity of altcoins with Know Your Customer (KYC) obligations Maintaining proper AML, accounting and financial reports Enforcing compulsive gambling exclusions and underage prohibitions Issues Facing Gaming Regulators

Prohibition Often initial reaction to unknown Rarely works May encourage underground operations Customers may not understand objections, especially if they have existing relationship with company Potential Approaches

Conservative Regulation Insist altcoins only come from customer with KYC info Require traditional payment history Require customer cooperation with access to altcoin transaction tracing Require immediate conversion to currency Prohibit refunds or payouts in Bitcoin Prohibit Bitcoin-integrated games Insist Bitcoin only be used as payment method to result in credits to account Potential Approaches

Moderate Regulation Eliminate one or more of Conservative Regulation points Rely primarily on licensees to provide accurate reporting Include KYC / AML requirements and player/licensee cooperation for audits and verification Potential Approaches

Minimal Regulation Permit payment and payout in Bitcoin Rely exclusively on licensees to keep accurate accountings Permit integrated altcoin games Require AML/KYC elements to avoid corruption, underage gambling & geo- blocked or compulsive players Potential Approaches

No Regulation Not a viable or realistic option Bitcoin transactions subject to abuse due to anonymity Potential Approaches

Altcoins will continue to grow in popularity Players will increasingly demand altcoin payment alternatives Federal and state authorities will become more active in regulating Predictions

Getting ahead of the curve is key Develop forward-thinking policies and practices Update regulations as legal climate and technology evolves Conclusions/Take-Aways

Q&A