The UK Gambling Commission has opened a consultation on the use of cryptocurrencies in gambling, which is a rather neat illustration of how far the technology has travelled. Bitcoin was, after all, originally designed to remove the need for banks, regulators, and financial intermediaries altogether. Fifteen years later, it is now the subject of a regulatory consultation and increasingly routed through compliance departments. Progress of a sort, I suppose.
However, I question why the Commission is looking at this now. I believe it is a bit of a red herring that will have little impact on the regulated industry, as I will explain.
To understand why the question now sits on a regulator’s desk, it helps to remember how cryptocurrencies began. When Bitcoin appeared in 2008 through the now-famous white paper by the pseudonymous Satoshi Nakamoto, it proposed what was described as a “peer-to-peer electronic cash system”. The ambition was simple, but radical: allow individuals to transfer money directly to one another over the internet without involving banks, payment processors or governments — a money launderer’s dream!
The technology underpinning this idea was the blockchain, a distributed ledger maintained collectively by a network of computers. Instead of a central authority verifying transactions, the network itself validates them according to predetermined rules. Once recorded on the blockchain, a transaction cannot be altered or reversed. In theory, this meant value could be transferred anywhere in the world, quickly and without asking anyone’s permission.
Early enthusiasts were particularly attracted by another feature: Anyone could create a digital wallet without providing identification. Cryptocurrencies were therefore described as “permissionless”. If you had an internet connection, you could participate in the system. Transfers typically occurred directly from one wallet to another, with no intermediary standing in the middle of the transaction. The dark web was monetised!
The vision was appealing. Cryptocurrencies would become a form of global digital cash, immune from government interference and free from the fees, delays, and occasional bureaucratic mood swings associated with traditional banking systems.
It did not take regulators long to notice that such a system might also appeal to people whose financial affairs were best kept away from the attention of banks and law enforcement. A payment system that allowed global transfers without identification was not only technologically interesting, it was also, from a regulatory perspective, rather alarming.
As cryptocurrencies grew in popularity and value, governments began to consider how they might fit within existing financial regulation. The practical answer that emerged was not to regulate the blockchain itself, which is extremely difficult when the system is decentralised and globally distributed, but to regulate the points where cryptocurrencies intersect with the traditional financial system.
Enter the crypto exchange.
Most people today do not obtain cryptocurrencies by mining them in their garage or receiving them from dodgy strangers on internet forums. Instead, they purchase them through exchanges that allow customers to convert pounds, euros, or dollars into digital assets. These exchanges increasingly resemble financial institutions. They hold customer assets, facilitate trading, and provide custody services. In many jurisdictions, they must comply with AML regulations, verify customer identities through KYC procedures, and monitor transactions for suspicious activity.
In other words, the ecosystem that began as a way to eliminate financial intermediaries has gradually developed its own intermediaries, albeit ones built from code rather than marble banking halls — not that my bank has a marble hall.
Regulators have quite sensibly focused their attention on these gateways, because they provide a practical way to impose oversight on what would otherwise be a largely decentralised system. If you cannot regulate the blockchain itself, you regulate the on-ramps and off-ramps.
The regulatory framework surrounding these exchanges continues to evolve. International bodies such as the Financial Action Task Force have introduced rules requiring certain information about the sender and recipient to accompany transfers between regulated crypto institutions, mirroring the requirements that already apply to bank transfers.
In the European Union, the Markets in Crypto-Assets (MICA) regulation seeks to establish a comprehensive supervisory regime for exchanges and other crypto service providers. As a consequence, many companies providing these services are unable to obtain licenses and are closing down. Lithuania, which positioned itself as a crypto-friendly hub with enormous numbers of registered Virtual Asset Service Providers or VASPs, has become the first casualty of the new era. This year, there has been a mass deregistration of VASPs and shows that most are incapable of meeting the required robust AML and capital requirements.
Because of this regulatory intervention, a large proportion of cryptocurrency activity now takes place within a regulated environment, which would probably surprise many of the technology’s earliest promoters.
At the same time, the way cryptocurrencies are actually used has also evolved. Bitcoin was originally imagined as a form of everyday digital money, but its price volatility has made it somewhat impractical for routine transactions. It is difficult to run a stable payments system when the currency might move ten percent between breakfast and lunch.
Increasingly, cryptocurrencies function less as money and more as financial infrastructure, a mechanism for transferring value across borders quickly and without relying entirely on traditional banking networks.
One development that has accelerated this shift is the emergence of stablecoins. These are cryptocurrencies designed to maintain a stable value relative to a traditional currency, usually the U.S. dollar. Unlike Bitcoin or Ethereum, whose prices can resemble the more exciting parts of a rollercoaster, stablecoins aim to remain worth roughly one dollar per token.
In theory, this stability is achieved from each stablecoin being backed by a corresponding dollar or equivalent assets held in reserve. The details of those reserves have occasionally attracted scrutiny, but the concept itself has proven remarkably useful.
The scale of this activity is striking. Annual stablecoin-transaction volumes now reach many trillions of dollars and, depending on how one measures the flows, have at times exceeded the annual payment volumes processed by companies such as PayPal. This does not mean that consumers are rushing to buy their weekly groceries with stablecoins, but it does illustrate how extensively they are used as settlement infrastructure within financial markets.
For the online-gambling sector, the appeal of crypto payments is obvious. Gambling operators have long faced practical challenges in relation to payments. Transactions are frequently cross-border, customers expect withdrawals to be processed quickly, and traditional payment methods can be expensive and prone to chargebacks.
Cryptocurrencies appear to address several of these issues. Blockchain transfers settle quickly, operate internationally, and cannot be reversed once confirmed. For operators, the elimination of chargeback risk alone can be attractive.
However, not surprisingly, gambling is also regarded by regulators as a higher-risk sector for money laundering. Online platforms process large numbers of deposits and withdrawals and historically, there have been concerns that a person’s gambling activity could be used to obscure the origins of funds. The arrival of cryptocurrency payments therefore prompted understandable alarm among regulators.
One approach that has emerged is for regulated gambling operators to accept cryptocurrency deposits only from wallets associated with regulated exchanges that conduct KYC and AML checks. The exchange effectively acts as the financial gateway performing the initial compliance checks.
For these operators, this arrangement preserves some of the advantages of cryptocurrency payments, while reducing the risks associated with anonymous transactions. Payments can still be processed quickly and internationally and the irreversibility of blockchain transactions eliminates chargeback fraud. Payment-processing costs may also be lower, because fewer intermediaries are involved.
Customers may see advantages as well. Crypto payments can bypass certain banking restrictions that sometimes affect gambling transactions. Some players also appreciate that their bank statement may simply show a transfer to a crypto exchange rather than a direct payment to a gambling operator.
Stablecoins are particularly useful in this context. By using a cryptocurrency that closely tracks the value of a traditional currency, both operators and customers can avoid the volatility associated with assets such as Bitcoin. Deposits and withdrawals can therefore take place on blockchain rails, while maintaining a relatively stable fiat value.
When regulators discuss money laundering in gambling, the focus traditionally falls on customers. Yet the international structure of the online-gambling industry means the risks do not always run in only one direction. Many operators serve customers across multiple jurisdictions, while holding licences in offshore regulatory environments. Payment flows may pass through several corporate entities and intermediaries before ultimately being recorded as revenue by a more accommodating licensed operator somewhere.
In such circumstances, cryptocurrencies can add additional layers of complexity. What makes them attractive for international payments can also render financial flows harder for domestic regulators to interpret when businesses operate across several jurisdictions.
For example, where gambling activity originates in a jurisdiction in which online gambling is illegal or “grey”, but revenue is ultimately recorded by an operator licensed elsewhere, regulators may struggle to determine where the activity actually occurred, if they can be bothered. In such cases, the issue is not simply the cryptocurrency itself, but the broader combination of cross-border corporate structures, digital payment systems, and differing regulatory standards.
The crucial factor, therefore, remains governance. Where gambling operators are licensed in well-regulated jurisdictions and subject to robust compliance obligations, crypto payments can be integrated into existing AML frameworks. Where businesses operate primarily through lightly regulated environments with limited oversight, the same technology can create opportunities to cloak the origin of the funds.
Which brings us back to the Gambling Commission’s consultation. The question it raises is not simply whether cryptocurrencies should be permitted in gambling. The deeper issue is how a technology originally designed to bypass financial intermediaries can be integrated into a heavily regulated industry that depends on transparency, accountability, and financial oversight.
In the end, cryptocurrencies may prove less revolutionary than their early promoters imagined, not because the technology failed, but because it is gradually being absorbed by the existing financial system. For the gambling industry, the challenge will be to harness the efficiency of blockchain payments without losing sight of the regulatory safeguards that keep the whole enterprise credible.