Betting on U.S. elections is illegal. But according to Brett Arends, a columnist for MarkeWatch, there isn’t much the government can do to stop you from betting with bitcoins. For one thing, bets can be made anonymously on offshore gambling sites. For another, bitcoins are considered property by the Internal Revenue Service, so gambling with bitcoins is like gambling with jelly beans.
Arends described how he recently bet on presidential candidate Rand Paul in Monday’s Iowa caucuses.
Last week, he placed a bet using bitcoins in downtown Boston’s Chinatown. He bought a bitcoin voucher from LibertyX, a bitcoin seller, then deposited the bitcoins into a bitcoin wallet and transferred them to a bitcoin bookmaker. He received 40/1 odds on Paul winning.
Betting on a U.S. election is illegal because the government believes it would impact the political process.
When the Internet came on the scene, people were able to bet on elections by placing bets online with offshore bookmakers. Congress eventually passed laws against this, and law enforcement took action against bookmakers and complicit banks. The government was able to do this because bookies relied on U.S. dollars and participation from banks.
But bitcoin has changed the playing field once again since anyone can gamble anonymously using bitcoins.
Anyone can buy bitcoins with cash and make anonymous purchases over the Internet. Bitcoin winnings can then be exchanged for cash.
The federal government has no power over bitcoins. The bitcoin network covers a global scope of individual computer operators that no one party controls. While the government can stop a bank from engaging in transactions to overseas bookmakers, there is nothing it can do at present about bitcoins.
The legality of this is grey, Arends noted. “Bitcoins are too new for settled case law.”
But even if the government could catch people betting with bitcoins, prosecuting them would be difficult. The Internal Revenue Service has ruled that bitcoins are property and not currency. The government did this to discourage people from using bitcoins by making them more subject to taxes.
If bitcoins are property, they are not money. Hence, the term “bitcoin gambling” may be a misnomer.
When Arends wagered $1 worth of bitcoins on Rand Paul, he wasn’t betting real money according to U.S. tax law. Betting with bitcoins was like betting with jelly beans.
Bitcoin bookies – who are mostly overseas – aren’t really “bookmakers.” According to bitcoin’s tax status, those “bookies” are sites that allow people to bet against one another – an eBay for bets. In legal terms, Arends said he wasn’t just betting jelly beans – he was betting jelly beans against a 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.”
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