UCLA Entertainment Law Review

Gambling, in particular sports gambling, is one of the most pervasive illicit activities in the United States.  In contrast to Europe and parts of Asia that have vast legal networks of both online and brick and mortar betting parlors, the United States has largely confined sports betting to the state of Nevada, while tolerating so-called daily fantasy sports in a number of additional states.  Slightly less pervasive, though equally or perhaps more often associated with illegal activity, are virtual currencies.  Indeed, the growth of the illegal gambling market is being partially fueled by virtual currencies.  While bitcoin garners most of the media attention, often associated with volatile valuations or criminal activity, a variety of smaller scale virtual currencies have also emerged.  The challenge for judges and an essential prerogative for lawmakers is to make sense of how to treat virtual currencies under antiquated statutes and interpretations of what constitutes money.

Some of the high-profile cases involving bitcoin—such as United States v. Ulbricht, and theft from the Mt. GOX exchange leading to its collapse—have raised questions as to whether bitcoin is money, or even property, the loss of which is compensable.  Smaller, narrowly used, in-game virtual currencies have also emerged.  Their unique distinction from bitcoin and first generation virtual currencies is that they have value within games, but purportedly have no value external to the game per terms of service agreements offered by game makers.  No fewer than seven decisions have been issued addressing these in-game currencies, finding that despite the existence of secondary markets allowing users to transfer accounts for fiat currencies, the terms of service agreements control in determining the in-game currencies to be valueless.

These federal holdings create a major problem for law enforcement and prosecutors.  By awarding prizes with zero-value currencies, virtual games, casinos and sportsbooks bypass compliance with most gambling statutes.  This problem is exacerbated by secondary markets that use market-based pricing to establish values for accounts contradicting the game makers’ valuations.  Skins gambling, a recently emerged ancillary feature of a popular video game, has already blossomed into a multi-billion-dollar industry that might be outside the reach of law enforcement, and almost no one has noticed.