( 27th - November - 2019 )
On August 2014, the Consumer Financial Protection Bureau (CFPB) released a consumer advisory to warn consumers of the risk of VCs. The advisory warned consumers of hackers, scammers, loss of VCs by losing the private key, fewer regulations, and an inability to make chargebacks. States have also released consumer advisories and warned users that VCs are not insured by the FDIC, highly volatile, often associated with criminal enterprises, new, and unproven technology. David S. Cohen, the Under Secretary for Terrorism and Financial Intelligence at the Treasury Department, stated that VCs pose "clear risks to consumers and investors" because the "anonymity and transaction irrevocability [of VCs] expose[s] them to fraud and theft, [a]nd unlike FDIC insured banks and credit unions that guarantee the safety of deposits, there are no such safeguards provided to virtual wallets".
The result of this weak regulatory environment makes VCs prone to volatility, market manipulation, money laundering, fraud, and illegal transactions. On August 11, 2014, the Consumer Financial Protection Bureau (CFPB) released a consumer advisory warning on VC and began accepting complaints on VC products and services. Additionally, many U.S. states have released consumer warnings regarding virtual currencies.
Online gambling
The federal legality of online gambling with Bitcoins in the United States has not yet been decided; however, the legality of online gambling with legal tender currency has been decided. In April 2011, the FBI indicted the "founders of the three largest Internet poker companies doing business in the United States? PokerStars, Full Tilt Poker, and Absolute Poker...with bank fraud, money laundering, and illegal gambling". In 2006, the United States enacted the Unlawful Internet Gambling Enforcement Act (UIGEA), yet the poker companies continued to operate until the 2011 indictment. Similar to the 2011 indictment, the Justice Department may be collecting evidence and building a case against the Bitcoin gambling sites before they launch an indictment. The UIGEA does not expressly prohibit Internet gambling, but it does make it illegal for an online gambling business to knowingly accept fund transfers. The Bitcoin gambling sites are currently circumventing this legislation by keeping their funds in bitcoin cryptocurrency wallets. However, in order for these sites to exchange their Bitcoins for a fiat currency they must use a financial exchange, so even by receiving their earnings with Bitcoin, the online gambling sites may come into jurisdiction of the UIGEA if the gambling business accepts payment through "(i) automated clearing house (ACH) systems, (ii) card systems, (iii) check collection systems, (iv) money transmitting businesses, and (v) wire transfer systems."
The Illegal Gambling Business
The Illegal Gambling Business Act may also prohibit Bitcoin gambling sites because the act broadly prohibits all gambling businesses that are in (i) "violation of the law of a State or political subdivision in which it is conducted; (ii) involves five or more persons who conduct, finance, manage, supervise, direct, or own all or part of such business; and (iii) has been or remains in substantially continuous operation for a period in excess of thirty days or has a gross revenue of $2,000 in any single day."[59] Under IRS regulations Bitcoin and other VCs are treated as property, so losses and gains must be calculated to determine the value of the virtual currency. If an online gambling business earned the value of at least $2,000 dollars in Bitcoin "in any single day", they may fall under this act.
The Federal Wire Act (Wire Act) prohibits "bets or wagers on any sporting event or contest". Some Bitcoin gambling sites have a mixture of betting on sports and traditional casino games, and it is conceivable the bets on sporting events could fall within the language of the Wire Act. The Wire Act expressly mentions "money or credit as a result of bets or wagers", and VCs may fall under the intent of the Wire Act because they operate as credits that can be redeemed or exchanged at VC exchanges, and they operate like money because they facilitate transactions.
Some online wagers do not fit under the typical definition of gambling or a game of chance. The Commodity Futures Trading Commission (CFTC) refers to these as "Event Contracts". On December 2011, the CFTC ordered an online business to cease listing Political Events Contracts (i.e., betting on who will be elected) for trade, as it is contrary to the public interest. The CFTC's jurisdiction is being tested by online businesses that accept virtual currency for event contracts. A website, accepting Bitcoin and other VCs, called predictious.com lists trades such as trying to call who will be elected, whether a celebrity will have a boy or girl child, or who will be the winner of a science competition.
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