With the introduction of the new Markets in Crypto-Assets Regulation (MiCA) regulations, the UK is now playing catch up with its domestic regulations and handling of cross-border transactions and issuance of cryptos. Initially, lawmakers were pondering the course of online gambling regulations.
Essentially, they wanted to regulate issuers of cryptos and service providers in the sector, much like The UK Gambling Commission manages online casinos, sports betting operators, and service providers in that sector. That proposal was shot down during the summer. Other proposals, drawing largely from financial regulations, other proposals have also been criticised for treating crypto too softly.
Regardless of how the UK move forward, they need to speed up, at least if they want to establish the UK, as expressed by previous finance minister Rishi Sunak, as a major crypto hub. More jurisdictions are gunning for that, though. The United States also works towards stronger regulations to create opportunities and safeguard residents.
Inherently Complex Nature of the Blockchain
Regulating crypto has proved to be an arduous task. The EU may have made headway with the MiCA regulations, but they are only scratching the surface of crypto in their new framework. Those regulations cover issuers of stablecoins but need to do more to regulate the use of such stablecoins. Areas like DeFi are hardly mentioned outside of statements that decentralised finance won’t be touched upon by the first iteration of MiCA.
So, essentially, outside of stablecoins, crypto will remain a digital Wild West, a legal grey zone. The technologically complex nature of crypto simply makes it challenging to regulate. To implement a comprehensive regulatory framework for financial asset classes and services, policymakers and regulators must know it inside out. What nations worldwide have in common is the lack of technical know-how and experience to understand the crypto industry.
The Case For Mirroring Online Gambling Regulations
The blockchain is a modern technology that’s been around for a short time. As with any modern technology, the speed at which it moves is difficult to gauge. As such, crypto is not just a complex asset class; it’s rapidly evolving. Regulations can take months or even years to establish, and chances are that by the time regulations come into effect, crypto will have changed on a fundamental level, rendering them obsolete.
However, over the past ten years, one overarching theme of crypto is the elements of get-rich-quick, which fosters addictive behaviour with participants in the crypto markets. This is what makes crypto similar to online gambling. This view is what proponents of mirroring online gambling regulations are pushing.
It’s definitely not an outlandish idea. Many states across the United States have successfully implemented laws and regulations specifically relating to online casinos and real money wagering on sports. It’s a familiar area with a foundation in years of studies on opportunities and challenges and decades of research into the social impact of activities that can give rise to addictive behaviours.
Unfortunately, such get-rich schemes have long plagued the crypto industry, and no one can deny that a large part of the trading activity in and outside of crypto exchanges involves assets that have no intrinsic value or contribute to society in a meaningful way. The same statement can be made about online gambling, which, in many cases, does a disservice to society, given its potential negative impact.
Practically, as mentioned earlier, regulators could target issuers and service providers in the sector to help investors and consumers determine what sites are legitimate, along with said sites being forced to provide tools to users to help them manage and limit the time they spend and the money they invest.
Advertising can be treated similarly to online casinos, where only licensed advertisers and legal operators can advertise online and on TV. States like New Jersey and West Michigan that regulate online gambling also use self-exclusion systems where all operators are integrated, and if a player decides to stop themselves from playing and betting, they can self-exclude from all operators in the state.
The Approach is Not Without Criticism
Clearly, there are many similarities between cryptocurrencies and online gambling, but the approach is not devoid of criticism. While a large part of all cryptocurrencies relate to rubbish crypto, most of the trades across exchanges and networks are in legitimate tokens like Bitcoin, Ethereum, Solana, and Cardano. These cryptos are all considered legitimate and have a positive social impact.
These cryptos clearly share similarities with commodities and securities, which follow an entirely different regulatory pathway. While crypto is more volatile than legacy financial asset classes, many argue it would make more sense to reference the financial sector instead of the online gambling sector. At the same time, critics have said that regulating crypto similarly to traditional finance is giving crypto too much credit and making it appear safer than it really is.
Regardless of views and opinions, the EU’s approach to regulating crypto might not be so bad. They have started with something less complex, stablecoins, and they can iterate on the regulatory framework until it covers more parts of the cryptocurrency sector, including the complexity of DeFi. Similarly, the UK and the United States could take a similar approach, possibly striking a balance between online gambling and the financial sector to cover both the positive and negative sides of cryptos.