Advantages and disadvantages of regulating crypto assets as “gambling”[Column]| coindesk JAPAN | Coindesk Japan

New ideas for cryptocurrency regulation have emerged following the shocking collapse of FTX. The idea is to regulate crypto assets as “gambling.”

“Crypto trading is at its core,” said Todd Baker, senior fellow at the Richman Center for Business, Law and Public Policy at Columbia University. It should be regulated, which means it’s gambling that mimics finance, regardless of what its supporters say or what people believe.”

Fabio Panetta, Managing Director of the European Central Bank (ECB), also said, “Regulations should recognize the speculative nature of unbacked crypto assets and treat them as gambling activities.”

Treating crypto-asset regulation the same as gambling regulation has advantages and disadvantages. Let’s look at the cons first.

Disadvantages: Diversity that does not fit into one regulatory framework

Arguing that crypto-assets should be treated as a single entity and regulated is not very helpful. It’s been a long time since what we call “crypto assets” wasn’t a single-problem product that could fit conveniently into one framework. In 2012 or 2013, that might have been the case. At the time, gambling might have been the most appropriate.

But the core of crypto assets consists of multiple programmable databases. In other words, it can realize any application, not just gambling apps. The range of activities occurring in the crypto-asset space is now extremely wide and diverse.

MakerDAO

For example, MakerDAO falls under the category of “crypto assets” because it is built on blockchain. But it’s not a gambling product. Functionally, MakerDAO is a bank that issues and lends the stablecoin “DAI”.

To further complicate things, MakerDAO ownership is represented as a cryptocurrency maker (MKR) that resides on the blockchain, giving holders voting rights over how it operates. MKR holders may also receive additional profit sharing. In other words, MKR is like the stock of banks such as Wells Fargo. It’s an investment.

Regulating MakerDAO and related crypto assets DAI and MKR as gambling products is not reasonable for the same reasons that it is not appropriate to regulate Wells Fargo and its stock as a casino.

DeFi and CeFi

Or consider decentralized tools built on blockchains such as Aave and Compound. Both lend. While these two tools can certainly serve gambling customers, they are not gambling apps per se and should not fall into that category.

What about centralized exchange Coinbase? Coinbase allows customers to buy and sell crypto assets directly for cash, combining the roles of traditional brokers like E-Trade and exchanges like Nasdaq in one platform.

However, E*Trade and Nasdaq are subject to securities trading regulations, not gambling regulations. So perhaps Coinbase should do the same.

So crypto regulation is a more sensitive debate than simply lumping everything into the gambling category. Gambling is just one of many existing regulatory frameworks that can be adapted to emerging blockchain products.

Now let’s look at the benefits.

Pros: Dealing with addiction, minority, and advertising

DAI, MKR, Abe and Compound may not be gambling. But a large part of crypto is indeed gambling.

Many people involved in crypto do little more than invest in highly volatile, unbacked crypto assets like Dogecoin (DOGE) and Shiba Inu Coin (SHIB).

So are Bitcoin (BTC), Bitcoin Cash (BCH), Litecoin (LTC), Ripple (XPR) and Ethereum (ETH).

The crypto industry has made every effort to move betting on volatile crypto assets from gambling to “investing.” Coinbase, for example, has a mission to “expand economic freedom in the world”.

But when you think about it, a volatile crypto asset like Dogecoin is like an endless 24/7 lottery where many people guess what the price will be. This repeated betting process drives the prices of Bitcoin, Litecoin, and others.

Users can sell their positions to other users in a never-ending lottery. Casino chips are also sometimes used for payment. However, the payment function of crypto assets is only a secondary function that is far behind the main function as a lottery ticket.

Dealing with Addiction and Minors

A benefit of formalizing volatile crypto betting as a form of gambling is that existing protections against problem gamblers and minors can be applied to the crypto space.

Gambling addiction is characterized by a persistent and uncontrollable urge to gamble despite negative consequences and efforts to quit. It can lead to financial difficulties, relationship problems, and mental health problems such as depression and anxiety.

Gambling operators in many countries are required to deal with gambling addiction by implementing self-exclusion programs that prevent customers from entering gambling establishments voluntarily.

By regulating volatile crypto assets as gambling, crypto platforms such as Coinbase, PayPal and Kraken will be required to implement their own self-exclusion programs.

Gambling establishments are often required by law to call out “gamble responsibly. Remember it’s just a game.” The American lottery MegaMillions, for example, has information about gambling addiction and a 24-hour hotline for anonymous consultation.

Applying this message obligation to crypto-assets would make it unacceptable to describe the purchase of highly volatile crypto-assets as an “investment.” Platforms like Coinbase and PayPal will have to put up warnings like, “Treat Bitcoin responsibly, remember it’s just a game.”

Ad limit

Recognizing volatile crypto assets as gambling will also restrict advertising in many countries. In 2021, advertisements for a cryptocurrency called floki inu filled London. “Missed the Dogecoin craze? Buy Floki,” the ad appealed to those afraid to miss the opportunity.

But the UK has very strict rules when it comes to gambling advertising. If Floki and other volatile crypto assets had been classified as gambling from the start, Floki’s advertising campaign would have had to overcome many hurdles.

What about the 2022 Crypto.com ad “Fortune favors the brave” starring popular actor Matt Damon? The ad tried to liken buyers of volatile crypto assets to intrepid explorers. Regulating volatile crypto assets as gambling would prevent ad creators from using vague analogies like this to lure people in.

Gambling regulatory frameworks, such as in the United Kingdom, explicitly prohibit gambling operators from reaching children through advertising. If volatile cryptocurrency trading is recognized as a form of gambling, crypto platforms will be prohibited from trying to attract users under the age of 18.

Finally, some US states and the UK restrict gambling with credit cards. This is to prevent the gambler’s addiction from snowballing into a much larger crisis involving family wealth. If this rule were applied to crypto assets, customers would not be able to purchase volatile crypto assets with credit cards and would have limited access to margin trading.

●

In short, the idea of ​​applying gambling regulation to crypto assets needs to be considered more concretely. There are many blockchain-based activities that are not gambling and should not be regulated as gambling.

But much of what happens on blockchain is gambling. It’s time for us to recognize that and regulate accordingly.

｜Translation and editing: Akiko Yamaguchi, Takayuki Masuda
｜Image: Shutterstock
｜Original: The Pluses and Minuses of Regulating Crypto as Gambling