Cryptocurrency technologies are rapidly evolving from speculative assets into functional infrastructure for payments, but key for any widespread adoption in the gaming industry is knowing customers and the source of funds.
The panel discussion on the tradeshow floor at the Indian Gaming Association conference Wednesday was moderated by Danielle Schelble, assistant general counsel for the Arizona Department of Gaming. It featured Thomas McDonald Sr. director of Cage, Credit & Digital for the Choctaw Nation of Oklahoma, and Omer Sattar, CEO and co-founder of Sightline Payments.
Sattar said there’s a lot of confusion about cryptocurrency and what it should be used for, but tribal casinos should ask themselves a fundamental question: What is your “north star” in deploying and building any framework for crypto? “Do you know who’s bringing in the money and where it’s coming from? That’s the only question you have to ask yourself.”
Sattar said that’s important because cryptocurrency can be used by bad actors and if the industry can’t identify customers using crypto, “there’s no framework for deploying crypto in gaming.”
McDonald said that before they started accepting cryptocurrency, they worked with their anti-money-laundering team, then consulted with gaming regulators. When the compliance team and regulators were comfortable with the concept, the tribe implemented it.
Schelble said even though you can track the source of funds better than in the past, there are issues like mixers, where funds are pooled to hide where they’re going. Bridges switch crypto from one blockchain to a different type. “All of those things can help hide where funds are, who has them, and what type of crypto you own.”
McDonald said that with blockchain analytics, casinos are dependent on a company flagging the wallet.
“The government knows more about people than wallets,” McDonald said. “One of the big parts to this that made me comfortable to try this was having customers submit a casino-credit application first. We did our due diligence on the person and looked at the analytics of the wallet. There’s a lot of be-careful type of stuff out there.”
Sattar said most people have one or two bank accounts, but money launderers can create crypto accounts on multiple chains. They can have seven accounts that are all anonymous and move crypto between them.
“These analytics companies check to see how many hops this money takes before it gets to gaming,” Sattar said. “One of the recommendations we’re making to gaming regulators is that there should be a definite cutoff. If the money has hopped more than two or three accounts in the past 30 days, block and flag that account.”
Sattar said prediction market Kalshi accepts deposits from crypto wallets up to $500,000 per transaction.
“That wallet is entirely anonymous. The wallet in Syria or North Korea. They know who I am but they don’t know I’m using someone else’s wallet. That’s what you don’t want to be doing.”
Schelble said she recently attended an AML, FinCEN, and technology conference in New York and the message in the banking space is, “You not only have to know your customer, but you have to know your customer better than you did before. You need a back-and-forth dialogue with them to explain why they made that transaction and who is that over there. If you can’t do that, you should be very careful.”
That’s especially true, since people who buy and sell crypto as investments are more apt to have gambling problems, since it’s the same type of risk taking. “Casinos that jump into crypto acceptance without confirming that their customers want it risk spending a lot of time and money on infrastructure and policies and procedures for something that might not bring them meaningful value,” she said.
McDonald cited problems with taxation that need to be overcome to have widespread adoption. “We found that the overwhelming majority of people don’t want to use crypto. Liquidating it is a taxable event, so does someone want to do it, then pay tax on it? I don’t know that the U.S. is there yet.”
There are also issues with using crypto for payments. Sattar said debit card transactions are immediate. The problem with crypto is it’s too slow for payments; the processing time is three to five minutes for Bitcoin.
Among other takeaways for tribes implementing crypto is the issue of whether casinos should hold crypto. Sattar applauded McDonald for not taking the risk of having crypto, because the price is so volatile. “Gaming operators shouldn’t be crypto-holding companies.”
The good news is the cost of crypto is cheaper than the cost of debit or credit cards, Sattar said. “For operators, there is economic sense in understanding what that looks like,” Sattar said. “There is a meaningful cost difference.”
There are opportunities for the gaming industry despite the issues the industry has to deal with, Sattar said. For those who have digital sports betting or igaming, about 20% to 25% of the volume is going to come in from crypto accounts. “We think it’s going to be pretty significant, but the rules have to be written in the right way,” Sattar said.
