Coleman Watson

Gambling with Bitcoin at Internet Cafes May Be on the Horizon

Crime, Innovation, Interviews, Regulation | July 19, 2017 By:

Coleman Watson is the Managing Partner of Watson LLP, a Florida law firm that specializes in patents and intellectual property. His current interest is a series of Internet cafes that would challenge gambling restrictions in certain jurisdictions by using bitcoin as its payment method.

State and local authorities have previously shut down similar operations, which once had an estimated gross of $10 million a year for each location in various states, according to reports.

Known as Internet sweepstakes cafes, the venues sell time on computers that have the look and feel of slot and video poker machines, offering cash payouts for winners. However, Coleman believes that using bitcoin instead of cash, particularly in jurisdictions that have no laws governing the cryptocurrency, may provide an angle against existing laws.

Watson talked with Block Tribune about this emerging sector and its potential ramifications.

BLOCK TRIBUNE: What is the issue in general here? Can you give me the broad strokes?

COLEMAN WATSON:  Sure. I’ve had a lot of clients come to me recently who want to start Internet cafes using bitcoin only, not traditional currency. Because, as I’m sure you’re aware, all the Internet cafes that popped up, let’s say five, 10 years ago, using this business model, have all since been shut down for alleged illegal gambling, because you have all the traditional elements of gambling there with price, chance, and consideration.

What I’ve been thinking a lot lately is potential clients and one current client who have called and they basically want to reinvent the notion of an Internet café by using bitcoin. The idea is to have a one-way bitcoin ATM located in the café and to have a one-way transaction to put bitcoin into your wallet. And to play, just like you would normally in a traditional Internet café, and win or lose. And if you win, then bitcoin would go to your wallet online. There’d be no exchange allowed inside the café. You couldn’t redeem the bitcoin for anything. You cannot go back to the ATM and take anything out. It’s purely just a way for you to insert money in and then to basically use the computers for purposes of playing with bitcoin.

BLOCK TRIBUNE:  How widespread are these cafes?  

COLEMAN WATSON:  Ironically, I’ve gotten all these calls within about the last year or so. It seems like several people have had the same idea in different parts of the country. Have not seen one successfully launch yet, but that is the idea behind it.

BLOCK TRIBUNE:  It seems like a distinction with little difference. I mean, you’re still promoting gambling, are you not, when you create these things? Whether you’re paying with bitcoin or cash. Is it the fact that bitcoin is not considered a legal currency in some jurisdictions that makes it potentially okay?

COLEMAN WATSON:  That would be part of it because the traditional elements of gambling are prize, chance, and consideration. First of all, if you are having a situation where you have a one-way ATM and you are not conditioning playing any of those games on the absolute use of that ATM in the cafes, my opinion is you’re technically not requiring consideration because someone who already has a BitPay account or any other account through a merchant who has bitcoins that they can access, they don’t have to actually get those from the café itself, or they don’t have to get those from the ATM itself. There’s really actually no consideration exchange if you’re going and you’re using those. So right off the bat, you have one less element of gambling than you would normally have.

BLOCK TRIBUNE:  Can you get a measure of protection by creating your own alt-coin token and using that instead of bitcoin and removing the transaction one step beyond?

COLEMAN WATSON:  That’s a good question. I think it’s certainly possible to do that. I haven’t had an issue like that yet with a client. But I think it’s probably a creative way to have a solution to it for sure.

BLOCK TRIBUNE: So, basically what we’re doing is someone is going to start this and then there will be a test case of some sort. Is that what you’re looking toward?

COLEMAN WATSON:  Absolutely. I mean, everything I’ve dealt with so far under bitcoin seems to be a test case. Especially what happens now. Even if it’s fully vetted by a law firm, and you go out and someone starts a business like this, a lot of the stuff is going to be regulated at the county level. And what’s going to happen is a County Sheriff’s officer or a police officer’s going to show up who may or may not be tech savvy, may not understand the technology, and he’s going to issue a citation or a notice to shut the business down. Then, all you can do is challenge it legally. No Attorney General in any state is going to give a private person an advisory opinion. It’s really just trying to fit into the framework of the existing statute. May not bring it into the 21st Century, obviously, with something like bitcoin that wasn’t contemplated when these statutes were drafted, some over a 100 years ago. And the threshold for risk has to be pretty high for a client to want to do that.


COLEMAN WATSON:  But that’s really the only way it’s going to have any clarity around it is to be challenged.  At the state level, then eventually at the federal level.

BLOCK TRIBUNE:  Is there anyone out there that you’ve been in contact with or know of that is contemplating starting one of these cafes in the near future?

COLEMAN WATSON:  I do. I have a client over in Tampa area  in Florida who’s putting everything in motion to get it started. Not sure if they’re going to go through with it yet, but that’s their intention when they contacted me. I think it’s probably going to happen. ,

BLOCK TRIBUNE:   Is Florida particularly amenable to this thing versus any other state?

COLEMAN WATSON:  No, I think this is just a function of where the client lives, in this instance. I don’t think Florida’s any more or any less favorable.

BLOCK TRIBUNE: If your client gets started in this business and is running successfully, what do you see happening from there? Will this person start to franchise these, or will other imitators spring up rapidly? How do you see it playing out?

COLEMAN WATSON:  I think what’s going to happen, honestly, is nobody else will jump in at first until they see how law enforcement reacts to this. I suspect they will react in some kind of way and it will be challenged legally by someone. If not us, then someone else. I suspect the first step innovators who want to get in probably will wait a little bit to see what shakes out on this. If, in fact, my client is the first one that goes. But I don’t expect anybody to jump on the bandwagon, so to speak, right away just because they see one other person doing it.

BLOCK TRIBUNE:    What games will be played or contemplated? Will this be adaptable to a whole range of games, or limited to games of chance like poker or blackjack?

COLEMAN WATSON:  Well, I know in my experience, regardless of the name of the game or which one it is, I tend to really council towards the skill based games.  So we don’t tread too far to a pure chance game, like sticking a dollar in and just seeing what happens, because that would obviously cut really close to gambling. Pachinko or skill-based games is certainly something that I would suggest. In this situation for my client, they were considering implementing some sort of trivia type component into the game. Your chances, obviously, would be greatly improved based on your knowledge of whatever topics the trivia’s testing on. So trying to really make it a skill game.

BLOCK TRIBUNE:  I’m based in California, where we have a number of casinos on Indian reservations. Is that where the first of these cafes may be contemplated?

COLEMAN WATSON:  Yes, I think so. Yeah, definitely similar to California in that respect. We have the same Indian reservation type things here as well. I don’t really foresee a casino being interested enough in this, right now, off the bat, to use it as a test case, so to speak.

BLOCK TRIBUNE:  Do you foresee any age restrictions or any other barriers to doing this sort of thing? I mean, will the youth of America be corrupted into gambling because of this?

COLEMAN WATSON:  It’s always the question, right? Every gambling type issue. Well, I don’t know. I think a lot of this comes back to personal responsibility and teaching children about the responsibility of different things they’re getting involved in. Also teaching them about gambling and the addictions of that.

The one thing I would say about this is the more skill we implement, especially if it’s skill that you can’t really expect a six, seven, eight, 10-year-old to have, then it’s going immediately not make them interested in doing it. If it’s hard trivia, they’re not going to play because they wouldn’t possibly know what the answers are. To me, there’s no danger in this being treated as gambling or coming up with the evils of gambling, so to speak, like a lot of these gambling games have because of that component. And I know my client’s really concerned about that as well. And that was one reason to implement some kind of complex trivia system into so the average Joe who’s a kid, is not going to be able to participate anyway.