The digital currency bitcoin -- once used to facilitate online drug deals -- now appears to be enabling people to get around regulations banning online betting.
Predictious.com, a new company from Ireland, offers a "prediction market" that allows people to bet on everything from the U.S. presidential election to the Olympics and the Oscars. And it’s all made possible by bitcoins.
Betting of this sort is a legal gray area in the U.S., where the federal Commodity Futures Trading Commission (CFTC) decided in a 2012 regulatory order not to allow prediction markets on the grounds that they are "contrary to the public interest."
The CFTC recently sued the popular prediction market Intrade.com for operating without a license, which forced the site to shut down.
Predictious.com, which started last July, has the same model as Intrade – except that it accepts only bitcoins, allowing it to receive funds quickly from Americans despite regulations that forbid banks to transfer money to it.
'I bet on the Seahawks and won a very modest amount of bitcoins.'
- Eli Dourado, a tech policy researcher at the Mercatus Center at George Mason University
Bitcoins are virtual currency unconnected to any country, unlike every other currency on earth. It has no physical form in paper or coin; instead computers “mine” bitcoins by generating new ones at specific durations and depositing them into virtual bank accounts.
While the CFTC forbids prediction markets that use cash, it is less certain that it will go after one that uses bitcoins.
“There is no way I can answer [that]. Too speculative for us,” CFTC spokesman Steven Adamske told FoxNews.com.
Meanwhile, three thousand people on Predictious.com are using bitcoins to bet on everything from politics to entertainment. The site’s bettors suggest that the movie “12 Years a Slave” has a 60 percent chance of winning Best Picture; that Republicans have a 50 percent chance of taking the Senate in November; that Hillary Clinton has a 33 percent chance of becoming president in 2016; and that the U.S. has about a 50 percent chance of winning the most medals in the Sochi Winter Games.
The founder of Predictious.com, software developer Flavien Charlon, said he always wanted to create a prediction market, and that bitcoin solved the problem of transferring money.
“With all the legal problems and regulations, that made it almost impossible to start a prediction market. But when I found out about bitcoin I thought: ‘That’s the perfect thing for this.’ Almost right when I discovered bitcoin, I started to work on this project,” he said.
Some Americans are happy to have a place to bet online.
“I used Predictious to bet on the Super Bowl. I bet on the Seahawks and won a very modest amount of bitcoins,” Eli Dourado, a tech policy researcher at the Mercatus Center at George Mason University, told FoxNews.com.
He said that such markets would be good for society.
“This is valuable information that the public should be free to access… During a political campaign, you may not know how to weight the different polls that come out, or how to interpret the bluster that emerges from each side, but the market price of each candidate on one of these sites represents a summary of what people who are willing to put their own money on the line believe.”
That is not how the government sees things.
“[Prediction markets can] have an adverse effect on the integrity of elections, for example by creating monetary incentives to vote for particular candidates even when such a vote may be contrary to the voter's political views,” the 2012 CFTC order reads.
Some prediction market experts, noting that the law generally does not specify what currency is used, are wary about whether betting with bitcoins can effectively escape government regulation.
“I'm pretty sure that one can't evade gambling or securities or commodities regulations by trading in francs or yen instead of dollars,” said Robin Hanson, an economics professor at George Mason University and the chief scientist at Consensus Point, which designs prediction markets that companies use to reach internal decisions.
Hanson is also skeptical about the reach of the new prediction market.
“You'd want the cash used to be something easily available to many potential users,” he said. “At the moment, bitcoin doesn't look so good on that.”
“Once regulators decide the trades are illegal they have lots of things they can do to shut it down. Witness Silk Road,” Hanson added, referring to the online bitcoin-only drug market that survived anonymously for several years until the FBI identified the creator.
Charlon said regulation is a concern, but Irish regulators have so far been fine. Gambling and prediction markets are legal in Ireland.
“Irish regulators don’t have any guidelines regarding bitcoin yet. When they do start to come up with them, we are going to try to proactively work with them,” Charlon said.
Predictious.com is still small; Charlon said the total amount of bitcoins that customers have sent to the site is worth around $500,000.
But Dourado is hopeful about bitcoin prediction markets.
“The requirement to use the banking system meant that it was relatively easy for the U.S. government to regulate Intrade,” he said. “It remains to be seen how much effort the government will want to invest in limiting bitcoin-based prediction markets, but since these markets could create a lot of value, I hope we can all come to a live-and-let-bet arrangement.”