A player at Seals With Clubs (SwC) has reported that Bitcoin exchange Coinbase has cancelled his access to their services after he made a deposit onto the Bitcoin only site.
btckeychain, Creative Commons Attribution 2.0 License

A player at Seals With Clubs (SwC) has reported that Bitcoin exchange Coinbase cancelled his access to their services after he made a deposit onto the world’s leading Bitcoin-only online poker room.

Coinbase stated that it is “a regulated Money Service Business under the FinCEN division of the U.S. Treasury Department” and erroneously claimed that gambling “is illegal under US law.”

The message went on to caution that “even if you live outside of the US we cannot provide services to your account for the purpose of any type of gambling activity.”

Coinbase is a leading Bitcoin exchange. Its online wallet service allows consumers to store Bitcoins, receive them from others, and send them to merchants. However, its website provides a list of “Prohibited Businesses” which are barred from Coinbase services.

The list includes businesses dealing in activities such as prostitution, stolen goods, extortion, counterfeit products and other illegal undertakings. However, one prohibited business type sticks out for its lack of concern over its legality: gambling.

Easy Fixes

Theoretically, Bitcoin transactions can be traced; however, the identities of the individuals performing those transactions remain mostly anonymous.

The player who reported the problem on Reddit was provided with plenty of advice for how to get around the restriction including using a BlockChain account and unlinking transactions.

Bitcoin Regulation

FinCEN decided that it would take responsibility for Bitcoin back in May, 2013.

It issued a new definition in its regulations which stated that “a person is an exchanger and a money transmitter if the person accepts such de-centralized convertible virtual currency from one person and transmits it to another person as part of the acceptance and transfer of currency, funds, or other value that substitutes for currency.”

Coinbase is backed by such legendary figures as Marc Andreesen, who co-wrote the first internet browser and made a fortune converting it into Netscape.

Andreesen sits on the Board of Directors of Facebook, Hewlett Packard and EBay, and in the last few days, the news broke that Coinbase was in talks with Ebay and Paypal, which could lead to them acting as Bitcoin processor for the two companies.

The potentially enormous deals, may be causing Coinbase it to look closely at any transactions which could cause US authorities to look on the business disparagingly.

Culture not Law

While the Coinbase email to the player obviously gets the law on gambling wrong—it is stating more than the facts, it is echoing a cultural belief prevalent following the passing of the UIGEA.

This belief, that all online gambling in the US is illegal, and that it is not a source of profit, but a source of risk, is one reason why the New Jersey market and Nevada market have seen lower than expected growth—the big banks do not want to process gambling transactions.

There are some signs that the culture around online gambling may be changing.

It was recently discovered that following its long hardened stance against igaming, PayPal is considering processing online gambling transactions where they are really legally regulated within the US. The company already processes such transactions overseas.