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Nightmares exist outside of logic, and there’s little fun to be had in explanations; they’re antithetical to the poetry of fear.
Stephen King, for Entertainment Weekly
Mr. King did, unsurprisingly, a fantastic job explaining how authentic fear stems from the unknown. Luckily, I am not trying to write the next horror bestseller but more of a collection of cautionary tales.
My goal is to explain how Bitcoin works and what you can do to protect yourself from becoming the victim of a similar horror story. That should replace your fear with a much healthier, informed vigilance.
We should start by getting familiar with the murder weapon.
Bitcoin is an asset, the way a real estate property is. However, Bitcoin only exists on the Internet.
This shouldn’t feel strange, considering that many of us view money as nothing more than numbers in a bank account nowadays.
Your bank keeps track of the money you send and receive and ensures you don’t get to “spend” the same money twice. Likewise, big data centers like those owned by Visa and Mastercard oversee card transactions worldwide.
Banking institutions have to abide by the regulations of local governments, among others, creating a multi-layered financial system meant to keep your money safe. All, of course, for a fee.
What sets Bitcoin apart from regular money, or fiat currencies, is that it is decentralized. This means that it is not controlled and regulated by any financial institution or government. There is no “central” authority that dictates a Bitcoin’s value or Bitcoin’s transaction fees.
Instead, it uses cryptography (think computer Pig Latin) to record all transactions on a public ledger that cannot be tampered with. Once a transaction is recorded on the ledger, it is there forever, available for everyone to see.
With fiat, financial institutions charge fees for processing transactions. But if there’s no bank involved in Bitcoin transactions, who processes the payments? Where do fees go?
Bitcoin’s ledger system, called a blockchain, comprises two types of agents - miners and nodes. These are basically just computers fulfilling two different roles, although some agents might do both jobs simultaneously.
This is where the whole “decentralized” story becomes vital. Just about everyone can take on the role of either a node, a miner, or both, granted they have access to a powerful enough computer.
Bitcoin is owned and controlled by everyone who buys it.
Transaction data is stored on the ledger in blocks. When you initiate a transaction, you broadcast it to the node network, which checks whether it is valid. If it is, nodes signal the miners that your transaction is pending.
Miners, in turn, pick a few of the pending transactions and add them to a block. To add the block to the ledger, miners need to solve a series of complex mathematical puzzles. Once solved, the solutions are checked, and miners get to collect the fees for the transactions included in the block.
Since miners are incentivized by these fees, in part, they will prioritize transactions that pay the most. Depending on the network congestion, users get to choose how much they want to pay in fees up to a certain limit, called a gas limit.
And this brings us to our first horror story.
The Half Million Dollar Fee
On September 10, 2023, a Bitcoin user paid a mind-boggling 19 BTC (valued at around half a million dollars at the time of writing) to transfer less than $2,000 worth of Bitcoin. The typical cost for a Bitcoin transaction at the time of this mishap was a mere $2.17.
Considering the user’s transaction history, it is unlikely that the error was caused by a lack of experience. Some assume it was caused by faulty software, while others believe the culprit might have been a fat finger.
What’s there to learn from this story? First - the amount of Bitcoin you’re looking to transfer does not matter. Whether the subject of this story was looking to transfer $200 or $2 million worth of Bitcoin, the $2 fee would have covered it.
Second, you’re responsible for your fees when transacting on the blockchain. There will be no customer service to call if your transaction fees make the headlines. Once a transaction is included in a block and distributed to the nodes, it is on the blockchain forever and cannot be reversed.
To start (cautiously) gambling at Bitcoin casinos, you’ll first need to buy some Bitcoin. As you can split a dollar into 100 cents, you can also split 1 BTC into much smaller denominations - practically indefinitely, so you can buy as much of it as you can afford.
To buy some Bitcoin, you’ll need to register an account on a cryptocurrency exchange. CoinMarketCap has a list of exchanges, ranked by trading volume. Like online casinos, most exchanges are legally required to verify the identity of their customers.
When you register an account on a reputable exchange, you’ll typically need to provide them with copies of your ID and proof of address, like a utility bill or bank statement.
Exchanges work a bit like an order book. You can “make an announcement” that you’d like to buy or sell some Bitcoin at a minimum/maximum price in fiat currency. Then, the exchange matches your order with the most advantageous available listing.
You could, theoretically, order 100 Bitcoin for $10.
However, your order would never be completed, since it won’t match any of the available listings. There are several order types you can use to your advantage, but most exchanges make it easy for beginners to buy without much fuss.
Once your order is completed, your newly acquired Bitcoin will be available in your balance, similarly to how casinos hold a balance of funds you’ve deposited, which brings us to our next horror story.
Not your keys, not your crypto
Crypto exchanges are the primary targets for hackers. Due to the irreversible nature of crypto transactions and the anonymity permitted by blockchain technology, stolen funds are almost impossible to recover, and it’s typically the customers of these exchanges paying the price.
In several cases documented by Investopedia, hackers stole billions worth of crypto from exchange services. Do you know what happens to the Bitcoins stored on hacked exchanges? Well, you don’t. No one does, apart from the hackers who’ll eventually get to spend them.
Since cryptocurrencies are not regulated by any government, there are no laws or safety nets protecting your funds from foul play. And it’s not only hackers you need to worry about. Just ask anyone who stored their crypto on FTX at the time of its collapse.
Collapse or, as federal prosecutor Damian Williams likes to call it, “one of the biggest financial frauds in American history.”
Well, for the purpose of this article, you’d obviously want to use it for gambling. But before you deposit at online casinos that accept Bitcoin, you first want to get a tight grip on it by sending it from the exchange to a wallet.
There are various types of crypto wallets, each serving different purposes. Beginners can usually rely on a wallet such as MetaMask, which is just a browser extension that lets you interact with the Bitcoin blockchain.
In reality, Bitcoin wallets don’t store your Bitcoin the way a physical wallet would store your cash. Instead, these are tools that generate a unique address on the blockchain where you can send your Bitcoin.
Cryptography is nothing but letter scramble (for the purpose of this guide). When you register an account for a crypto wallet, you generate a pair of unique keys - a public and a private key.
A private key is a secret, alphanumeric string of characters. You would use this to “sign” your transactions, proving ownership of your Bitcoin. Here is an example of what a private key would look like.
5Kb8kLf9zgWQnogidDA76MzPL6TsZZY36hWXMssSzNydYXYB9KF
A public key derives from your private key and is used to generate the address on the blockchain where your Bitcoin is stored. Here is an example:
048a7eef766f233d7c2f57e3e3b1b4ae814ca565d6b1b6fb0e84c81b8a77e1e3e5d4b22943dd7f7d8f1b45a48561b5ea54a1727e057e6ba1cbf3cd4a253fdabd6f5
You’ll notice the key always starts with 04. In practice, when using online services like crypto exchanges or wallets, this key would be compressed to a smaller length. In that case, it would start with 02 or 03.
“Not your keys, not your crypto” is a popular saying among crypto enthusiasts. What it means is that, even if you buy some Bitcoin, you don’t have full ownership of it until you have it at an address generated by your own keys.
Bitcoin stored on exchanges or in some of the e-wallets that allow you to buy crypto (like PayPal or Neteller) is not completely yours, and you should ensure you’ll get your hands on your keys as soon as possible.
Lost Keys Heart-Attacks
Chainalysis estimates that around 3.8 million Bitcoins (currently worth about $140 billion) were stranded in wallets after their owners forgot their keys.
There are plenty of stories involving would-be multi-millionaires who can’t access their Bitcoin and probably think about it a lot during their commutes.
Like this German programmer who sits on a $200 million fortune. Or all of these people whose stories were curated by Coinnounce.
To ensure you won’t end up a sad statistic, I recommend you write your keys on a piece of paper (or several) and keep it safe somewhere where only you can access it.
Warning
You should never take screenshots or copy your keys in a digital file on your computer. This makes it easy for hackers to steal your keys and, consequently, your funds.
To deposit at online casinos that take Bitcoin, you need to go to your Cashier section and initiate a deposit. Choose Bitcoin as your payment method. At this point, you’ll receive the casino’s Bitcoin address. Have this readily available, and let’s move to the actual transaction.
After you confirm, you will broadcast your transaction to the blockchain. When miners include your transaction in a block, you’ll receive a confirmation in your wallet. You’ll receive another confirmation when the block has been added to the blockchain, and your Bitcoin has been sent.
Withdrawing from online casinos accepting Bitcoin is a lot easier. You just need to go to the Cashier section and initiate a withdrawal. Choose Bitcoin as the payment method, and you’ll see a field where you can copy your wallet’s address.
Review your transaction and confirm it; then, you’ll need to wait for the confirmation. Whether the transaction fee is supported by the casino or deducted from your balance should be covered in the Terms and Conditions page of the casino.
Keep in mind
Bitcoin transactions are typically much faster than fiat transactions, but the casino will still need to process your payment internally. Casinos need to ensure your funds did not result from bonus exploitation and that you complied with their terms.
If everything’s fine, you will receive a confirmation when the casino initiates the transaction. From there, you can expect to have your Bitcoin in a few hours, maximum.
Casino games are coded to accept a range of bets in coins. Depending on the casino, these coins can represent various currencies.
For example
A slot might accept bets ranging from 0.1 to 100 coins. A U.S.-based casino using USD will allow players to bet between $0.1 to $100 for each spin.
Due to the highly volatile nature of Bitcoin and the need to divide 1 BTC into much smaller units for wagers, casino games need to be modified to accept BTC for wagers.
Many reputable software providers, such as Pragmatic Play or BetSoft, have started adjusting their games to accept cryptocurrency bets and have included features that make tracking your spending more manageable.
Typically, online casinos will use smaller Bitcoin denominations since loads of zeroes can get quite confusing. Here’s a breakdown.
| Denom. | Symbol | BTC value |
|---|---|---|
| Milibitcoins | mBTC | 0.001 BTC |
| Microbitcoins (“bits”) | μBTC | 0.000001 BTC |
| Satoshis (“sat”) | s | 0.00000001 BTC |
Moreover, in most casinos that accept Bitcoin, you can opt to display your Bitcoin balance in its fiat equivalent while gambling, even though you’re wagering the Bitcoin you’ve deposited and will, ultimately, withdraw Bitcoin.
Freak’s Tip
Personally, when playing at crypto casinos, I like having two separate balances, displaying my funds in crypto and fiat. It makes everything a lot less confusing since I don’t have to reinvent the wheel and get used to gambling crypto values, but everything’s nice and clear by the time I want to request a withdrawal.
Bitcoins are not owned by any government. Therefore, Bitcoin winnings are not subject to any kind of tax. If you gamble with Bitcoin and transfer your winnings to your wallet for safekeeping, you won’t have to pay anything.
However, you will typically need to pay taxes for the following activities:
Taxes are calculated based on something called your “cost basis.” If you purchase 1 BTC for $10,000, that’s your cost basis, and it will be used to determine any capital gains or losses from selling it afterward.
The tax rate and other details will vary depending on your country, so you must get familiar with these details before you start dabbling in crypto.
| Country | Typical Tax | Tax deduct. | Crypto Tax Guide |
|---|---|---|---|
| The United States | Assets held for more than one year are subject to a 0%, 15%, or 20% capital gain tax, depending on your tax bracket | Up to $3,000 per year, with the possibility of carry-over | TaxBit Crypto Taxes |
| Germany | Profits over 600 EUR are subject to regular income tax up to 45% + 5.5% solidarity tax unless crypto is held for more than one year | Offset losses with gains, no maximum limit, with the possibility of carry-over | TokenTax Crypto Taxes |
| The United Kingdom | 20% capital gain tax for income up to £50,270; up to 45% for income over £150,000 | UK players have an up to £6,000 Capital Gains Tax-Free Allowance. You can further deduct certain expenses, such as the initial fiat investment and pre-blockchain fees. | Blockpit Crypto Taxes |
| Spain | 19% tax on profits under 6.000 EUR, 21% up to 60.000 EUR | Losses can offset up to 25% of the net profits per year, with the possibility of carry-over. | Blockpit Spain Crypto Taxes |
A Thank You Note
If you thought the countries above were chosen randomly, you should think again! I covered the essential details for players from CasinoFreak’s top countries by the number of visits. This is our way to say thank you for sticking with CasinoFreak and helping us build a community we’re proud of. Stay awesome!
Enforcing these taxes is a whole other demon. It is challenging to keep track of what you owe as a player, and governments worldwide have plenty of issues collecting taxes from pseudo-anonymous transactions.
The International Money Fund has an in-depth article explaining the problematic nature of crypto-taxing, along with some speculation on how this might look moving forward.
And speaking of governments and regulations, here’s the scariest story of the day.
The Horror Above
Imagine you got into crypto and decided that’s the best way to make gambling transactions from now on. You keep your entire gambling budget and all the funds you’ve withdrawn lately in your Bitcoin wallet. Great choice!
Now, imagine that all of a sudden, your country bans Bitcoin. For good. This has happened to people in China and 17 other countries so far. It will be a long time until global governments agree on what crypto legislation should look like.
The market is still widely unregulated, but this is subject to immediate, unnotified change. You can take all the precautions, play at the safest casinos, and avoid phishing and cyberattacks all you want.
If your country forbids trading and owning Bitcoin, you’ll lose access to your funds, and there will be nothing you can do about it.
So, here’s what’s up. I love Bitcoin and blockchain technology for the sake of them. It is my personal opinion that crypto-assets are fantastic to own, if only for their disruptive capacities.
But, as much as I’d like to see more and more people using Bitcoin for their daily transactions, supporting the dream of a decentralized financial system, the Bitcoin gambling space is a bit of a mess. Here’s what I mean.
Crypto casinos give me the jeebies.
Most of them operate without licenses and abide by no regulations. Some will even let you play without a registered account, never mind an identity verification. This makes it way too easy for vulnerable people, such as minors and self-excluded players, to start gambling.
Moreover, due to the lack of regulatory authorities, no one can protect you from scams and data privacy breaches. And if your crypto casino suddenly goes offline or bankrupt, you won’t get any of your funds back.
Bitcoin transactions are exceptionally secure but leave ample opportunities for errors.
Someone who is not exactly tech-savvy might make a lot of mistakes and lose funds by accident. Moreover, if you’re not careful enough every step of the way, you might become the victim of an attack.
Losing or forgetting your wallet credentials, accidentally sharing your private key, or clicking malicious links are ways to lose your funds permanently.
A great tip is to start making the smallest possible transactions until you get used to the process. This should help you avoid any potentially damaging mistakes in the future.
The value of Bitcoin compared to fiat currencies is highly volatile.
You can’t time the market, and there’s nothing you can do if the Bitcoin you bought yesterday is now worth 20% less. You need to be aware that the value of your deposits and withdrawals might change drastically, leaving you with a lot less to play with.
On the flip side, the value of Bitcoin might also go up unexpectedly, so this might be a blessing in disguise for those of you who like to live dangerously.
So, is Bitcoin gambling actually safe? Is it worth it?
Theoretically, yes. Bitcoin transactions are safe and secure. If you’re confident you can follow the steps and are not too worried about everything that could go wrong, you’ll probably have a good time gambling with Bitcoin.
You just need to remember:
These rules should be enough for you to have a pleasant time at a Bitcoin casino. If you’re confident that Bitcoin is the best choice for you, some research goes a long way, so make sure you read everything you can about this technology.
What's the alternative?
All cryptocurrencies fall under pretty much the same issues when it comes to online gambling. However, a great alternative that allows a level of anonymity and is still safe, secure and easy to use is Paysafecard.
The service allows you to purchase prepaid vouchers that you can use to deposit in a large number of online casinos with a few clicks. Moreover, prepaid vouchers are useful for keeping your gambling budget under control. We've got a hefty list of Paysafecard casinos you can try if you're a bit disappointed by the state of crypto payments in gambling.
