The increasing popularity of anonymous digital cryptocurrencies is spreading to the world of online poker. Bitcoin is currently the most popular cryptocurrency boasting a $10 billion USD market cap. The growing interest in using bitcoins for online poker can be owed to the fact that they allow for near instantaneous, anonymous transfer of funds from one digital address or “wallet” to another, anywhere in the world, 24 hours a day. After the infamous US crackdown on online poker sites (Black Friday) in 2011, it has been a challenge for US poker fans to quickly and easily add funds to their favorite online poker sites. Bitcoin advocates seek to change this, but what are the pitfalls involved with this new world of digital currency?
1. Bitcoin inherent value is volatile.
In 2013, the value of a single bitcoin varied between $13 USD and $1200 USD. The current price is around $850 USD and has been relatively stable for the last few months after peaking at $1200. As the value of a bitcoin is determined by what others are willing to pay for them, the next few years will likely see more volatility before eventually stabilizing at a potentially much higher price. Because there are only 21 million bitcoins that will ever exist, the price per coin is predicted to keep increasing as more people become familiar with digital currencies and they are accepted at more businesses. Currently there are over 20,000 businesses that accept bitcoin as payment.
On the other hand, the value of an individual bitcoin could crash and everyone could be left holding nothing. This seems like an unlikely case considering the incredibly large amount of investment that has already been placed into network infrastructure and current businesses.
Overall, investing in a few bitcoins or fractions of a bitcoin now seems like a decent investment.
2. Bitcoin fund security
If you plan on holding large amounts of currency in bitcoin, it’s essential to download and install a bitcoin wallet. A wallet is basically your own decentralized bank where you store your coins and also transfer funds into and out of. There are several online wallets available as well, but they are more susceptible to being hacked. Your most secure bet is to send your coins to a software wallet, and then create a backup on an offline hard drive. You can also print out your bitcoin balance and information and store it that way as well. This is referred to as a “paper wallet.” More information about bitcoin wallets can be found here.
Bitcoin poker sites are susceptible to the same sort of attacks as other online gambling sites. When choosing a bitcoin poker site, make sure that they use two-factor authentication. This means that even if your username and password on the online site are compromised, any transfer of funds out of the site would still have to be verified via text message on your phone or through your email. Many bitcoin sites allow you to choose both options consecutively before any transfer can be made. Two-factor authentication will help ensure the safety of your account balance.
3. The future of Bitcoin
There remains a large number of legal and regulatory concerns with regard to bitcoin. In December 2013, the US Congressional Research Service issued a bitcoin report and came to the conclusion that concerns remain about the treatment of bitcoin under federal securities law and its status in the regulation of foreign exchange trading. The IRS continues to study virtual currencies and is debating whether bitcoin gains will be treated as capital assets subject to capital gains taxation (up to 24%) or as fiat currency which would be taxed as income (up to 43%). In January 2014, the fourth-largest bank in the US, Wells Fargo, has scheduled a summit with financial experts to determine their “rules of engagement” with bitcoin and to set up a new set of anti-laundering rules for financial institutions in the US dealing with cryptocurrencies.
Recent big-name bitcoin adopters including Overstock.com, Zynga, and Virgin Galactic, as well as the huge amounts of interest and investment in the digital currency world point to a rapidly changing financial landscape that will soon require serious decisions about the future of cryptocurrencies.
In the meantime, play well and play safe.