Do cryptocurrencies represent an opportunity for online gaming in Argentina?
Agustín Díaz Funes suggests that crypto could be the way to tame the illegal market
Online gaming in Argentina faces a hard truth: according to a recent study, illegal operators have an 80 percent share of the market. Despite great efforts made throughout the country by the different local regulatory authorities, illegal businesses are booming while stringent regulation is imposed on the few legal operators.
While the cause may be attributed to many factors – from economic factors to complex institutional structures or even the lack of awareness from players themselves as to the illegal nature of the operations they are playing with – one key element remains: illegal operators make use of intricate networks that obfuscate any possibility of funds being traced.
This lack of traceability of funds could open an interesting opportunity for a technology that allows for full transparency and traceability. A technology such as cryptocurrency.
In this article, we will take a closer look at the legal gaming industry in Argentina, both from an institutional and operational perspective. We will also examine the structure of illegal operations and discuss the current legal status of cryptocurrencies in Argentina. Finally, we will explore how cryptocurrencies may provide an opportunity to combat illegal gaming activities.
Argentina is a complex country. It has the eighth-largest land mass in the world but is one of the least densely populated. Almost half of the economically active population (42.2 percent) works in the unregistered sector. In the last two decades, inflation has been steadily rising – according to the Central Bank of Argentina, it is forecasted that the country will close 2023 with a 169.3 percent inflation – and its currency has lost almost 98.3 percent of its value against the US dollar in the last decade.
Furthermore, this complexity is also present in its political organization. Argentina, by its constitutional design, has a federal structure. However, unlike other federal countries, the Federal Government dominates the political landscape, having major powers to regulate commercial, civil, and criminal matters delegated by the provinces through the National Constitution. For example, in 2016 the National Congress modified the National Criminal Code and included among criminal acts the offering of unauthorized gaming and gambling products. Banking and AML regulations are also imposed by the National Congress.
However, this is not the case for gaming regulation. From the nation’s inception, gaming has been an industry that was regulated by the provinces. This led to the atomization of gaming regulation: in one country there are 24 gaming regulatory bodies with control over their jurisdictions, 23 provinces and the Autonomous City of Buenos Aires which has constitutional recognition as an autonomous territory. It is worth noting that despite the existence of multiple jurisdictions, they share common ground through the Argentine State Lottery Association (ALEA) which brings together the provincial authorities and private sector entities.
While all the provincial regulations share some similarities, each should be analyzed on a case-by-case basis. For this article, we will be focusing on the regulation of three jurisdictions: the Province of Buenos Aires (“PBA”), the Autonomous City of Buenos Aires (“CABA”), and the Province of Córdoba (“Córdoba”, and all together, the “Jurisdictions”).
Online gaming regulation in the Jurisdictions
Online gaming has been regulated by the CABA and the PBA since 2018. At present, there are 11 registered online gaming agencies (operators) in CABA, and licenses are issued for a period of five years, with the possibility of one renewal for another five years. CABA does not impose any restrictions on the number of licenses that can be granted.
In PBA, by contrast, due to a statutory restriction – online gaming was introduced by a provincial law that determines a fixed number of licenses – PBA can only grant seven online gaming licenses. Currently, it has granted all its licenses, and there are four active operators.
Córdoba has a similar restriction to PBA. It can only award ten licenses, but the regulation is slightly more flexible and allows for ten additional licenses to be awarded if deemed appropriate. Córdoba’s first tender opened at the end of 2022 and ended at the beginning of 2023. The tender was closed with mixed results: out of the ten submissions, only eight licenses were granted but four were revoked. It is expected that the four remaining operators will go live through the remainder of 2023.
Besides the restriction on the number of available licenses in some of the Jurisdictions, there is a common restriction through all three districts: a currency restriction that establishes the Argentine peso as the sole currency for all operations and some form of banking reserve for all the funds of the players. This banking reserve in the Jurisdictions is allocated in the provincial banks of each jurisdiction.
Although adoption and regulations are advancing, as they arise from the current restrictions the local regulations have a long road ahead.
With a solid understanding of the regulatory gaming landscape in place, we now delve into the intricate network of illegal gaming operators. First and foremost, how do players discover these gaming websites?
As previously mentioned, most players are unaware that they are engaging with an illegal website. Their only knowledge is that they are participating on a platform claiming to operate under a license issued by an overseas authority.
To further exacerbate this issue, illegal operators have found the ideal advertising partner in social media. In such cases, many influencers are as oblivious to the illegality of the business they promote as the players themselves, and there have even been instances involving high-profile celebrities associating with these illicit sites.
The combination of ignorance and the presence of public figures associated with these sites in the media creates a compelling case for players to believe they are engaging with an authorized entity.
However, mere awareness of these sites would not be sufficient without an efficient payment system that funds players and facilitates gambling activities. This is where key figures in the operation come into play: “Cajeros” (bookies), “Respaldos” (backers), and “Administradores” (administrators).
“Cajeros” serve as the public face of the operation. They are responsible for attracting players, creating accounts, and most importantly, acting as intermediaries with the “Respaldos,” who provide the funds players use on the platform.
In contrast, “Respaldos” are tasked with ensuring liquidity for the “Cajeros” and handling payouts for players looking to cash out. Lastly, “Administradores” are responsible for recruiting new “Cajeros,” and successful “Cajeros” may ascend the ranks to become “Administradores.”
Funds circulate among players, “Cajeros,”, “Respaldos” and “Administradores” through payment accounts offered by companies under the purview of the Central Bank (“CB”) but distinct from traditional financial entities, cash, and cryptocurrencies. Many of these accounts are available for purchase on online marketplaces. The use of diverse accounts by “Cajeros” and “Respaldos” presents significant challenges in tracking fund flows and determining their ultimate destination.
The dominance of an illegal market creates several issues. Firstly, the local government is not able to collect taxes from the operation of these activities. Secondly, there is no assurance of any Anti-Money Laundering (AML) procedure in place. Lastly, there is no responsible gambling application which is highly problematic as there is no guarantee that minors are not accessing these products.
Legal status of cryptocurrencies
Cryptocurrencies are legal in Argentina, and, unlike gaming and gambling, their regulation falls under the scope of the National Congress. At the time of writing, there is currently a bill being debated which adopts many of FATF’s recommendations on virtual assets. For instance, the inclusion of a specific license for the offering of virtual assets in the form of a “virtual assets service provider”.
Despite this lack of a specific regulation regarding these assets, different government bodies have issued regulations addressing the matter. In the first place, the Financial Information Unit (a regulatory body similar to FinCen) issued in 2014 a resolution in which it stated that all obliged subjects shall practice enhanced due diligence on clients that are involved with these assets.
The National Congress and many local legislative bodies have imposed taxes on the purchase and sale of these assets as well as gross income taxes. The National Tax Authority established reporting obligations on platforms offering the sale, purchase, and custody of these assets.
However, the regulatory body responsible for the most regulation may be the CB. Last year, the CB issued a prohibition on financial entities regarding the offering of any kind of cryptocurrency or cryptocurrency-related products. This prohibition was later broadened to include payment accounts as well as offering companies.
Notwithstanding this lack of specific regulation of cryptocurrencies, and some form of exclusion by regulatory bodies, the latest “Crypto Adoption Index” published by Chainanlysis shows that Argentina is the fifteenth country when it comes to crypto adoption (second only to Brazil in the LATAM region), and the twelfth in retail-oriented products. This shows that Argentina boasts a technologically savvy population that is familiar with this technology that, to a certain extent, serves as a proxy for US dollars.
Seizing the opportunity: how cryptocurrencies can transform Argentina’s online gaming industry
In a landscape where illegal gaming operators thrive, the need for innovative solutions is becoming more pressing with each passing day. The introduction of cryptocurrencies into the equation opens up a world of possibilities. Here, we examine the potential benefits that cryptocurrencies could bring to Argentina’s online gaming industry.
In the first place, one of the most significant advantages of cryptocurrencies lies in their inherent transparency and traceability. Each transaction on a blockchain ledger is recorded, immutable, and publicly accessible. This means that every movement of funds, from player deposits to payouts, can be tracked and audited in real time. Such transparency can act as a deterrent to the networks frequented by illegal operators who thrive on the benefits of untraceability provided by black-market payment accounts.
Cryptocurrencies are renowned for their robust security measures. With cryptographic encryption and decentralized networks, players can have greater confidence in the safety of their funds and personal information. As players become more aware of the enhanced security provided by cryptocurrencies, they may be more inclined to choose legal operators that offer this payment option.
As mentioned in “Online gaming regulation in the Jurisdictions” section, the current regulation requires bank reserves in provincial banks. This requirement generates transaction fees and delays, which can deter players from participating in online gaming. Cryptocurrencies eliminate these barriers, allowing for near-instant, low-cost transactions. This not only benefits players but also streamlines the financial operations of gaming operators.
By embracing cryptocurrencies, Argentina’s online gaming industry can position itself as a pioneer in adopting cutting-edge technology. This innovation can attract tech-savvy players and foster a culture of technological advancement within the gaming sector.
With the current bill being debated in the National Congress, the inclusion of cryptocurrencies can further aid in enforcing regulatory compliance. It could also be possible to imagine the application of smart contracts automatically programmed to ensure that gaming operators adhere to local regulations, such as responsible gaming practices and player protection measures.
While the potential benefits of cryptocurrencies are evident, it is essential to acknowledge the need for a well-defined regulatory framework. As cryptocurrencies continue to gain traction in Argentina, the government and regulatory bodies must collaborate to establish clear guidelines that balance innovation with consumer protection.
The online gaming industry in Argentina stands at a crossroads, facing a formidable challenge – to curb the dominance of illegal operator. As we’ve explored in this article, this challenge arises from a complex interplay of economic factors, institutional structures, and player awareness. However, at its core, the issue hinges on the lack of traceability in financial transactions, a gap that cryptocurrencies have the potential to bridge.
Cryptocurrencies, with their transparency and traceability, emerge as an interesting approach towards this issue. They represent an opportunity to restore integrity and trust to Argentina’s online gaming sector.
Despite the promise of cryptocurrencies, the road ahead is not without challenges. Clear regulatory guidelines must be established to ensure responsible and secure cryptocurrency use within the gaming industry. Collaboration between regulatory bodies, ALEA and the private sector is vital to achieving this balance. Moreover, awareness among players is key. Education campaigns can empower players to make informed choices and distinguish between legal and illegal operators. The collaboration of public figures and influencers in promoting responsible gaming practices can significantly impact player behavior.
In conclusion, the potential of cryptocurrencies to reshape Argentina’s online gaming industry is undeniable. It offers a path toward transparency, security, and innovation in a sector beset by challenges. As the government, regulators, and the gaming community come together to harness this potential, Argentina can lead the way in gaming law and regulation, setting a positive example for the broader international gaming industry.
The future of online gaming in Argentina holds the promise of a fair, secure, and thriving ecosystem for players, operators, and regulators alike. It is a journey that begins with embracing the transformative power of cryptocurrencies.