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GSC clarity on virtual currencies is welcome as IOM blockchain boom continues

The Isle of Man government’s open-minded and modern approach to blockchain technologies is already paying dividends, with several cryptocurrency-focused businesses choosing the island as a base and, therefore, boosting the local economy.

In 2017, the Gambling Super Commission released Practice Note GSC85 which gave licensees both current, and prospective, guidance on several key points associated with virtual currencies and, two years later, with the benefit of experience, has now published an update to the note.

SolutionsHub COO and blockchain licensing expert Nick Wright, takes a look at the update and what it means.

The Isle of Man has long embraced new emerging technologies and no one more so than the Isle of Man Gambling Supervision. Commission (“GSC”). The GSC has a proven track record in working closely with the sector in order to stay abreast of new and emerging technologies.

As the gaming sector and its operators started to take note of digital and virtual currencies, and the benefits that they could bring to their businesses, the GSC started to formulate their own policy on their use and how they would fit into the GSC’s licensing regime. This cumulated in the GSC allowing operator, under certain conditions, to accept digital and convertible virtual currencies (such as Bitcoin or ‘skins’) as an alternative to fiat currency.

In February 2017, the GSC released Practice Note GSC85 which gave licensees both current, and prospective, guidance on the following key points (not exhaustive):

  1. Acceptable models for the use of Convertible Virtual Currencies and Virtual Currencies;

  2. Player account rules;

  3. Protection of players’ currencies and goods;

  4. Volatility rules for player-versus-the-house models;

  5. Player to player transfers;

  6. Technology assurance costs;

  7. Pay-as-you-go gambling;

  8. Information requirements;

  9. Advertising values for fiat/virtual currency/goods;

  10. Adding convertible virtual currencies to an existing licence; and

  11. Fees and taxation

Fast forward two years and the GSC have seen a wide variety of operators who have embraced the use of digital currencies and digital goods in their business models. Likewise, the GSC have also seen new applicants who have been ICO funded – which led to the introduction of the requirement for these operators to be subject to a ‘crypto audit’ – these ‘learned experiences’ have led the GSC to update GSC85 Considerations for blockchain and virtual goods gambling on a number of occasions and which now include commentary and guidance on the following;

  1. Cycling addresses;

  2. Trusted hot wallets;

  3. Smart contracts; and

  4. The “Coincorner Checkout” model.

Let’s take a look at each of these points:

Cycling addresses

In November 2018 the GSC updated its guidance to provide additional clarification on the ‘cycling’ of wallet addresses. This relates to instances where the player/user changes their wallet address from the one that was originally used to register on the operators site.

In their guidance the GSC has stated that it remains the operator’s responsibility to identify when a new wallet address is detected that it is under the control of the player. This can be done by using some form of authentication or verification that ties the new wallet address to the player – such as a time-limited one-off password system.

Trusted Hot Wallets

In the November 2018 update the GSC added a new ‘Permitted Model for Convertible Virtual Currencies and Virtual Currencies’. Convertible Virtual Currencies sent to an operator via an exchange (and their hot wallet) was made permissible.

The key take away from this change is that the GSC are happy to accept a model whereby an exchange enters into a B2B relationship with the operator and the exchange accepts payments from it in crypto currency that are on behalf of players – much in the same way as Payment Service Provider.

This opens up a new payment method for operators who wish to enter the sector so its most welcomed so long as the exchange is FATF compliant.

Smart Contracts

The GSC’s guidance on Smart Contracts featured in a January 2019 update to the Practice Note. The GSC now require sight of a report from an independent expert stating that the code has been written in such a way that conforms to the specification.

Here at SolutionsHub we have already made the necessary contacts for such a report to be commissioned and are actively working with clients on this very subject.

The “CoinCorner Checkout” model

The recent GSC update adds some meat to bone regarding the permitted model of ‘Convertible Virtual Currency to fiat conversion prior to play’ in the form of the CoinCorner checkout model.

CoinCorner is a crypto exchange based on the Isle of Man and are registered under the Designated Business (Registration and Oversight) Act 2015.

In this model, the player can scan a QR code on the operator’s page in order to deposit the equivalent value of fiat currency. If it’s the player’s first transaction the exchange must capture the players return crypto address for any winnings and must be satisfied that the player controls that address. The exchange then handles all of the exchange and conversions on behalf of the operator.

As the first company to successfully guide an operator through the GSC’s ‘Crypto Audit’ we at SolutionsHub welcome the additional clarification provided by the GSC.

Contact SolutionsHub to find out how we can help your business, book a consultation now


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