Category Archives: Gambling

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China Cracks down on World Cup Gambling, Seizes $1.5M in Crypto

World Cup fever is hitting its peak as the final match between Croatia and France approaches on 15 July 2018, and one symptom of that fever is excessive gambling. The Guangdong Provincial Public Security Bureau in China launched a crackdown on illegal World Cup gambling, and has seized CNY 10 million (USD 1.5 million) of cryptocurrency in addition to CNY 260 million (USD 39 million) of cash.

This was a tremendous police operation, resulting in 540 arrests, the destruction of 20 gangs, the shutdown of 70 gambling apps and websites, and the termination of 250 chat rooms on social media platforms. The gambling organizations used a combination of the darknet and cryptocurrency to maintain anonymity and avoid authorities, and were in operation for eight months and collectively had 330,000 users. They advertised that they accepted internationally recognized cryptocurrencies like Bitcoin, Litecoin and Ethereum. In total, these gambling platforms facilitated CNY 10 billion (USD 1.5 billion) of bets, not all of which were for the World Cup, but the World Cup was the impetus for the investigation and crackdown.

Apparently, these gambling websites used a pyramid scheme that was conducive for the recruitment of agents and gamblers. Authorities found that most people who used these platforms were losing due to the odds, resulting in steady profits for the dealers. Chines authorities say this is detrimental to society since gamblers were losing all of their money, causing them to turn to illegal activities like theft to get more money to gamble.

World Cup gambling is a major industry at this time, with bookmakers on track to profit USD 36.4 billion this year. Most of this gambling is legal and most bets are placed with fiat. Cryptocurrency is used for some of the World Cup gambling, often legally, but cryptocurrency is ideal for illegal gambling operations due to its relatively anonymous nature when compared to centralized payment methods that usually require identification information to complete transactions.

With cryptocurrency transactions, the only information required is a cryptocurrency address which is a long string of letters and numbers, and no specific identification information is necessary. However, there are organizations which use forensics to trace cryptocurrency addresses and assign identities to them, and perhaps Chinese police used that technology in this crackdown.


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South Korean Police Treats Crypto Margin Trading as Illegal Gambling

The Cyber Criminal Investigation Unit of the Southern Provincial police department of South Korea has declared that a margin trading service offered on the Coinone exchange from November 2016 to December 2017 is equivalent to illegal gambling. Three Coinone executives and 20 high-volume margin traders will be arrested and prosecuted.

Coinone is the third largest cryptocurrency exchange in South Korea behind Upbeat and Bitsum, and currently handles tens of millions of US dollars per day of cryptocurrency trading. This is the first time police have investigated Coinone; the investigation process started in August 2017. It took them considerable time to study the law regarding this case.

Margin trading is when traders use borrowed funds from the exchange to leverage their trades of a cryptocurrency. On Coinone traders could leverage up to four times their actual deposit, and would win or lose money depending on if the cryptocurrency price went up or down during the week after the initiation of their margin trade.

This provided a method for Coinone traders to short sell, which is a technique where they would profit if the cryptocurrency market went down. In a short sell, a trader sells the cryptocurrency that they bought with their leverage, and buys it back at a later time to repay their margin trading loan, resulting in a profit.

Margin trading and short selling are authorized on the regular stock market in South Korea, but it is not an authorized technique for cryptocurrency trading according to South Korean law. Police determined that Coinone’s margin trading violated gambling laws. When it comes down to it margin trading, traders are betting on short-term price changes.

In total, 19,000 margin trades were conducted on Coinone, but only the top 20 margin traders who handled over KRW 3 billion (USD 2.8 million) will be prosecuted. These traders claim innocence since they thought it was legal due to a similar service being offered on the stock market.

Police say that margin trading on Coinone was possibly used to launder money from criminal activities, although they didn’t back this statement with any specific evidence.

Coinone has said it is fully cooperating with the ongoing investigation.


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