Coinbase is blocking users from cashing crypto in or out of their account due to having used their account to transact with crypto gambling sites including Betcoin (review, American bettors are geo-blocked) and SwC Poker. Multiple redditors (example 1, example 2) have received emails from Coinbase including the text
“Upon review of your Coinbase account, we have determined that we can no longer provide you access to Coinbase Services. Please understand that Coinbase is a regulated Money Service Business under the FinCEN division of the U.S. Treasury Department and as such, we are required to review accounts in order to ensure compliance with regulations.
Gambling is illegal under US law even if you live outside of the US we cannot provide services to your account for the purpose of any type of gambling activity.”
Users who receive the email can still use Coinbase’s crypto functions but not its banking functions to buy or sell crypto for government currency. This email seems very clumsy as a lot of gambling is legal in the US but the blanket ban is backed up by Coinbase’s user agreement which includes
“7.2. Restricted Activities. In connection with your use of the Coinbase Services, and your interactions with other users, and third parties you will not:
Violate or assist any party in violating any law, statute, ordinance, regulation or any rule of any self-regulatory or similar organization of which you are or are required to be a member (for example, those laws, rules, or regulations governing financial services, controlled substances, unlawful gambling or consumer protections);”
And in their Prohibited businesses list
“The following categories of businesses, business practices, and sale items are barred from Coinbase Services (“Prohibited Businesses”). By opening a Coinbase Account, you confirm that you will not use Coinbase Services to accept payments in connection with the following businesses, activities, practices, or items:
How does Coinbase know
This type of transaction identification and subsequent restrictions can only happen if the gambling site is re-using the same addresses for many customer’s transactions. This allows Coinbase to identify when a Coinbase user transacts with such an address.
This is bad practice and sites should be generating new address for every transaction. This is the best practice as implemented by most top crypto gambling sites.
Why does Coinbase care
Coinbase don’t really care but the US government does. The government wants to stop people from gambling with operators that do not have a US gambling licence. This is because the government makes no money from them through license fees or taxation.
The government passes on part of the burden of enforcing anti gambling laws onto money transfer businesses. The government will punishing them if they transfer money between Americans and gambling operators that do not have a US gambling license. Money transfer businesses like Coinbase would be heavily fined or lose their license if they made these illegal transfers.
One reason we love crypto is that it lets us avoid this kind of government overreach and interference in our lives. Coinbase had 2 representatives on panels at Lawsky’s media circus hearings that lead to the BitLicence.
Megalomaniac government regulators won’t allow consenting adults to use their own money in a way that harms no one else, unless the government gets a cut. And they back up these moral decrees with violence against anyone who goes against them.
Update: Response from Coinbase and the gambling sites
We have contacted Coinbase who directed us to their user agreement. We have contacted the relevant gambling operators Betcoin and SwC Poker who both say they now use uniques addresses for all transactions. Crypto always has a solution!