Coinbase is blocking users from cashing bitcoins in or out of their account due to having used their account to transact with bitcoin gambling sites including Betcoin (review) and SwC Poker (review). 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 bitcoin functions but not its banking functions to buy or sell bitcoin 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 operator is using the same send from address for many customer’s payouts allowing Coinbase to identify when a Coinbase customer receives money from one such address.
This is bad practice and sites should be generating a new send from address for every customer withdraw as well as allowing users to generate new send to address for deposits whenever they choose or automatically. This is the best practice as implemented by most top bitcoin 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 because the government makes no money from them through licence fees or taxation.
The government passes on part of the burden of enforcing anti gambling laws onto money transfer businesses by punishing them if they transfer money between Americans and gambling operators that do not have a US gambling licence. If money transfer businesses like Coinbase make these illegal transfers they would be heavily fined or lose their money transmitter licence.
One of the reasons we love bitcoin is that it lets us avoid exactly 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 big cut. And they back up these moral decrees with violence against anyone who goes against them.
Update: Response from Coinbase and the gambling sites
[date date=”August 30, 2014″][/date]
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. Bitcoin always has a solution!