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Why Bitcoin Is Poised To Win Big In Las Vegas

A poker champion (turned bitcoin miner) is going all-in on the cryptocurrency’s future there.

Why Bitcoin Is Poised To Win Big In Las Vegas
[Photo: Flickr user N i c o l a]

Las Vegas. Tremendous wagers are commonplace in this town, and have been for decades. Big bets on cryptocurrency–those are a bit more unusual.

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This explains why a local poker player’s recent investment into bitcoin ATMs has turned so many heads. The entrepreneur, 29-year-old Chris McAlary, essentially has pushed “all-in” on the virtual currency, using the entirety of his liquid assets to found Coin Cloud, a nascent company that operates ATMs for bitcoins.

McAlary’s believes in bitcoin’s future as the currency of choice for gamblers. And there is a confluence of factors that might make Las Vegas the perfect place to push bitcoin into mainstream use–if McAlary and like-minded entrepreneurs prove out its use on the Strip, casinos around the world are poised to make bitcoin its currency of choice.

“There’s no question that cryptocurrencies such as bitcoin have the potential to be one of the most important innovations of the 21st century,” says McAlary. “Las Vegas could be one of the places that really helps drive it all forward.”

Specifically, McAlary’s company uses ATMs that are Internet-enabled kiosks that allow users to buy or sell bitcoin. The machines that went online this summer are in a particularly prominent spot, steps from the busiest part of the Las Vegas Strip. In the first few weeks, the machine outperformed even McAlary’s most liberal estimates. After 45 days, the Vegas machine overtook the a bitcoin ATM in Vancouver as the No. 1 performing bitcoin ATM in the world. McAlary won’t say exactly how many transactions the machine has handled so far, but hints that volume is already has surpassed $1 million.

While the cryptocurrency has yet to find a home in the average American’s wallet (so to speak), businesses appear to be getting more serious about it. In early September, Braintree, the online and mobile payments platform owned by PayPal, announced it would integrate bitcoin into its business. Other companies, including Expedia, Overstock.com, and Amazon.com also have announced they will accept bitcoin as a method of payment. (Full disclosure: I run a travel blog for Expedia.)

In Vegas, however, especially on the Strip, bitcoin has even more going for it. First of all, because so many people visit Sin City every year, the market attracts a high volume of people looking to spend money. The Viva Vegas souvenir shop, in which McAlary has placed his first ATM (he calls it the “Bitcoin Bodega”), sees more than 100,000 people a day in foot traffic. Las Vegas also draws an international clientele who want to access their money instantaneously, and to gamble without paying transfer fees to centralized banks.

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In other words, Vegas is primed for a bitcoin run.

Bitcoin 101

What is bitcoin? The answer is more complicated than you think (and more complicated than we journalists usually report). Unveiled in 2009 (the identity of the creator is up for debate), the cryptocurrency is an online payment system that was introduced as open-source software. Under the protocols of this technology, payments are recorded in a public database, which is known as the “blockchain.” Because these payments work without a central repository or single administrator (a.k.a., a bank), the U.S. Treasury considers the currency to be decentralized and virtual.

(Also, because the currency is virtual, users must obtain a virtual “wallet” to help record transactions and securely buy, use, and accept the stuff.)

Whatever the Treasury department says about bitcoin, the currency–dubbed bitcoin, with a lowercase B, for those of you scoring at home–certainly is worth serious cash. As of Sept. 9, one bitcoin was equal to $463. If you think that number is high, consider this: At the beginning of 2014, one bitcoin was valued at nearly $1,200.

Photo: Flickr user Dion Hinchcliffe

Part of the reason bitcoin is so valuable is because, unlike paper money, it is a fixed commodity. As a form of currency, bitcoins are created–or mined–as reward for payment processing work in which users offer computing power to verify and record payments into the blockchain. Under current rates, 25 bitcoins will be produced approximately every 10 minutes until the middle of 2016. About 21 million bitcoins are expected to be issued by 2140.

“One of the things that makes bitcoin an interesting value proposition is the limit to how much of it will exist,” says McAlary. “Just like the laws of nature dictate how much gold exists on Earth, the algorithm determines scarcity with bitcoin. This isn’t like paper money where you can just go and print more.”

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To be fair, so far most of the current investors in bitcoin are digital currency enthusiasts, technology geeks, and international finance gurus who like the idea of transferring money independent of the U.S. banking system, which has a knack for nickel-and-diming everyone with fees. But this demographic is changing.

Antonis Polemitis, manging partner at Ledra Capital, a venture capital firm that has invested in a number of bitcoin projects, says that as more and more people hear about bitcoin, the user base will growing to incorporate more mainstream customers.

“Remember, in the 1990s, the Internet was not that big of a deal,” he says. “People needed to get comfortable with the concept. We needed AOL to bring it to the general public. It took time. Bitcoin is at the same stage right now. None of this is going to happen overnight. The next few years are all about making the on-ramps simpler.”

Humble Beginnings

This potential customer base–and, of course, the potential value of the currency–are the two things that attracted McAlary into the market years ago.

At first, his interest was as a miner. With a little financial help from a friend, McAlary started with a mining “rig” (in other words, a super-fancy computer set-up) in his garage. During this time, McAlary divided his days evenly between mining for bitcoin and playing high-stakes poker in cash games at Wynn Las Vegas and online, at Full Tilt Poker, a now-defunct online poker site.

When the federal government canned online poker for good on April 15, 2011, McAlary transitioned into bitcoin full-time, mining and trading on his own, and teaming with Pomona College roommate and Las Vegas native Joshua Schlachter to launch Coin Cloud.

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After the duo invested about $200,000 of their own money in the company, McAlary and Schlachter unveiled Coin Cloud’s first ATM in late July 2014.

The inaugural ATM was released in partnership with Robocoin, a company that specializes in bitcoin kiosks. The machine allows users both to buy and sell bitcoin, meaning they can either convert bitcoin into cash or use cash to purchase or invest in bitcoin on the spot. Unlike traditional ATMs, which require a banking card and a password to authenticate users, the Robocoin machine adds a second factor of authentication–in this case, a palm scan.

According to McAlary, this allows bitcoin users to secure their accounts with biometrics, much the same way iPhone users can lock devices with their thumbprints.

Technically, the concept of a bitcoin ATM in Las Vegas already has been proven. In 2013, after $22 million in renovations to The D Las Vegas Casino Hotel downtown, owner Derek Stevens became the first Sin City hotelier to take a flier on the cryptocurrency, and installed a Robocoin bitcoin ATM in the middle of the action on his casino floor.

Stevens, who also serves as CEO of the Golden Gate Hotel and Casino, says that this machine saw peak traffic during the 2014 World Series of Poker, when poker pros used it to sell bitcoin and withdraw cash they then brought with them to pay four- and five-figure tournament entry fees.

“When you have hotel casino business, you spend a lot of money trying to figure out how to get people into your property,” he says. “For us, this has proven to be a differentiator.”

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(Stevens declines to specify how much money goes in and out of his bitcoin ATM daily, but says it has “exceeded expectations for success.”)

The Big Gamble

Considering this success, technology experts say the Vegas market is primed for a bitcoin binge, and note ATMs are the best vehicle for that expansion, since everyone in Vegas needs cash.

As a tourist destination, Sin City attracted nearly 40 million visitors overall in 2013, filling more hotel rooms per night on average than any other destination in North America. Polemitis notes that many of the people who visit Las Vegas come from far away, meaning that those who experience bitcoin ATMs during their trip to are that much more likely to bring awareness of the concept back home with them.

Another issue: Withdrawal limits. Most traditional casino ATMs will allow users to withdraw up to $1,500 two or three times in a 24-hour period, but lock out users after that. Most bitcoin ATMs, on the other hand, have no such restrictions.

“Because it’s all decentralized, you can use these machines to buy or sell bitcoin as often as you’d like,” says Marco Garibaldi, who is the brains (and the code) behind Bitcard, a digital wallet that looks like a debit card. “Bitcoin is the only option right now where you keep 100% control of your own money at all times.”

There are other reasons why bitcoin and Vegas make a good match:

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  • Users do not need a bank or ATM card to access their bitcoin at a bitcoin ATM.
  • Traditional ATMs charge fees for withdrawals; bitcoin ATMs only charge fees when users convert bitcoin to U.S. dollars (and vice versa).
  • Multi-factor authentication all but eliminates the risk of fraud.

Gamblers certainly have embraced bitcoin so far. Statistics from the blockchain indicate that earlier this year, gamblers wagered the equivalent of $20 million dollars in bitcoins on SatoshiBet, an online bitcoin casino. What’s more, at a time when traditional online poker sites have been struggling, SealswithClubs.com, an online poker site that runs on bitcoin, is booming. (The site is owned by poker player and long-time bitcoin advocate, Bryan Micon.)

Mike Masnick, CEO of Floor64, a marketing consulting company in Sunnyvale, California, says that where bitcoin could get even more interesting is in the ability to program bets directly. Say you’re betting on a certain team to beat the spread; you could program that directly into the bitcoin itself, such that if you win your bet, the bitcoin automatically becomes yours.

“You would no longer have to worry about payouts, as all of that could happen automatically based on the results of the game,” Masnick says, noting that because the block chain is public, the protocol also could help cut down on illicit gambling. “It could have a huge impact.”

One online bitcoin gambling site, BitBet.com, already has incorporated this technology. Others are expected to follow suit in the next few months.

What’s Next

The success of bitcoin in Vegas, like the currency itself, is just beginning, and McAlary’s company is in its infancy. If Coin Cloud fails or if bitcoin is supplanted by another type of cryptocurrency, at least from the perspective of dollars and cents, McAlary would be broke.

Still, McAlary is undaunted. He plans to unveil another bitcoin ATM in Vegas for the upcoming Life is Beautiful music and food festival in October, and add more machines in Las Vegas and other cities (including Houston) before the end of the year. He also has partnered with Garibaldi, the man behind Bitcard, to develop ATMs for Native-American casinos across the country.

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If these investments in bitcoin come up empty, McAlary says he simply will head back to the poker rooms and build his bankroll anew. On a more fundamental level, McAlary maintains that bitcoin is a game-changer because of its role as a payment processing system–an approach that eventually could wipe out the hugely profitable business of credit card providers all together.

Polemitis, the VC, agrees, noting that the first time he transferred $20 to a colleague using bitcoin reminded him of the first time he sent an e-mail, in that both took seconds. He sees bitcoin as less of a cash substitute and more of a protocol to speed transactions across any number of platforms–“the most ardent proponents of this could say it is as big of an idea as http or the web itself.”

To this end, Masnick notes that bitcoin ultimately could enables customers to do things with finances they never have been able to do before.

“Imagine giving your kids an allowance that can only be spent on certain things that are programmed into the money itself,” he says. Ironically, one of his dream uses for Bitcoin is “giving an addicted gambler money that can’t be spent in a casino.”