Regulators in New South Wales, Australia have been working on overhauling the gambling industry for several months now. One of the latest proposals is to force the industry to go cashless for slot machines.

The rule change, which was first proposed in early October 2020, could eventually lead to cashless payments for all land-based and online casino games in New South Wales (NSW).

The proposal has garnered some support within the ranks of government. However, Australian gambling operators and their allies have managed to temper that support somewhat. Proponents and critics disagree over how a cashless system would be implemented and whether or not it would actually accomplish anything meaningful.

No doubt the rest of Australia will be paying attention to what they do in New South Wales. Forcing cashless gambling on one Australian state would likely mean the rest of the country would eventually follow suit.

Purported government motivations

So, why would NSW want to force cashless gambling on land-based casinos? They say that their system would make it easier to "track" problem gambling. The 'how' in this lies in the way the system would be implemented. If regulators get their way, anyone wishing to gamble at a casino, bar, pub, etc. would first have to register with the government to receive a payment card.

If that sounds like Stalin could come up with an idea like this, read on...

With payment card in hand, they could load it with fiat in the same way they might load a prepaid debit card. They take their cards to the casino and swipe them before playing slot machines. In theory, the system could be set up to allow the cards for purchasing chips as well. Then the chips could be played at the poker table, the roulette wheel, etc.

Proponents of the plan say that the registration database would be linked to an existing self-exclusion database. Officials could then check self-exclusion data against payment data to ostensibly track problem gambling. However, there are several problems with this logic.

First off, anyone already in the self-exclusion database cannot gamble anyway. That is why the database exists. Second, knowing how much someone is spending on gambling tells you nothing if you do not also know the rest of the financial picture. A gambler's payment history is not necessarily an indicator of problem gambling.

Cashless in Las Vegas

It has been suggested that NSW is looking to Las Vegas as a model of how to introduce cashless gambling. Perhaps that is true in terms of the technology. But in Las Vegas, cashless gambling is not being forced by state government. Moreover, it is not being implemented as a means of tracking problem gambling. In Las Vegas, it is about convenience. Cashless is more convenient for both operator and gambler alike.

Vegas casinos are also looking to reduce the amount of cash they collect for health reasons. Like so many others, they are worried about spreading viruses and other germs in the Corona virus era. They see cashless gambling as a way to do their part.

If convenience and hygiene were the only reasons behind implementing cashless gambling, it could be done without government registration and a state-issued bank card. Just equip all of your slot machines, video poker machines, etc. with credit and debit card readers. If you wanted to go one step further and get rid of fiat altogether, Bitcoin and other cryptocurrencies will do the job.

No crypto in NSW

It would appear as though the NSW cashless gambling solution does not include a means by which to make deposits with Bitcoin. No surprises there. BTC is clearly the gambling operator's choice of cryptocurrencies, but governments are not big fans of it. They do not like cryptocurrency because it takes fiat out of the equation.

There are proponents of cashless gambling who like the crypto idea for the purposes of protecting player privacy. If you could get rid of cash and fiat options, you could use BTC, LTC, or even an exclusive gambling token. Crypto gives gamblers the opportunity to play as they see fit without revealing personal information. It is the ideal cashless solution.

Unfortunately, it is not on the radar in Australia. Government officials in NSW want cashless gambling, not fiat-free gambling. More importantly, they want a cashless option that gives them greater ability to track what people are doing. In the end, the proposed rule is less about cash and more about monitoring behavior.

Operators not on board

It is not surprising that gambling operators are not on board with the plan. Smaller operators and bars and pubs say they would be hurt most by the new rule. They say the investment in technology would damage an already hurting industry at a time when operators need government support to get back on their feet.

Cost is always an issue when you are talking government regulation. This particular rule change would require all electronic gambling machines be outfitted with card readers. Operators would also have to pay to hook into the state network in order to facilitate both payments and tracking. And of course, there are ongoing IT needs whenever you do something like this.

The initial outlay would be significant for some smaller operations that don't utilize a lot technology right now. In the end, gambling proceeds would ultimately cover the cost. But still, the ongoing cost of maintaining infrastructure and IT would eat into operator profits.

Implications for online gambling

By now you might be wondering if the proposal has any implications for online gambling. This is not exactly clear. The initial proposal appears to only apply to land-based operations and their slot machines. But we all know how government regulation goes. Once regulators get the ball rolling, it is tough to get them to stop it.

Online operations are already cashless for all intents and purposes. That is, if you define cash as bills and coins. However, online operations are not fiat-free. Those that do not accept cryptocurrency deal in fiat payments - whether they be made with credit cards, debit cards, bank transfers, or digital wallet services.

If the NSW government attempted to apply the cashless rule to the online arena, they would essentially have to force operators to stop accepting all of those other payment forms. A single gambling card would be used instead.

This might be difficult to force on operators, many of which are located offshore. Operators would somehow have to be forced to verify the identity and location of each player to ensure that nobody in NSW is using an alternative form of payment. That might be too tall an order.

They could do it with crypto

Let us just assume NSW regulators do have the "best interests" of gamblers at heart. Let's say they have no intention of invading individual privacy or using the regulations to further restrict gambling freedoms. If all that is true, the government could accomplish their goals with a cryptocurrency solution.

A cryptocurrency with a publicly distributed ledger would be open for everyone to see. Regulators could track crypto payments and withdrawals just by examining the ledger. They would not necessarily be able to tell who was making a deposit or withdrawal, but they would be able to identify individual wallets and the transactions tied to them.

Ideally, such a solution would work best with a dedicated gambling token. In other words, a token could be created exclusively for gambling use. Give gamblers the option to purchase the token with either fiat or another crypto to make it as accessible as possible. You accomplish much the same thing without requiring gamblers to register with the government and use a state-issued gambling card.

Of course, such a solution is unlikely to ever be implemented. Why? Two reasons. First, regulators considering the cashless system in NSW do not just want to track money. They want names as well. That's why their system will be linked to the self-exclusion database. A crypto solution doesn't give them names. Therefore, it will not give regulators the kind of control they want.

The second issue is that cryptocurrency bypasses fiat. Government regulators will never approve of such a system unless they are the ones to issue the gambling token. They would want complete control over the token, in which case it would no longer be decentralized and would defeat the purpose.

Government reach and overreach

Things will go as they will go in NSW. At the end of the day however the debate really boils down to government reach and overreach. We expect some measure of regulation in most areas of our lives. Government reach must extend far enough to protect the interests of the general public. But the question is always one of when reach becomes overreach.

NSW already has a self-exclusion database. Both online and land-based gamblers can add themselves to the self-exclusion list. Maintaining a database of self-excluded players seems like a reasonable reach for government authorities. Requiring a cashless system that allows regulators to track individual gamblers and potentially add them to the self-exclusion list without their consent smacks of overreach.

Forcing gamblers to register in order to get a payment card also seems a bit much. If NSW really wants to go cashless and still preserve privacy and integrity, a state-issued payment card is not the right way to go. Instead, a cryptocurrency featuring a distributed ledger with built-in anonymity is the solution. Will we ever see such a solution from regulators? It is not likely.