Sin on the ‘Net

Anupam Chander, Director of the California International Law Center and Martin Luther King, Jr. Hall Research Scholar at the UC Davis School of Law, discusses his recent paper with co-author Uyen P. Lee titled The Free Speech Foundations of Cyberlaw. Chander addresses how the first amendment promotes innovation on the Internet; how limitations to free speech vary between the US and Europe; the role of online intermediaries in promoting and protecting the first amendment; the Communications Decency Act; technology, piracy, and copyright protection; and the tension between privacy and free speech.

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Patrick Ruffini, political strategist, author, and President of Engage, a digital agency in Washington, DC, discusses his latest book with coauthors David Segal and David Moon: Hacking Politics: How Geeks, Progressives, the Tea Party, Gamers, Anarchists, and Suits Teamed Up to Defeat SOPA and Save the Internet. Ruffini covers the history behind SOPA, its implications for Internet freedom, the “Internet blackout” in January of 2012, and how the threat of SOPA united activists, technology companies, and the broader Internet community.

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Andy Greenberg

Andy Greenberg, technology writer for Forbes and author of the new book “This Machine Kills Secrets: How WikiLeakers, Cypherpunks, and Hacktivists Aim to Free the World’s Information,” discusses the rise of the cypherpunk movement, how it led to WikiLeaks, and what the future looks like for cryptography.

Greenberg describes cypherpunks as radical techie libertarians who dreamt about using encryption to shift the balance of power from the government to individuals. He shares the rich history of the movement, contrasting one of t the movement’s founders—hardcore libertarian Tim May—with the movement’s hero—Phil Zimmerman, an applied cryptographer and developer of PGP (the first tool that allowed regular people to encrypt), a non-libertarian who was weary of cypherpunks, despite advocating crypto as a tool for combating the power of government.

According to Greenberg, the cypherpunk movement did not fade away, but rather grew into a larger hacker movement, citing the Tor network, bitcoin, and WikiLeaks as example’s of its continuing influence. Julian Assange, founder of WikiLeaks, belonged to a listserv followed by early cypherpunks, though he was not very active at the time, he says.

Greenberg is excited for the future of information leaks, suggesting that the more decentralized process becomes, the faster cryptography will evolve.

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Today the Reason Foundation publishes my policy brief on keys to successful state regulation of Internet gambling.

Thanks to a Department of Justice’s December 2011 memo on the parameters of the Wire Act, states can now license real-money intrastate online casino games. Earlier this year, Nevada became the first state to permit online wagering, and in August granted the first online operating license to South Point Poker LLC, which was to have launched trials last month. Since the Reason report went to press, South Point disclosed that its software is still undergoing independent testing but  hopes to have its site up by the end of the year.

Elsewhere, Delaware has enacted legislation to authorize online gambling under the auspcies of the state lottery commission and Illinois has begun selling lottery tickets online.

It goes without saying that U.S. citizens should be free to gamble online, just as they legally can in casinos throughout the country. The degree of regulation is subject to debate, but unfortunately remains a necessary element in policy. Yet lessons about taxation and regulation can be learned from experiences in Europe, as well as from regulation of brick-and-mortar casinos in the U.S. With a better understanding of usage trends, consumer game choices and operator cost models, legislators who want to offer constituents the freedom to play online can craft an environment that supports a robust online gaming climate, as opposed to one that drives legitimate operators away.

Regulation should derive from an enlightened approach that respects the responsibility and intelligence of its citizens. Internet gambling can be a safe, secure pastime.  Overall, the government’s only goal should be to protect users from theft or fraud. Gambling should not approached as an activity that needs to be controlled or discouraged under the rationale that it is a “sin” (to moralists) or “destructive behavior” (to social utilitarians), and then, hypocritically,  politically tolerated so it can be excessively taxed on those rationales.

Although it is likely states will differ in the particulars of how they structure the license and tax arrangements, a successful climate for legalized Internet gambling is likely to derive from the following fundamental principles. Lawmakers should heed the following guidelines:

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Facebook has quietly launched a real-money online gambling application in the U.K., marking a major thrust of the social networking site into online gambling.

The Financial Times is reporting that starting today, Facebook will offer users in the U.K. ages 18 and over online bingo and slots for cash prizes. Slate.com  picked up the story this afternoon.

“Gambling is very popular and well regulated in the U.K. For millions of bingo users it’s already a social experience [so] it makes sense [for us] to offer that as well,” Julien Codorniou, Facebook’s head of gaming for Europe, Middle East and Africa, told the Financial Times.

It’s telling in and of itself that Facebook has a gaming chief for the EMEA region. The synergies of social media and gambling has been seriously discussed for several years, mostly in foreign venues,  as the U.S. government until recently, has been hostile toward Internet gambling.

However, the recent thaw on the part of the Department of Justice, seen most recently in its settlement (don’t-call-it-an-exoneration) with PokerStars, plus state action toward legalization in in states such as Nevada and Delaware, point to eventual legalization of Internet gambling in the U.S.

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Yesterday brought a spate of news reports, many of them inaccurate or oversimplified, about a settlement the U.S. Attorney’s office in Manhattan reached with two major international Internet poker sites—PokerStars and  Full Tilt Poker.

The buried lead–and very good news for online poker players–is that Internet poker site PokerStars is back in business. Manhattan U.S. Attorney Preet Bharara ended his case against the site and it is now free to re-enter the U.S. market when states begin permitting Internet gambling, which could start as early as this year in states such as Nevada and Delaware.

The three-way settlement itself  is rather complicated. Full Tilt Poker will have to forfeit all of its assets, at this point mostly property, to the U.S. government. PokerStars will then acquire those forfeited Full Tilt Poker assets from the feds in return for its own forfeiture of $547 million. PokerStars also agreed to make available $184 million in funds in deposits held by non-U.S. Full Tilt players, money players believed was lost.

The U.S. government seized these funds on April 15, 2011 when it shut down Full Tilt, PokerStars and a third site, Absolute Poker, on charges of money laundering. The date has become known as Black Friday in the poker community. Specifically, the three sites were charged with violation of the 2006 Unlawful Internet Gambling Enforcement Act (UIGEA), which prohibited U.S. banks from transferring funds to off-shore Internet poker and gambling sites. To combat the measure, sites such as PokerStars and Full Tilt began using payment processors that allegedly lied to U.S. banks about their ties to gambling sites. Although this would be fraud under the letter of the law, the U.S. government never claimed payment processors stole money from players or banks and no evidence suggests they did.

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Delaware looks ready to become the second state after Nevada to authorize Internet poker as a gambling bill was approved this week by the state senate 14-6 with one senator abstaining.

In the wake of the Department of Justice’s Dec. 23, 2011 memo that for all intents and purposes said there were no federal statutes prohibiting intrastate online wagering on anything save sports, several states. Including Iowa, New Jersey and California, have started moving on legislation that would permit Internet poker, other casino games, and online purchasing of lottery tickets for residents and visitors inside their borders.

Poker players across the country would welcome the chance to play online once more. The Unlawful Internet Gambling Enforcement Act (UIGEA) of 2006 did not make Internet poker illegal outright, but by prohibiting U.S. banks from conducting transactions with off-shore gaming sites, made it extremely difficult for U.S. players to open or maintain accounts with legitimate sites such as Bovada, Bodog and PartyPoker.

With legislation moving along, most gaming industry analysts see Internet poker becoming a reality in at least one or two states by the end of this year.

While the topic of online gambling is still controversial, poker is just one more place where the Internet has had an impact. Before the World Wide Web, you either had to live in Nevada or New Jersey (even in states that had casino gambling, not every casino had a card room) to play regularly. For most who did play, poker was a friendly diversion within a family or social circle.

In broadening poker’s appeal, the Internet also changed the nature of the game. These changes fully manifested themselves when Chris Moneymaker won the main event of World Series of Poker (WSOP) in 2003. Moneymaker was the first world champion to have qualified for the tournament at on line site. The WSOP was the first major live tournament he played. The bulk of his experience and expertise was acquired through online play.

In honor of developments in Delaware and elsewhere, and keeping in mind that the main event of the 2012 World Series of Poker begins July 7, and because it’s Friday afternoon, let’s look at four ways the Internet has changed poker significantly from the game your parents knew. For our purposes here, we will keep things in the context of Texas Hold ‘Em, today’s most popular poker game.

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Cross-posted at Reason.org

The big news in online gambling circles these past two weeks has been the busting of BLR Technologies, a software supplier for a number of online gambling sites, after a leading gaming mathematician determined the variance against winning at its craps game was statistically off the charts.

While most online gambling sites host honest games, there’s bound to be some bad apples. What’s often overlooked is that there is a market-enforced structure that militates against suspect play or outright cheating. That was clearly at work here.

The finding already has led at least one online casino, 5Dimes, to remove the BLR software from its site. That the news circulated the online gambling community as quickly as it did, and led to immediate action from a major online casino group, testifies to the knowledge and power of online gamblers. Of course, the image of informed players backed by mathematical and statistical experts contrasts with the views of government policymakers, who tend to treat online gamblers as gullible knuckleheads who need to be protected from unscrupulous gambling predators, predominantly through bans. This misconception is worth keeping in mind as a Congressional panel convenes this week to revisit federal laws against online gambling.

In the BLR case, Michael Shackleford, whose Wizard of Odds website takes an in-depth mathematical approach to all manner of gaming probabilities, strategies and odds, personally tested the software after a reader complained that he had won only 25 percent of 3,200 “pass” or “don’t pass” bets made.

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Over the weekend, Janet Morrissey of The New York Times posted an excellent article on the U.S. government’s continuing crackdown on Internet gambling. (“Poker Inc. to Uncle Sam: Shut Up and Deal“) Ironically, her article arrives on the same week during which PBS aired the terrific new Ken Burns and Lynn Novick documentary on the history of alcohol prohibition in the United States. It’s a highly-recommended look at the utter hypocrisy and futility of prohibiting a product that millions of people find enjoyable. If there’s a simple moral to the story of Prohibition, it’s that you can’t repress human nature–not for long, at least, and not without serious unintended consequences. Which is why Morrissey of the Times notes:

And so the poker world now finds itself in a situation many liken to Prohibition. America didn’t stop drinking when the government outlawed alcoholic beverages in 1919. And, in this Internet age, it won’t be easy to prevent people from gambling online, whatever the government says. “It’s a game of whack-a-mole,” says Behnam Dayanim, an expert on online gambling and a partner at the Axinn Veltrop & Harkrider law firm. “They’ve whacked three very large moles, but over time, more moles will pop up.”

Exactly right (except that it should be “whac” not “whack”! There’s no K in whac-a-mole.)  It reminds me of the paper that my blogging colleague Tom Bell penned back in 1999 for the Cato Institute with its perfect title: “Internet Gambling: Popular, Inexorable, and (Eventually) Legal.” As Tom noted back then: Continue reading →

Yesterday the FBI effectively [shut down](http://thehill.com/blogs/hillicon-valley/technology/156429-fbi-shuts-down-online-poker-sites) three of the largest gambling sites online and indicted their executives. From a tech policy perspective, these events highlight how central intermediary control is to the regulation of the internet.

Department of Justice lawyers were able to take down the sites using the same tools we’ve [seen DHS use](http://techland.time.com/2011/02/17/operation-protect-our-children-accidentally-shutters-84000-sites/) against alleged pirate and child porn sites: they seize the domain names. Because the sites are hosted overseas (where online gambling is legal), the feds can’t physically shut down the servers, so they do the next best thing. They get a seizure warrant for the domain names that point to the servers and [force the domain name registrars](http://pokerati.com/2011/04/15/poker-panic-11-update-on-domain-name-seizures/) to point them instead to a government IP address, such as [50.17.223.71](http://50.17.223.71). The most popular TLDs, including .com, .net, .org, and .info, have registrars that are American companies within U.S. jurisdiction.

Another intermediary point of control for the federal government are payment processors. The indictments revealed yesterday relate to violations of the [Unlawful Internet Gambling Enforcement Act](http://www.firstamendment.com/site-articles/UIEGA/), which makes it illegal for banks and processors like Visa, MasterCard and PayPal to let consenting adults use their money to gamble online. According to the DOJ, in order to let them bet, the poker sites “arranged for the money received from U.S. gamblers to be disguised as payments to hundreds of non-existent online merchants purporting to sell merchandise such as jewelry and golf balls.” ([PDF](http://www.wired.com/images_blogs/threatlevel/2011/04/scheinbergetalindictmentpr.pdf))

Now, imagine if there were no intermediaries.

[In my TIME.com Techland column today, I write about Bitcoin](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/), a completely decentralized and anonymous virtual currency that I think will be revolutionary.

>Because Bitcoin is an open-source project, and because the database exists only in the distributed peer-to-peer network created by its users, there is no Bitcoin company to raid, subpoena or shut down. Even if the Bitcoin.org site were taken offline and the Sourceforge project removed, the currency would be unaffected. Like BitTorrent, taking down any of the individual computers that make up the peer-to-peer system would have little effect on the rest of the network. And because the currency is truly anonymous, there are no identities to trace.

And if a P2P currency can make it so that there is no fiscal intermediary to regulate, how about a distributed DNS system so that there are no registrars to coerce? This is something Peter Sunde of Pirate Bay fame [has been working on](http://www.wired.co.uk/news/archive/2010-12/02/peter-sunde-p2p-dns). These ideas may sound radical and far-fetched, but if we truly want to see an online regime of “[denationalized liberalism](http://techliberation.com/2010/11/28/mueller%E2%80%99s-networks-and-states-classical-liberalism-for-the-information-age/),” as Milton Mueller puts it, then getting rid of the intermediaries in the net’s infrastructure might be the best path forward.

Again, check out [my piece in TIME](http://techland.time.com/2011/04/16/online-cash-bitcoin-could-challenge-governments/) for a thorough explanation of Bitcoin and its implications. I plan to be writing about it a lot more and devote some of my research time to it.