All In: The Hidden History of Poker and Crypto

This October 31 will mark the tenth anniversary of the bitcoin white paper. That’s ten years the public has had to contemplate how Satoshi Nakamoto’s invention works, what it means, and what kind of future it portends, with no input from the person who created it. In the absence of a leader, bitcoin believers have laid an endless variety of prayers at the altar of Satoshi. Free us, oh Lord, from the tyranny of the government monopoly on currency. Deliver us from taxes, rent-seeking banks, credit card fees, and the shackles of a monetary policy that penalizes the thrifty.

Bitcoin is like scripture. You find in it that which you seek.

But what did Satoshi see in his own creation? Though the inventor was notoriously reticent outside the realm of technology, he did leave some clues about his thinking and motivation. We know bitcoin was designed to give people a way to make payments online without input from financial surrogates in the physical world, because Satoshi wrote as much in the first line of his white paper. We know Satoshi was thinking about the calamities of the current financial order thanks to a headline he embedded in the first entry of the bitcoin blockchain.

But there’s another strange clue that has been largely overlooked. We also know Satoshi was thinking about poker.

In the original repository of the bitcoin code, in a file created on April 16, 2008, are scraps of what appear to be the building blocks for the user interface of a virtual poker game. Whatever it was that Satoshi was building, he didn’t finish it, leaving the cryptocurrency anthropologists of the future (me) to wonder: Are these the remnants of some unrelated project? Or, is it possible Satoshi was building his own decentralized poker application to run on top of bitcoin?

If Satoshi Nakamoto was a poker player when he published the bitcoin code, he would know the desperate state of the online industry. He would know, as all professional poker players know, that two years earlier, the industry had suffered the same narrative of boom and bust, and the same crises of institutional mistrust and regulatory failure, that the global financial system suffered over the same time-period.

Bitcoin’s “genesis block” included a headline from the front page of The Times, Jan 3, 2009: “Chancellor on brink of second bailout for banks.”

If Satoshi has been watching the reach of bitcoin spread, he also knows that poker was one of the first industries to benefit from his creation, serving as an alternative payment mechanism and a bypath around regulatory constraints. And, while it’s a shame Satoshi left so little evidence of the full nature of the gifts he had in mind for online poker players, there are others today who recognize that the poker industry’s trust and regulatory problems have not just gone away, and who are picking up where Satoshi left off.

In 2003, long before the word bitcoin was ever uttered, online poker was just entering its salad days. That was the year a player in Tennessee named Chris Moneymaker won the World Series of Poker, a month-long, live tournament that takes place annually in Las Vegas.

No one knew Moneymaker when he showed up because he had never played a live poker tournament, though he had been gambling his whole life. Moneymaker, who was broke and in debt at the time, won his spot in the World Series during a satellite tournament on PokerStars, one of the biggest online poker sites, which that year had decided to promote its brand by sending 37 of its top players to Las Vegas (which meant paying the $10,000 entry fee for each of them).

When the tournament ended and Moneymaker had his picture taken in front of a $2.5 million cash jackpot, it sent a signal to the gambling world that online poker was serious business. Two years before the now legendary win, the online industry was taking in annual revenues of $82.7 million. Two years after, it was worth $2.4 billion.

“It worked out well. And it worked out well for everybody,” says Dan Goldman, a veritable encyclopedia of poker history, who was also the chief marketing officer of PokerStars when Moneymaker won. It was Goldman who had pushed for the promotion scheme. When the boom started, he recalls, money rushed into the pockets of players and houses alike.

That stunning growth would likely have continued had it not been for an aggressive intervention by the U.S. government. In 2006, during last-minute deliberations over the contents of a bill pertaining to the safety of international shipping ports, senators Bill Frist and Jon Kyl, of Tennessee and Arizona respectively, pushed through a set of provisions called the Unlawful Internet Gambling Enforcement Act (UIGEA). The legislation, which was passed before most members of the house had a chance to read it, made it illegal for payment processors in the United States to provide their services to internet gambling sites.

A chill immediately spread across the industry. Goldman was living in the Isle of Man at the time and decided it was best to put off any trips back to the U.S., for fear that he would be arrested at the border. The language of the UIGEA didn’t explicitly outlaw online poker, but it at least threw it into a legal grey zone, enough so that Goldman decided not to take the risk.

PokerStars stayed open for business in the United States, ultimately compelling Goldman to quit rather than live in exile. Meanwhile, other companies decided to leave the market entirely and saw their fortunes dry up as a result. PartyPoker, the biggest online site at the time, was valued at $10.7 billion when it announced its initial public offering in 2005. But the company was in a bind. It had recently gone public and if it continued to serve U.S. customers, it ran the risk of being delisted from the London Stock Exchange. When PartyPoker abandoned ship, its market cap dropped below $2 billion within days, says Goldman.

Bitcoin code showing poker references (GitHub).

Those companies that stayed in the U.S. market found themselves unable to partner with reliable payment processors. Payouts to players had never been particularly smooth. From the get-go, the payments industry treated poker sites as a liability and were known to drop services without warning. But after the UIGEA passed, the situation got worse. Cashing out was slow and erratic at the more reputable sites, and downright sleazy at the smaller, less-established ones.

This is the state of affairs Satoshi would have witnessed had he been keeping tabs on the online poker world during the years leading up to the bitcoin white paper. “Online poker came about at a time when there were no good neutral payment processors online,” says Bobby Lee, the former CEO of BTCC, a now-defunct bitcoin exchange in China. Lee began playing online poker in the U.S. in 2003 and remembers all the hassles. “You had to go through these centralized processors that would always bend to the will of the government, giving poker sites a hard time.”

A peer-to-peer currency that was immune to government and corporate censorship, one like bitcoin for instance, could have turned everything around, had it only been ready. But in 2009, when bitcoin went live, it was little more than a curiosity. The idea was big. But the network running it was made up of a handful of highly technical computer aficionados who were all in touch with each other over email. It was not the bitcoin we know today.

“Bitcoin should have come 10 years earlier,” laments Lee.

As bitcoin matured, the relations between the poker industry and regulators only worsened. After the UIGEA, a few of the big online poker sites kept doing business in the United States, regarding the law to be toothless. But on April 15, 2011, a day that has gone down in the history books as Black Friday, the government bit back.

Sam Feinberg is the founder of a blockchain and cryptocurrency venture fund in Los Angeles called Cypher Capital. But in 2011, he was thriving as a professional poker player, enough so that he had walked away from a promising career at Morgan Stanley to pursue poker full time.

On Black Friday, Feinberg woke up ready to roll out his normal routine. Eat breakfast, study up a little, then log on to play. But instead he was inundated by messages from his poker friends. Everyone was completely freaking out telling him to get online immediately.

When Feinberg pulled up the website for Full Tilt poker, which by this time was the biggest in the world, up popped a message from the FBI. Then, he checked another. Then, another. The domains of all three of the major online poker sites operating in the U.S. had been seized and their operations halted, pending investigation.

In the scorched wasteland left behind after Black Friday, a website with a very strange name blinked into existence: SealsWithClubs.

“It probably took a good three days for it to settle in what had really happened,” Feinberg says. These websites were not just where he went to play poker. They were also where he stored all his winnings and together they held about 80 percent of Feinberg’s wealth. When the FBI pulled the plug, all that money disappeared into a regulatory limbo. It would be years before Feinberg would see it again. “I was one of the lucky ones,” he recalls, explaining that many of his friends lost absolutely everything.

As with many players in the U.S., Black Friday ended Feinberg’s online poker career. “I was fortunate enough to have some really great friends in the poker community, very strong players, and a lot of us just transitioned to live poker,” he says. Other players I talked to for this piece managed to keep playing online either by connecting to off-shore sites with a VPN or by taking the drastic measure of moving to countries where gambling is legal.

In 2012, a new option appeared. In the scorched wasteland left behind after Black Friday, a website with a very strange name blinked into existence: SealsWithClubs. It was a bare bones poker venue and had very few players at first. But it had one big thing going for it. The site conducted all deposits and cash-outs in a new digital currency called bitcoin. By this time, a supportive infrastructure had formed around bitcoin and it was relatively easy for players to buy coins at online exchanges like Mt. Gox and BitInstant (though both those service have since gone up in flames).

Ed Moncada, who was then playing poker professionally, remembers finding out about SealsWithClubs in 2013 on the Facebook page of Bryan Micon, another professional player. Micon, it turned out, worked on the project (today he claims he was only in charge of marketing). After messaging him, Moncada bought his first bitcoin from Micon for about $90 and put all of it into a SealsWithClubs account.

Though he wasn’t impressed with the level of play on the site, which he calls “atrocious,” as a resident of California, it was impressive enough that he could play. But the miracle moment came when Moncada went to cash out.

“At the time, this wasn’t real money to me. It was like, oh these are just tokens,” says Moncada. “Then I decided to cash them out and it took 48 hours and it hit my Chase account. And all of a sudden, that’s when the light bulb went off. I was like, what did I just touch?”

The ramifications for the poker industry were immediately clear to him. “I’d seen how the U.S. government has made it so difficult for money to move in and out of gambling sites…when that hit my Chase account in 48 hours…that was when I started reading about bitcoin.”

Moncada would learn that bitcoin was useful for avoiding all kinds of financial regulations. People in Argentina were using it get around capital controls. Other grey markets in porn and drugs were using it to process transactions. Wikileaks was using it to bring in donations, despite a corporate-led boycott on the organization. Bitcoin could provide these services because it was seemingly impossible to shut it down.

But, the sites that used it were still vulnerable, as soon became clear. In 2015, Micon was raided at his home in Las Vegas by five armed police officers who he claims pointed guns at him, pulled him out of his house in his underwear and served him a warrant from the Nevada Gaming Commission. The original SealsWithClubs website was seized and shut down following charges that Micon was operating it without the proper state licenses.

Micon, who was advised by his lawyer not to comment for this article, now lives in Antigua in the Caribbean and is still heavily involved in the cryptocurrency scene. Although the original SealsWithClubs site was proven trivial to shutter, the bitcoin network kept chugging along. It took less than a month after the police raid for a reboot of the poker site to appear online. Today there’s no shortage of bitcoin and poker sites, especially among those renegades that are still marketing services to U.S. customers. There are even a handful of sites where players can make deposits and redemptions in cryptocurrencies like Ether and Litecoin.

Cryptocurrencies have arguably reduced the level of payment friction that resulted from regulatory uncertainties in the U.S. But other equally serious problems have been left on the floor.

Cryptocurrencies have provided a lifeline to live poker players over the years as well. Moncada, who now runs a cryptocurrency portfolio tracking app called BlockFolio (along with seven other ex-pro poker players on his team), explains that a lot of poker pros, who typically travel to tournaments with large sums of cash, use cryptocurrencies when they are crossing national borders.

Cryptocurrencies have arguably reduced the level of payment friction that resulted from regulatory uncertainties in the U.S. But other equally serious problems have been left on the floor. The poker industry can only blame the government for so many of its woes and there is plenty of blame left over for the poker companies themselves.

While online poker houses were in a tug-of-war with the government and payment processors about how and whether they could move money on their platforms, two other scandals were unfolding that severely undermined trust between players and site operators. Dan Goldman, the former chief marketing officer of PokerStars, was around to witness both.

First, in May of 2008, came the revelation that a group of rogue employees at Absolute Poker and Ultimate Bet—two poker sites that were then jointly owned by Blanca Games—had been cheating other players on the site. Russ Hamilton, one of the masterminds of the scheme, was able to create a superuser account that made every hand on the table visible to him, giving him an edge that he used to steal millions of dollars in illegitimate winnings. The scandal played out in a slow burn that only culminated last year when Absolute Poker and Ultimate Bet finally began making reparations to their customers.

A second fissure opened between players and houses in 2011 during the fallout from Black Friday. Three poker websites were shuttered on that day: PokerStars, Ultimate Bet, and Full Tilt Poker. All of them were subjected to FBI investigations. But when law enforcement began digging into the accounting books of Full Tilt, the case cracked open like a rotten Easter egg.

Secrets spilled out for everyone to see. Chief among them was that Full Tilt didn’t have the money on hand to make good on user accounts. At the time it was seized, the company owed $390 million to its customers but only had $60 million in the bank.

“Full Tilt used all that money like an ATM,” says Goldman.

As he tells me this, we’re sitting at a Starbucks in the Rio Casino in Las Vegas on one of the closing days of the 2018 World Series of Poker. Goldman, a bald, bespectacled ball of energy, is in film narrator mode. He revels in all the stories, good and bad.

In Las Vegas, where he has lived on and off since 2006, it’s legal to play poker whether live or online. The UIGEA left it to the states to decide what qualifies as illegal gambling, and since the law was passed in 2006, Pennsylvania, New Jersey, and Delaware have all joined Nevada in giving poker a green light. Each is now taking on the process of vetting applications and distributing licenses to operate online gambling sites.

Phil Ivey, winner of ten World Series of Poker bracelets, and now a “strategic adviser” at Virtue Poker

As you might imagine, most of these licenses are going to well-established organizations. In fact, many professional poker players I talked to think the whole point of the UIGEA was to bulldoze the industry, kicking out the first wave of innovators so that the big boys could eventually make their entry—the Caesars, the Harrahs, the MGMs. These powerhouses missed their opportunity in during the initial rise of online poker, and they are the ones who stood to gain the most with a hard regulatory reset.

As big name players enter the industry, they are bringing with them a renewed legitimacy. They’re legal and they’re subject to annual audits. But Goldman, who has seen the underbelly of online poker, thinks players have not yet forgotten the betrayals of the early 2000s. And he’s betting his career on it.

Today, Goldman is the chief marketing officer for a startup called Virtue Poker, which is building a poker application on the Ethereum blockchain. It’s not up and running yet, but the idea is to remove as many points of trust as possible between poker players and the houses that host the games.

Ideally, if a poker application is running on a blockchain, it means that every player will be able to inspect the algorithmic brains behind the card play (the digital equivalent of checking a deck or weighing a die) providing assurances that shuffling and card dealing is fair. At the same time, the outcome of hands will be impossible to predict. And any money that is put down on a poker game will be transferred automatically, according to predefined rules, meaning that players will never have to trust a centralized house with a pot of money because each hand will pay out individually to the winners.

“Even if we were to go out of business while you were playing a hand, you would get your money,” says Goldman.

As with most ambitious blockchain projects, technical problems abound. For one thing, there is the general creakiness of the Ethereum platform. Even the developers of Ethereum will tell you that the technology is not ready, that it’s too slow and insecure for mission critical applications.

The biggest mystery is not whether a peer-to-peer poker application can be built, but whether anyone will use it. And really this is the same question that is playing out with bitcoin today.

“This is the reason that we aren’t already shipping,” says Goldman. “We have been struggling with this problem and kind of waiting for the technology to catch up with us.”

Speed of transactions is also likely to be an issue. For any poker application to be viable, it has to appeal to recreational players—the financial lifeblood of the entire economy, which professional players lovingly refer to as “fish”—which means it needs to move fast and smooth. “Recreational players are looking for action,” says Moncada of BlockFolio. “To players who are comfortable with losing, an uptick in security isn’t going to be a compelling reason to patron the site.”

Then there is the challenge of decentralizing the game itself. In order to neutralize inside cheaters, like Russ Hamilton from Absolute Poker, Virtue Poker will chop up the task of shuffling and encrypting cards and parcel it out to all the players in the game. If done correctly, each player will only have information about his individual cards and there will be no place in the room where you can see everything that is going on all at once. It’s a problem that dates back to the late-1970s and a cryptographic thought experiment called Mental Poker. Except in this case it’s not an experiment.

Is it crazy to think someone will solve these problems after all these years? Perhaps. Then again, peer-to-peer cash was an unattainable dream until Satoshi came along ten years ago.

The biggest mystery is not whether a peer-to-peer poker application can be built, but whether anyone will use it. And really this is the same question that is playing out with bitcoin today. Legacy finance and online poker are two systems that are begging to be replaced. Their flaws are pervasive and fully on display. But their flaws have also been absorbed into the habits of the humans that use them. So, which will win out? The antiquated machine that we all know how to use, whose blemishes are well known to us like the worn-out phrases of a family member? Or the newcomer arriving from a foreign land, who promises change, but whose defects we don’t yet recognize?

Let’s deal the cards and find out.