How Online Gambling Works

There are roughly five million online gamblers worldwide. See more casino pictures.
2008 HowStuffWorks

The first online gambling Web site opened 10 years ago, paving the way for the hundreds that exist now on the Internet. A review by the Australian government in 2001 estimated the number of online gamblers worldwide at just fewer than five million, with more than $11 billion spent in online casinos[ref].

But does online gambling differ from casino gambling, and what's the appeal of playing at home by yourself instead of in a casino? In this article, we'll see what it's like to gamble online, find out how you pay to play, and discuss the legality of gambling via the Internet.

Online Casinos

Online slot machine
Online slot machine
Photo courtesy Golden Palace

Online gambling differs from in-person casino gambling in a few obvious ways. There is little to no interaction between the players and the dealer. In fact, there is no dealer -- all the games are operated by computer programs. People who have experienced both kinds of gaming say online games like poker or blackjack usually go faster than their real-life counterparts because there's no conversation between players to slow things down.

Online casinos can offer dozens of different games. One site has slot machine games based on licensed comic book characters, while others have computerized versions of more traditional casino games. Most games are dressed up with fancy graphics and sound effects, much like real slot machines. Players can check the rules of each game and view a chart that shows payouts with the click of a button.

A brief survey of one top casino site shows more than 60 games, including blackjack, baccarat, craps, various versions of roulette, at least two dozen slot games, keno, and several video poker games. The specific rules of the games reflect their real-life counterparts. In video poker or blackjack, players make decisions about the cards that can affect the outcome of the game.

There are also sites that offer online sports betting, which is another form of gambling. These sites allow users to place bets on athletic competitions of every kind, as well as other events like political races or the outcomes of reality TV shows. The sites offer their own odds, which in some cases are better than the odds offered by the traditional Las Vegas bookmakers (due, in part, to the lower overhead required to run an online betting site). Many online casinos offer "instant play" versions of their games, which usually run within a Web browser using Java. Players can also download the casino's software and play the games in a separate application. Some sites only offer a download-to-play option. Players can try out the games for free using a play account filled with a few thousand dollars. Of course, these games don't pay out any real money.

There is a difference in the odds between the "play for fun" version and the real money versions of online games. Although it can't be confirmed, trying out the "play for fun" versions at several online casinos often results in hefty imaginary bank accounts. If the real money games also paid off that big, the casinos would quickly go bankrupt. Success in the "play for fun" games doesn't equal sucess when real money is on the line.

Next, we'll find out if gambling online is legal.

The Legality of Online Gambling

Online poker
Online poker
Photo courtesy Golden Palace

Gambling online falls into a legal grey area. While it is technically illegal in most of the United States, the prosecution and conviction of individual players is very difficult because they're gambling from home. It is also illegal for a gambling Web site to operate within the United States, which is why the offices and servers of most online casinos are located in other countries. There are about 70 countries that allow online gambling sites to set up shop, including Australia, New Zealand, South Korea, Denmark, Finland, France, Germany, and some provinces of Canada.

When you register for an online casino, you are required to agree to the site's terms and conditions. Finding out whether or not gambling is legal where you live is your responsibility. You must also abide by any age limits set on gambling in your locality. If online gambling is illegal in your area, and authorities discover that you've won money, your winnings could be forfeit.

Issues of jurisdiction and sovereignty make gambling laws even murkier. The U.S. Wire Wager Act makes it illegal to use an electronic wire method (which courts generally agree includes the Internet) to transmit bets to places where gambling is not allowed. So a casino set up in the Netherlands is breaking U.S. law if a player in the U.S. plays their games. However, the U.S. doesn't really have the legal authority to prosecute someone in another country. Since players are almost never prosecuted either, we're left with an illegal act that generally goes unpunished. Of course, if an off-shore casino decides to cheat a player out of winnings, and online gambling is illegal in that player's locality, the player will have a difficult time suing the casino.

This brings us to the topic of regulation. Some of the countries that allow online casinos to operate have strict guidelines and regulations that make sure the casinos operate legitimately. They make sure the casino pays out when players win, and they ensure that published odds match the actual odds programmed into each game. Australian and Finnish online casinos are known for adhering to national standards. Some countries are not so strict about regulation and may be more interested in taxing the casinos than making sure that they play fair. There are many online casinos to choose from, and it pays to do some research into the regulations they must follow when you select one.

In the next section, we'll find out how players make their money available for online gambling.

Paying to Play

Online blackjack
Online blackjack
Photo courtesy Golden Palace

The questionable legality of online gambling makes things tricky for players in the United States and other locations that don't allow gambling. You can use a credit card to fill your account at an online casino, but most American credit card companies will not allow the transaction if they recognize that it is intended for a gambling site. This leaves players with a few options.

It is possible to open a bank account at an off-shore bank, which can then be supplied with funds for the gambling site. But this is not a quick process, and the banks will often take a percentage of the amount deposited in return for their services.

Some Internet transaction services can be used to transfer funds into an online casino account. These services act like Paypal, but unlike Paypal, they can be used for gambling transactions. The easiest method is to send an international money order to the casino site, but this is a slow process and not all online casinos offer this option.

Not all of these off-shore banks and fund transfer services are safe to use. How can you tell the difference? Research the bank or service to find out how long the company has been around -- the more established, the better. It's a good sign if you can speak to a real person when you call the company's customer service line. You can also search the Internet for complaints about scams or poor service. Once you've chosen a service, start off with a small transaction to see if everything goes smoothly. When you're confident that they are legitimate, then you can move on to larger transactions. Regardless of the service, it's still a good idea to move the funds to your home accounts as soon as possible.

For more information about online gambling and related topics, check out the links on the next page.

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More Great Links


  • "Betting Online." Gambling Magazine.
  • "Brief History of Gambling Online." Law Offices of Constantine William Kryos, PC.
  • Golden Palace Casino
  • Interactive Gambling Act Review. Lasseters Corporation Ltd.
  • Oliver, Justice James. "United States v. Jay Cohen."
  • Peak Entertainment End Users License Agreement. March 2004.
  • Sauer, Raymond D. "Internet Gambling Prohibition: Implications from the Economic History of Gambling Regulation." The Cato Policy Forum on Internet Gambling, October 23, 2003.
  • Thomson v. Handa-Lopez, Inc. Loundy's E-Law Web Page.March 25, 1998.