Blockchain and Online Casinos: Technological Symbiosis

Photo by John Schnobrich on Unsplash

Blockchain casinos are set to be the latest iteration of the online gambling and sports betting industry. Gambling is one of the oldest recreational activities in the history of mankind. Its most ancient records date all the way back to the Paleolithic period. The earliest six-sided dice, the one we know today, has been traced back to Mesopotamia some 5,000 years ago! It’s how many Roman soldiers liked to pass their time, wagering their hard-earned coins against each other for fun, and for the chance to end the day with a heavier coin purse.

Shift back to modern day and we see that gambling has evolved in uncountable ways. Multiple new game forms have entered the fray and a whole gigantic industry has been built around iconic games like the roulette, poker, sports betting and many others. The Internet helped escalate this to an entire new level with companies being able to offer players the chance to gamble on anything they like from the comfort of their own home. The ubiquitous use of mobile devices further contributed to this growth.

It is a well documented fact that our DNA has been almost hard-coded to enjoy the thrill of putting our stake on an event whose outcome we don’t know. The variations in levels of neurochemicals such as dopamine are the main drive behind the addictive aspect of gambling. It comes as no surprise that the entire online gambling market was evaluated at $44 billion in 2016 and is estimated to reach $80 billion by 2022.

The global casino market gross gaming yield helps visualize this trend:

Retrieved from Statista

Keep in mind that none of these numbers take into account all the unthinkable sums of money that are wagered on illegal gambling worldwide. It’s understandably hard to pin down a solid number but estimates vary from $80 to $380 billion dollars.

The industry has definitely come a long way and cemented itself into the world of business. However the modern industry practices are far from perfect. It has major downfalls that affect the gambling houses, regulators and of course most importantly, the players. From a technological viewpoint the internet is a marvel and it did a wonderful job proliferating industries like this to people all around the globe. However as things stand today it lacks the tools required to overcome the hurdles that plague online casinos and sports books. What are these hurdles?

Lack of transparency and fairness

By Masaaki Komori on Unsplash

The notable lack of transparency and fairness is something that has afflicted gambling and betting enthusiasts for a long time. Players have no choice other than to trust the online platforms that they are not being cheated. This isn’t always the case, and there is hardly anyway to check if the casino software algorithms are legit or not. If a player is particularly skilled in what he’s doing than he’s even more prone to see his or her winnings cut short by the house.

Sports betting platforms are infamous for having everything built around luring the players into losing money, maximizing potential profits in favor of the house.

Brick and mortar casinos have notoriously received bad press for cases when members of the security team abruptly approach winning players and put an end to their streak for no particular reason and with no proof of foul play.

In online casinos this can be done in a much more silent and subtle way and players won’t even notice. Although most players don’t experience any issues with online gambling houses, there have been numerous cases of complaints regarding payments and bonuses that weren’t properly carried out. Askgamblers alone claims to have helped over 7,000 players retrieve over $16M in what would be otherwise lost funds.

Regulation issues

High-end regulators often struggle to keep up with the pace of changes to the online gambling industry. And thanks to the bad press around it, the increasing regulatory pressure is not taken slightly by them. Furthermore if the regulations in one country or jurisdiction do not please the company behind online casinos and sportsbooks, it is not unlikely that it will pack up its things and “move” to an offshore regulatory heaven. Securing licenses in places like Curaçao is an industry standard to keep regulatory issues away while also avoiding taxes.

This invites users to play in such platforms in hopes of getting better terms, like odds in sports betting events. Often players do this illegally, sometimes without knowledge of the illegality of their actions. The result is not only a tax problem for the country in which those players reside, but also a problem for the players themselves. In a case of rightful complaint they have no legal way to defend themselves.

High Entry Barrier

To open up account on online platforms players are forced to give up their sensitive personal data like name, address and credit card number. It is far from anonymous. Deposits and payouts are not instant, and again, lack of transparency, fairness and efficient regulations discourages players from joining. This creates friction between online gambling houses and potential new players, sapping the industry of the power to reach its full potential.

Blockchain to the rescue?

Scott Rodgerson on Unsplash

In short, blockchain is the revolutionary behind famous cryptocurrencies like Bitcoin and Ethereum. It is like a decentralized ledger database that operates transparently in a distributed network of computers. It is also capable of running programs that execute under, and only under certain conditions or rules a.k.a smart contracts. It’s quite more complex than this, but think of Bitcoin and Ethereum as a fancy programmable form of money, and of blockchain as the database of all the transactions done with these currencies.

Thanks to this, smart contracts transactions can happen automatically and almost instantaneously, without the need of going through a third party or central server database. The conditions and rules that apply to these contracts are also enforced automatically by the code that underpins them.

Whether people like cryptocurrencies or not, the blockchain has come to stay and help improve our lives in ways that we don’t even know yet. It’s compared to the birth of the Internet in the early nineties.

What solutions does this bring?

If you’ve been in this space for long enough you know how blockchain and its associated cryptocurrencies are changing many of the industries we know today, and even opening doors for new ones and new business models. The relationship between this technology and online gambling however, is one that instantly and vigorously stands out. Remember what the Internet did to mail and messaging back in the day…?

So let’s start with the lack of transparency and fairness we mentioned earlier. Blockchain can improve this in more than one way. It can setup the possibility of players to play directly against each other, in a true peer-to-peer system. Remember, the blockchain is decentralized, there is no need to go through the casino servers in order to wager against a player or a group of players. All payouts can then be carried out by the smart contract protocols we mentioned. It gives the house absolutely no chance to tamper with these payouts, including bonuses and promotions.

This peer-to-peer gambling creates the chance to bring back the good old days of mutual betting (technically called Pari-mutuel betting), which the online industry has failed to replicate so far thanks to the lack of technology that would allow it. This is an example of online gambling houses being able to offer players new kinds of services. This concept is already used in some blockchain sportsbooks like OneHash.

Provably fair

This is understandably one of the big guns that blockchain casinos have to show for themselves. It means that the casinos can prove that the games they offer are fair and abide by the rules of the game itself. This is only truly possible through blockchain technology. Since the birth of this concept, the demand for provably fair games has been steadily growing. Gambling houses can offer the players the chance to see the open-source code of the games, or offer other tools for the players to check that they are not being cheated.

Google searches for “Provably fair” over the last 10 years. Viewed on Google Trends

This is also beneficial for the casinos because it removes the need for another third party to audit their software. Should the need for a third party verification arise though, the process would be remarkably simpler, which leads us to our next topic.

Regulation benefits

Regulating blockchain technologies and cryptocurrencies is still a hotly debated topic. However many fundamentals aspects this technology may in fact come to the rescue of regulators, as well as applicants or licensees. It provides a safe environment for storing and tracking information about transactions, while allowing reliable third-party verification. One could almost be led to think that in the future, regulators would be tempted to require online gambling houses to operate with this technology in order to make their lives easier.

Take money laundering as an example. The possibility to audit the blockchain in order to review transactions across different operators, and then compare accounts that might be using them to place bets in both sides of events in order to launder dirty money would be a game changer.

When it comes to pre-licensing investigations and suitability checks, blockchain-based technology can also help relief concerns regarding standardization and data protection.

Lower entry barrier

This is very beneficial for online casinos, as we already see happening today. Whether it is just a regular online casino that accepts Bitcoin (or other cryptos) like 1xBit, or entirely blockchain-based casinos, the process of getting started is much simpler and faster. No personal data is required, just an e-mail, a wallet address and a password. The deposit is then quickly processed, sometimes even instantly depending on the cryptocurrency used. In other cases, all you need is the MetaMask browser extension.

Being able to bet and gamble without the need of disclosing sensitive data stimulates business. Players can get started within minutes, sometimes even testing out the games for free with whatever amount they can get from the platform’s faucet. Privacy concerned customers who don’t want any gambling bills showing up in credit card statements won’t need to look any further.

Security

Just this year news came out of a casino that had its high-rolling customer database hacked through a thermometer in the lobby fish tank (pretty amazing!). With hackers getting more and more sophisticated, cyber security startups are making a killing as more companies want to be sure that their data is fully secure. Because the blockchain is decentralized, hackers have no central server to attack in order to steal or corrupt data. Bitcoin’s blockchain has been running with 100% uptime and no successful hacks ever since its inception in 2009.

Disruption Potential

There is still no way to tell if blockchain technologies will be the future industry norm for online gambling. However the many intricacies that assemble the blockchain technology will bring new building blocks to this industry. Players, regulators and the gambling houses themselves have multiple reasons to welcome it.

It is estimated that the online gambling market will reach $80 billion by 2022. This is the number that blockchain casinos startups will be hoping to tap int. However keep in ming that the global casino market value is much higher at $500 billion. Some casinos have already started to accept cryptocurrency payments, but this has nothing to do with being blockchain-based. In these cases the offer is restricted to deposits and payouts being conducted with Bitcoin or its siblings, which offers some advantages.

In order to reap all the benefits we mention in this article, a casino would need to run entirely on a blockchain’s decentralized network. Many ICO’s of this kind resort to creating their own token within Ethereum’s chain. Ethereum still operates with some limitations on number of transactions per second, but the resources being poured into improving this are tremendous.

FunFair

FunFair’s idea is to create games that can only be played using their FUN token (ERC20). What’s impressive about FunFair is how they want to tackle regulation in order to make their product work. They are in talks with many regulators from countries like Malta, which has proclaimed its open policy toward blockchain businesses. They have even applied for a license in the UK. Other operators would then be able to incorporate their games in their own platforms using FunFair’s license. Like a form of license white labeling.

Edgeless

Edgeless is also an ERC20 token. The difference here is that Edgeless have a fully functional platform that offers players the ability to play dice and blackjack using their EDG token. They have laid out plans to futurely include poker and sports betting.

TrueFlip

TrueFlip offers their players lottery games that can be played with many cryptocurrencies. Once again you can expect their lottery fairness to be fully auditable, even by yourself. Their ERC20 token TFL offers extra rewards to its holders.

Lottery draws happen all the time and in order to participate users have to buy a ticket. They currently offer 4 original games.

Conclusion

Symbiosis: a mutually beneficial relationship between different people or groups

Many new projects are looking to take advantage of blockchain technology to implement it on the online gambling and sports betting business. The advantages are plenty and clear to see. With good implementation the impact on the industry would be huge.

Financially speaking, if we judge by market cap only, the biggest of the three we mentioned here is FunFair. Their market cap at the time of writing is $100M. Edgeless sits at $27M. The two combined ($127M) are only a tiny minuscule fraction of the market value of the whole industry. If by a conservative estimate the whole blockchain casino industry can grab 10% of the online gambling market, they would sit at a market value of $8 billion.

From a qualitative perspective the cards have all been dealt for blockchain casinos and sports betting platform to lead an inevitable industry improvement. Things are just getting started.

Originally published at https://casinosblockchain.io on July 13, 2018.